The Impact of Large Language Models on the Labor Market

As large language models (LLMs) continue to improve in capabilities, there is a growing interest in their potential impact on the labor market. A recent study  analyzed the task-level capabilities of LLMs and found that they have the potential to significantly affect a diverse range of occupations within the economy, demonstrating a key attribute of general-purpose technologies. This paper presents evidence to support the view that LLMs on their own can have a pervasive impact across the economy and that complementary innovations enabled by LLMs can have widespread application to economic activity. In this post, we will explore the key findings of the study, discuss its implications for businesses and workers, and examine the potential opportunities and challenges that LLMs present in the workplace.

Intro

Comparative Performance of GPT-3 and GPT-4 on Various Official Exams

The Rise of Large Language Models

Large Language Models are among the most advanced forms of artificial intelligence, capable of generating human-like text, completing tasks, and even engaging in conversation. The emergence of LLMs such as GPT-3 and GPT-4 has sparked excitement and speculation about their potential applications in various industries, including business, education, and entertainment.

However, with this technological progress come concerns about the impact on the labor market. Will LLMs replace human workers in certain tasks and jobs, or will they augment their skills and productivity? This is the central question that this study seeks to answer.

LLMs operate by processing large amounts of data to learn patterns and relationships, enabling them to generate text or perform tasks with impressive accuracy. They are "generative" in that they can create text or perform tasks that are not explicitly programmed, making them highly versatile and capable of adapting to different situations.

One of the defining characteristics of LLMs is their potential to become a "general-purpose technology" (GPT), similar to the internet or electricity. GPTs have a pervasive impact on the economy and can spawn complementary innovations that enable their widespread use. This study explores whether LLMs meet the criteria to be considered a GPT and the potential implications for the labor market.

Large Language Models as a General-Purpose Technology

The emergence of LLMs like OpenAI's GPTs has sparked a growing debate about their potential impact on the labor market. Some experts argue that these models, which are capable of generating human-like text and performing a wide range of tasks, could become a new form of general-purpose technology with far-reaching implications for the economy as a whole.

A GPT is defined as a technology that is characterized by its pervasiveness, improvement over time, and the development of significant co-invention and spillovers. It has the potential to affect a diverse range of occupations within the economy and can spawn complementary innovations. Evidence suggests that LLMs meet the first criteria of improvement over time, as they continue to expand in their capabilities and usefulness across a growing number of tasks and industries.

The potential impact of LLMs on the labor market is significant, as they could affect a large number of jobs and industries. One study analyzed the exposure of different occupations to LLMs and found that they have the potential to impact a wide range of tasks, including routine cognitive and manual tasks. The study also found that software innovations built on top of LLMs could have an even broader impact on the labor market.

The adoption of LLMs is likely to vary across different economic sectors, with factors such as data availability, regulatory environment, and distribution of power and interests playing a role. In some cases, adoption may be driven by progress on ethical and safety risks associated with LLMs, such as bias and fabrication of facts. Additionally, the level of confidence humans place in LLMs and their ability to adapt their habits to use them effectively will be critical in determining their utility in the labor market.

The Economic Impact of Complementary Software Built on LLMs

The findings of the study suggest that GPTs have the potential to significantly affect a diverse range of occupations within the economy. The task evaluation approach with both human and GPT-4 annotations reveals that GPTs meet the criteria of a general-purpose technology. GPTs improve over time and have a pervasive influence on the economy, leading to the development of significant co-invention and spillovers.

One interesting aspect of the study is the potential impact of complementary software built on top of GPTs. The difference in means across all tasks between direct exposure from GPTs on their own and the exposure potential attributable to tools and software built on top of them suggests that the average impact of GPT-powered software on task-exposure may be more than twice as large as the mean exposure from GPTs on their own. This indicates that the software innovations they spawn could drive a much broader impact.

Widespread adoption of GPTs and the software built on top of them requires addressing existing bottlenecks. One of the key determinants of their utility is the level of confidence humans place in them and how humans adapt their habits. For example, in the legal profession, the usefulness of GPTs depends on whether legal professionals can trust model outputs without verifying original documents or conducting independent research. The cost and flexibility of the technology, worker and firm preferences, and incentives also significantly influence the adoption of tools built on top of GPTs.

It is possible that time savings and seamless application will hold greater importance than quality improvement for the majority of tasks. However, the initial focus may be on augmentation, followed by automation. This might take shape through an augmentation phase where jobs first become more precarious before transitioning to full automation. Consequently, a comprehensive understanding of the adoption and use of GPTs by workers and firms requires a more in-depth exploration of these intricacies.

Adoption and Challenges of Large Language Models in the Workplace

The adoption of LLMs will vary across different economic sectors due to factors such as data availability, regulatory environment, and the distribution of power and interests. For example, in fields such as healthcare and finance, where the consequences of errors can be severe, the adoption of LLMs may be slower and more cautious than in other sectors. Additionally, ethical and safety risks associated with LLMs, such as bias, fabrication of facts, and misalignment, can also hinder adoption.

Despite these challenges, early qualitative evidence suggests that adoption and use of LLMs is becoming increasingly widespread. The power of relatively simple user interface improvements on top of LLMs is evident in the rollout of ChatGPT, where usage skyrocketed after the release of the ChatGPT interface. Following this release, a number of commercial surveys indicate that firm and worker adoption of LLMs has increased over the past several months.

It is likely that adoption of LLMs will take shape in an augmentation phase where jobs first become more precarious before transitioning to full automation. It is important to note that time savings and seamless application may hold greater importance than quality improvement for the majority of tasks. A comprehensive understanding of the adoption and use of LLMs by workers and firms requires a more in-depth exploration of these intricacies, but the potential impact of LLMs on the labor market is significant and should be closely monitored.

Conclusion

The potential impact of large language models on the labor market is significant, and businesses need to be aware of this trend. These models have the potential to affect a wide range of occupations within the economy, demonstrating a key attribute of general-purpose technologies. Additionally, the software innovations enabled by these models could have a much broader impact than the models themselves.

Businesses should consider the adoption and use of large language models in their operations and evaluate how they can be used to augment and automate tasks. However, it is important to address existing bottlenecks such as ethical and safety risks  associated with these models, including bias and misalignment. With careful consideration and planning, businesses can take advantage of the potential benefits of large language models while mitigating their risks.

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