Reindustrialization Through AI and Automation? Productivity and Sectoral Employment in Advanced Economies

This article examines the possible impact of AI, via associated productivity improvements, on sectoral employment dynamics across 36 sectors within 30 advanced economies over the period 1996–2021. Using a robust empirical framework, we employ both fixed effects and generalised method of moments estimators to account for employment persistence and endogeneity concerns. Our results suggest a divergent impact of technological progress on employment between secondary and tertiary sectors. Specifically, we find that productivity gains in secondary sectors, such as manufacturing, are associated with increased employment, whereas tertiary sectors exhibit employment contractions. These findings indicate that widespread adoption of AI and automation could contribute to reindustrialisation in advanced economies, as labour shifts from tertiary to secondary sectors. Policy implications include the need for proactive labour market policies focused on reskilling, workforce transitions, and adaptive safety nets to mitigate potential disruptions.