From the April payroll report released on May 8, we realize that not all industries are equally impacted by AI. Diagnostic imaging centers, an area where AI is thought to replace humans, have increased demand for workers, whereas bookkeeping demand has declined in recent years. William Jevons, a British economist born in the same town as the Beatles but less famous, explained that increased efficiencies may spark additional demand and that this concept may help us understand the potential AI impacts on the job market.
The Jevons paradox suggests that when technology makes the use of a resource more efficient, demand for that resource can rise rather than fall because lower costs unlock new uses and broader adoption. Applied to AI and the labor market, this means AI may reduce the time and cost required to perform many tasks, but that does not necessarily imply a proportional decline in labor demand. Instead, by making tasks, software development, customer service, research, and operations more productive, AI can expand the volume of work organizations are able to undertake and create demand for new roles, new products, and new business models. Or in the case of diagnostic imaging centers, as mentioned above, the lower cost of the service is a catalyst for a spike in demand, and so a firm hires more workers to meet the shift in demand.
The implication is that AI’s labor-market impact will likely be less about the wholesale elimination of jobs and more about the reallocation of tasks across workers, firms, and industries. Some routine or automatable tasks will be displaced, and certain occupations will face pressure. But as AI lowers the cost of service, demand may increase for workers who can use AI effectively, improve workflows, and apply human judgment. In this sense, AI could follow a Jevons-like pattern: greater efficiency may increase the overall demand for AI-enabled work, even as it changes the composition of employment and raises the premium on adaptability, digital fluency, and higher-value human skills. And AI may end up being the antidote to a shrinking labor force.
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Policymakers and investors increasingly see AI as a way to offset the economic drag from aging populations, especially in developed economies where the workforce is starting to shrink. As more people move into retirement and a larger share of the population is over 70, fewer workers are available to support overall growth. AI is viewed as a way to fill that gap by boosting how much each worker can produce rather than relying on a larger workforce. It can automate repetitive tasks, enhance decision-making, and allow smaller teams to generate the same or greater output. That dynamic matters for governments as well, since slower workforce growth puts pressure on tax revenue while spending on healthcare and pensions is rising.
From an investor perspective, AI is also tied to long-term profitability in a world where labor is becoming scarcer and more expensive. Companies that adopt these technologies can reduce their dependence on hiring while improving efficiency and output, which helps protect margins. This encourages more spending on technology and capital investment as businesses look to substitute machines for labor. Over time, many investors believe AI could drive a sustained increase in productivity similar to earlier technological shifts. In that sense, it is being treated as a structural solution to demographic challenges, one that could extend the growth trajectory of aging economies while supporting returns even as population dynamics become less favorable.
AI is likely to reshape rather than simply eliminate jobs, with efficiency gains potentially increasing demand for AI-enabled work while raising the premium on adaptability and human judgment.
For more ways AI will shape the outlook for economic growth, inflation, and the job market, check out this month’s Economic Navigator.
Jeffrey Roach guides the overall view of the economy for LPL Financial Research and has over 20 years of experience in investing and economics.
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