Looking in the rear-view mirror: Evidence from artificial intelligence investment, labour market conditions and firm growth

Abstract

This paper presents evidence of the impact of AI investment on firm growth and how the relationship is sensitive to labour market conditions. Using the generalized method of moments (GMM) estimation on 1950 unique American firms over 1996–2016, we show that a 10% increase in AI investment leads to an increase in firm growth by 0.04%. However, this result is highly sensitive to labour market conditions, as labour productivity can positively impact firm growth, but labour cost and labour share negatively influence firm growth. These results offer original insights into an essential channel via which investment in AI may mediate firm growth.