Academic Seminar Series
Artificial Intelligence, Firm Growth, and Productivity: New Evidence From 2018–2024
Tania Babina
University of Maryland
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Abstract
We revisit the findings in Babina et al. (2024) by extending the measures of firm-level investments in artificial intelligence (AI) from 2010–2018 through 2024. These AI measures are intended to proxy for firms’ internal AI development efforts through AI-skilled hiring observed in employee resumes. We update our AI measurement methodology to capture recent advances in AI technologies. We find that firms continue to grow their investments in AI, although the rate of growth has slowed down in the past few years. By 2024, more than 2% of employees of US public firms have been working on internal AI implementation and integration. While machine learning is still the most common AI-skilled group, we find a sharp rise in the number of employees working on generative or agentic AI implementation since 2020. As in the earlier period, firms that invest in AI continue to grow sales. In contrast to the earlier period where we find no changes in productivity, we find that the productivity of AI-investing firms has increased from 2018 through 2024. Consistent with this increase in productivity, we find that employment grew less than sales during this recent period. AI-investing firms increase hiring of more senior and highly educated workers, suggesting that AI might be favoring more the increased productivity of high-skilled workers. AI investing firms also increase operating costs but do not increase capital expenditures, consistent with intangible reorganization rather than physical-capital deepening. Overall, our results support the productivity J-curve hypothesis, where productivity gains from AI take a long time to materialize.
Professor Tania Babina is an Associate Professor at the Robert H. Smith School of Business at the University of Maryland. She is also an affiliate of the National Bureau of Economic Research (NBER) and a Research Fellow at the Centre for Economic Policy Research (CEPR). Prior to joining Maryland, she was a professor in Finance at the Columbia Business School. In her research, she studies the drivers of innovation, entrepreneurship and technological change and their economic impact on firms, workers and broader society. More recently, she has done research on measuring the economic impact of recent technological developments, particularly artificial intelligence (AI) technologies. Her work has been published in top academic finance and economics journals, received numerous awards, and has been cited in the Financial Times, Washington Post, and The New York Times, among others. She received a Ph.D. in Finance from the Kenan-Flagler Business School at the University of North Carolina, a Master’s of Finance at the University of Alabama, and a Bachelor’s in Economics from the National Technical University KhPI, Ukraine.
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