Impact of AI in Labor Market of Pakistan and Developing Countries

Abstract

In the 21^st century, Artificial Intelligence (AI) has rapidly evolved as a transformative technology reshaping labor markets globally, with developing economies like Pakistan experiencing both promising opportunities and complex challenges. This paper examines the potential of AI-driven innovation to stimulate economic growth, ensure job creation and enhance productivity in developing countries, while also addressing concerns about job displacement, skill shortages and inequitable access to technology. Using human capital theory (Becker, 1964) and the technology acceptance model (Davis, 1989) as foundational frameworks, this study considers how AI integration in sectors such as manufacturing, agriculture and services could alter workforce dynamics. Drawing on structural change theory (Lewis, 1954), which suggests that technology can transform economies from agrarian to industrial, this research explores how AI could play a pivotal role in labor reallocation and sectoral shifts within developing economies.

While analyzing existed literature, when this study assesses; Acemoglu and Restrepo (2018) have shown that automation could displace routine jobs, others, like Bessen (2019), argue that new technology often creates complementary roles requiring human skills. In Pakistan and similar economies, however, the widespread adoption of AI is limited by barriers like inadequate digital infrastructure, education gaps and uneven access to resources (Ahmed & Ali, 2021; Malik, 2023). This comparative analysis, focusing on sectors most affected by AI, reveals that while opportunities for growth and efficiency exist, targeted policies must be implemented to address skill gaps and support workers in transitioning to AI-augmented roles. Hence, this paper proposes policy recommendations aimed at facilitating workforce adaptation to AI-driven economies, including investment in digital literacy, promotion of public-private partnerships and support for AI-related research.