“Our results show that the basic expectation of most economists, a continuation of the status quo, is actually the least likely outcome,” Davis says. “We project that AI will have an even greater impact on productivity than the personal computer. And we project that a scenario where AI transforms the economy is more likely than one where AI is frustrated and dominates the fiscal deficit. The latter is likely to lead to lower economic growth, higher inflation and higher rates.”
Implications for business leaders and activists
However, Davis doesn’t sugarcoat it. While AI promises economic growth and productivity, it will be disruptive, especially for business leaders and workers in knowledge sectors. “AI is likely to be the most disruptive technology to change the way we work since the personal computer,” Davis says. “Those of a certain age may remember how the widespread availability of PCs reshaped many jobs. It didn’t eliminate jobs so much as it allowed people to focus on higher value activities.”
The team’s framework allowed them to examine the risks of AI automation to more than 800 different occupations. Research indicates that while the potential for job losses exists in more than 20% of occupations as a result of AI-driven automation, the vast majority of jobs—specifically four out of five investments—will be created through a mix of innovation and automation. Workers’ time will increasingly be transformed into high-value and uniquely human tasks.
This introduces the idea that an AI can act as a copilot for various roles, doing repetitive tasks and generally helping with responsibilities. Davis argues that traditional economic models often underestimate the potential of AI because they fail to examine the deep structural effects of technological change. “Most approaches to thinking about future growth, like GDP, don’t adequately account for AI,” he explained. “They fail to connect short-term variations in productivity with three dimensions of technological change: automation, expansion, and the emergence of new industries.” Automation increases worker productivity by taking over routine tasks. Augmentation allows technology to act as a copilot, augmenting human skills. And the creation of new industries creates new sources of growth.
Implications for the economy
Ironically, Davis’ research suggests that one reason for relatively low productivity growth in recent years may be a lack of automation. Despite a decade of rapid innovation in digital and automation technologies, productivity growth has lagged since the 2008 financial crisis, hitting a 50-year low. To support this theory, it seems that the impact of AI will be modest. But Davis believes that automation has been adopted in the wrong places. “What surprised me the most was how little automation there has been in services like finance, healthcare and education,” he says. “Outside of manufacturing, automation has been very limited. It’s been developing for at least two decades.” The service sector accounts for 60% of US GDP and over 80% of the workforce and has the lowest productivity growth. That’s where the biggest difference will make, Davis argues.
The biggest challenge facing the economy is demographics, as the baby boomer generation retires, immigration slows, and the birth rate declines. These demographic headwinds reinforce the need for technological acceleration. “There are concerns about AI being dystopian and causing massive job losses, but we will soon have fewer workers, not more,” Davis says. “Economies across the U.S., Japan, China, and Europe will need to engage in automation as their populations age.”
Consider, for example, nursing, a profession in which compassion and human presence are irreplaceable. AI has already shown potential to enhance automation in this field, streamlining data entry into electronic health records and helping nurses reclaim time for patient care. Davis estimates that these tools could increase nursing productivity by 20% by 2035, a significant benefit as the health care system adapts to an aging population and increased demand. “In our likely scenario, AI will offset demographic pressures. Within five to seven years, AI’s ability to automate parts of work will be equivalent to adding 16 million to 17 million workers to the U.S. labor force,” Davis says. “Essentially it’s like if everyone turned 65 in the next five years decided not to retire.” They project that more than 60 percent of professions, including nurses, family physicians, high school teachers, pharmacists, human resource managers, and insurance sales agents, will benefit from AI as a leverage tool.
Implications for all investors
As AI technology expands, the strongest actors in the stock market will not be its producers, but its consumers. “It makes sense, because general-purpose technologies increase productivity, efficiency and profitability across sectors,” Davis says. This adoption of AI is creating flexibility in investment options, which means it may make sense to diversify beyond technology stocks as it reflects. Vanguard’s economic and market outlook for 2026. “As it happens, the benefits extend beyond places like Silicon Valley or Boston and into industries that apply the technology in transformative ways.” And history shows that early adopters of new technologies reap the greatest productivity rewards. “We’re clearly in a phase of learning experiences,” Davis says. “Companies that encourage and reward experimentation will get the most value from AI.”