Anna Tumarkin

ENC1102

April 18, 2023

The Impacts of Artificial Intelligence on Income Inequality

Statement from Bill Gates, co-founder of Microsoft Technology Corporation responding to the

rising usage of AI:

“The development of AI is as fundamental as the creation of the microprocessor, the personal

computer, the Internet, and the mobile phone,” ... ““Entire industries will reorient around it.
Businesses will distinguish themselves by how well they use it.”
-Bill Gates (Gates)
Introduction
Computers have evolved to accommodate everyday work tasks. Technology is now vital for the

success of workers and businesses. Digital marketing allows companies to spread their brands

globally and identify target audiences. Potentially a beneficial service in digital marketing,

Chatbots are a combination of Artificial Intelligence and Natural Language Processing (NLP)

used to understand customer questions and simulate a response like human conversation. Since

the release of Chatbot’s to the public in 2022, millions have flocked to reap the benefits of this

Artificial Intelligence. This newer mode of marketing has a higher conversion rate and a higher

return rate on investments, resulting in higher revenue. However, digital marketing requires an

initial investment that may be considered “out of budget” for smaller owned businesses. Larger

corporations can easily cast a shadow over these small businesses and independent contractors

and lure potential consumers away. For this reason, many have asked the implications of this

instrument. What are the impacts of AI Chatbots in relation to income inequality?

Especially since the outbreak of COVID-19, the nation has dealt with the consequences of this

pandemic via economic distress. Thousands of businesses have been faced with financial

burdens, reflective of the financial uncertainty of many Americans. This has led to the current

recession. Now, with businesses just barely recovering, AI Chatbots introduces a new, efficient,

and effective way to rebuild the market. Businesses are now given an equal playing field to

compete with one another, regardless of the size of the corporation. In awe of this new

development, many are/will be blindsided by the impact AI Chatbots have on society.

Through this research, I then developed three perspectives on the topic. These perspectives will

properly break down the impact artificial intelligence technology is having on the success of

businesses and income inequality. Firstly, from the perspective of the large businesses who have

had the resources to use AI Chatbot’s. Next, from the perspective of self-employed/independent

contractors. Finally, from the perspective of small businesses who have been newly granted the

opportunity to use AI Chatbot’s.

Large Businesses

In 1995, Jeff Bezos launched an online bookselling service. By 1999, Bezos decided to extend

beyond books and start selling CD’s, toys, electronics, and more. This company?... Amazon.

Bezos has since revolutionized the online retailing business and delivery systems globally.

What sets large firms apart from competitors are the financial privileges and brand recognition

which allow the business to diversify and further monopolize the market. Large companies

benefit from economies of scale, which cut costs per unit of output and boost profit margins,

negotiating leverage, specialization, and labor division. (Kenton, 2022). The complexities of
these firms are then separated amongst different fields to increase efficiency rates, further

profiting the executives.

According to World Population Review, Amazon has employees in 47 out of 50 states with 1.6

million U.S people employed. Jobs levels range from 1-12 with 34 categories ranging from

warehouse workers to company executives. As AI Chatbots are introduced to the market,

companies have several incentives to employ this technology, such as:

 Availability- Users can connect to AI Chatbots at any time; 24/7, 365 days of the year.
 Capacity Management- Chatbots can communicate with multiple users at once and do not
have a capacity constraint.
 Flexibility- Whereas new employees require training, Chatbot’s are engineered to align
with industry type and have no “turnover” period.
 Greater User Experience- Consumers are responded to promptly with AI generated
answers.
 Low Cost- Chatbots have a low development cost relative to hiring a customer service
employee.
 Work Automation- Chatbots are equipped to respond to repetitive tasks when required
while workers have been found to be less productive when assigned repetitive jobs.
 New Sales Channels- The assistance available at any moment allows consumers to
purchase online with ease.
 Personal Assistance- Nowadays, consumers use AI chatbots as personal advisors for
recommendations in the marketplace. (Waghmare, 2019)
These motivations have only thrusted corporations towards AI Chatbots. Efficiency and lower

price out-compete humans willing to work on the same task.

Though the reduced labor costs, increased productivity, and improved customer experience do

benefit the large business, several workers would be misplaced with the introduction of AI

Chatbots. Unskilled workers refer to all occupations which “require no special training,

judgment, or manual dexterity, but supply mainly muscular strength for the performance of

course, heavy work.” (Edwards, 1938). In 2018, more than 50% of the US labor force worked

“unskilled” jobs, which typically required a high school degree or less and earning a median
annual wage of $33,473. (Massachusetts Institute of Technology, 2021). As AI Chatbots are

transitioned into large businesses, many “unskilled” workers will be displaced/unemployed.

ChatGBT is one of the many AI Chatbot forums available to the public which generates

responses by collecting data from various sources. I decided to ask this AI a question... “How

many workers will be replaced by AI Chatbots in the U.S.?”. This was the response:

Figure 1:ChatGBT response to question "How many workers will be replaced by AI Chatbots in the U.S.?"

When I pasted the same question into Google, various articles were loaded with few comparing

in responses. This firsthand examination exhibits the distinctive processing skills of the AI

Chatbot. With this being considered, there is no doubt of a significant increase in layoffs. It is

important to remember the effect bots can have on wages, however. According to Harvard

Business Review, “when jobs require specialized skills, wages rise because fewer people can

meet demand for these skills” (Nunes, 2021). Wages are implemented based on the economic

theory of supply and demand. American economist Alan Krueger found that computer-savvy
workers a wage premium of 10-15% more than their technologically unenlightened counterparts.

This would directly boot employees working “unskilled” jobs to the curb – further encouraging

the gap between the rich and the poor (aka income inequality).

Independent Contractors

In high school, there was a girl a few years younger than me who had an interest in doing her

nails. She invested her time and money to practice and purchase new tools to help her learn the

craft. Her friends would come to school advertising the work of their classmate. This was the

beginning of her at-home nail salon. At the start, this freshman would list low prices compared to

the salons because of her inexperience. As she mastered her artistry, prices rose to be like the

experienced competitors. This 15-year-old adapted to the new lifestyle of being a student and

young entrepreneur simultaneously. She currently has over 1,000 followers on Instagram which

has weekly updates on her recent projects and a database which allows her customers to book

appointments.

Legal dictionaries describe an independent contractor as a person who contracts to do work for

another person or entity but is not under control of the other person or entity in the performance

of the work (The Law Dictionary). As self-employed workers, independent contractors are not

insured with a guaranteed annual salary or hourly wages. Alongside financial uncertainty,

independent contractors do not have the right to unionize, are ineligible for workers’

compensation, unemployment insurance, and most other employer-provided benefits. In the 2017

Contingent Worker Supplement survey conducted by the Bureau of Labor Statistics, data found

that 10.6 million (or 7%) of the nation's workforce were considered independent contractors
(Bureau of Labor Statistics, 2017). Other studies, however, have found the actual percentage to

be much higher than just 7%. This discrepancy could be thanks to differences in the definitions

used, sampling methods, etc...

Launched publicly in San Francisco in 2011, the ride-share app ‘Uber’ offers a unique

experience for drivers and riders alike. Contrasting from taxi services, Uber drivers transport

costumers using their own vehicles and have more regulations in place to keep the public safer.

According to the Uber website, being a driver offers several benefits such as:

 Flexible hours
 24/7 Work opportunities
 Uber’s help to take advantage of “dynamic pricing” (earning more during peak demand)
 Instant payment
 Worldwide opportunities
 Multiple work possibilities (UberRUSH and UberEATS)
 Money management
 Sufficient/Livable wages
 Initial sign-up bonuses
 Minimum wage in certain cities
Uber drivers have been considered independent contractors but not defined as such by various

jurisdictions worldwide. Following the op-ed by Uber CEO Dara Khosrowshahi in The New

York Times suggesting new advantages and safeguards for drivers, Uber released a poll of

drivers in support of the new Independent Contractor (IC) plan. This IC proposal is noted as

“maintaining the flexibility and freedom of working independently but gives them access to

benefits that today are only available to employees under existing labor laws” (Uber, 2020).

Benenson Strategy Group found that 82% of Drivers support this plan stating it “offers access to

certain benefits, while prioritizing the flexibility that brings them to independent work. 88% of

Drivers agree that this plan would benefit them (40% strongly agree)” (Benenson Strategy

Group, 2020).
 Independent contractors can perform a variety of jobs, which can vary greatly depending

on the person’s qualifications, work experience, and industry. By automating some processes

that were previously completed by humans, AI Chatbots can lessen the demand for various

services offered by independent contractors. AI Chatbots can be used, for instance, to organize

appointments, respond to customer care questions, and give introductory details about goods or

services. This can free up human contractors to concentrate on more difficult tasks that would

call for advanced knowledge and training.

Table 1: Share of Workers "Employed by an Employer" Who are Independent Contractors (Abraham, 2023)

It's important to note that unlike human contractors, AI chatbots cannot offer the same amount of

personalization and customization. Human interaction-based services like coaching, consulting,

and creative work will always be in demand. Additionally, since they can offer a more adaptable

and customized way to meet their objectives, some firms might prefer to engage with

independent contractors.

Independent freelancers can benefit greatly from AI chatbots. These algorithms, for

instance, can respond to consumer questions, freeing up freelancers' time to work on other
projects. AI chatbots can also offer tailored customer service, creating a pleasurable experience

that could improve client retention.

Additionally, AI chatbots can assist independent freelancers in better managing their

workload. Freelancers can quickly become more productive by automating some chores, such as

setting up appointments, responding to questions about billing, and following up with clients.

Contractors can concentrate more time and effort to their main business activities and increase

their revenue when they have efficient systems in place.

AI chatbots' effects on independent freelancers are complicated. While there are definite

advantages to using AI chatbots, such increased productivity and streamlined workflow, there are

also possible disadvantages to take into account, like the loss of the human touch in client

communication and potential job losses. Independent contractors will need to adapt and integrate

AI chatbots into their workflow in a way that works best for their clientele, their company, and

themselves as the technology continues to advance and advance.

Small Businesses

In spring of 2020, many of our favorite locally owned businesses were affected by the pandemic,

including businesses that were temporarily shut down and/or permanently closed. Like the rest of

the nation, Pinellas County was hit hard by the decreased demand COVID-19 left in its path.

Considered a tourist “hotspot” thanks to the white sand beaches and dynamic beachfront

activities, Pinellas County was devastated by the absence of spring breakers and sun kissed

northerners. Launched on May 4th of 2020, Pinellas CARES Small Business Grants provided
funding for Pinellas-based businesses most affected by the pandemic. In total, 5389 applicants

were approved and the total award rounded to about $55.6 million.

By July of 2020, The Proceedings of the National Academy of Sciences (PNAS)

orchestrated a survey of more than 5,800 small businesses to provide insight of the economic

impact of the coronavirus on small businesses. Of this sample, 41.3% of businesses reported that

they were temporarily closed because of COVID-19. Only 1.8% reported permanent closure due

the pandemic (PNAS, 2020). These small firms are just now climbing their way out of debt.

Before the public access to AI Chatbots in 2022, businesses would employ engineers to

construct Chatbot Systems to monopolize industries through digital marketing. There are two

types of chatbots: Rule-based and AI. Rule-based Chatbots are designed such as a dialog tree.

Responses are conditioned based on the series of options best relating to the question. Bridging

the gap between a business and audience is priceless, especially when it saves money in the long

run. According to HelpCrunch a chatbot developer site, custom chatbot development can range

from $10,000/month to $500,000+/month. For example, Amazon developed ‘Alexa’, an

interactive AI voice assistant with the investment of hundreds of millions of dollars. In late 2020,

Amazon was able to transition Alexa’s AI technology into a chatbot. Many small businesses are

not able afford this technology despite the potential financial savings. According to estimates,

nearly 67% of consumers worldwide have interacted with a chatbot for customer service in the

past year (https://www.invespcro.com/blog/chatbots-customer-service). As technologies continue

to develop, AI chatbots will become more integrated with customer service. This rapid growth

suggests estimates of the market for chatbots will reach $9.4 billion by 2024.
 AI Chatbots use natural language processing and machine learning algorithms to best

generate a response. This technology guarantees a faster and more efficient response to customer

service questions. With 24/7 availability, AI chatbots can provide round-the-clock customer

service with the opportunity to handle a high volume of customer inquiries simultaneously.

Consistent and personalized responses improve customer satisfaction and satisfaction which

overall increase sales. Current data for rule-based chatbots state that consumers most like them

because they provide quick answers.

Figure 2: Consumer positive ratings of Chatbots

By replacing human employees with chatbots, businesses can save up to 30% of customer

support costs. UK-based Juniper Research estimated chatbots would help businesses save more

than $8 billion per year by 2022. In a report by CBS News, nearly 30% of U.S. professionals say
that have already adopted AI tools for work-related tasks. As AI chatbots integrate further into

the workplace, workers will become displaced in the industry.

The U.S. Bureau of Labor Statistics recorded a 14.7% unemployment rate in April of

2020, the start of lockdowns due to the pandemic. Unemployment rates returned to the

percentages from previous years in 2022 (3.8%) (U.S. Bureau of Labor Statistics, 2023). During

this time, the effects of nationwide lockdowns led to decrease in demand, supply chain issues,

public fear, and more. By May 2020, 47% of small businesses owners reported having to let go

of employees since March 2020 due to the disruption of the coronavirus. Of this percentage, 36%

hoped to re-hire once losses were recuperated (SCORE, 2020).

When it comes to resources, large businesses have the upper hand to small ones. The

financial freedom of these firms allows them to hire top-tier employees, construct innovative

marketing strategies, and ultimately monopolize the industry. With the production of

contemporary technology, small businesses stand a fitting chance to stay alive. AI Chatbots

offers present day data which reap a variety of benefits for consumers. Improved customer

service can be cost effective allowing small firms to save and reallocate budgets. The

personalized engagement is proven to increase sales by recognizing a customer’s behavior and

preferences. Above all, this service automatically collects data and analyses customer behavior to

keep updated with the market. Before this automation, small franchises would have to employ

someone to perfect each task.

The current minimum wage in Florida as of April 2023 is $11/hour. AI Chatbots offers 24/7

support for customer service inquiries. To hire representatives to provide 24/7 support with
minimum wage commission would be at the very least of $96,360/year. This does not

include/ensure the personalized relationships and customer behavior data analysis.

Especially since the devastating effects of the pandemic, many are encouraged to shop from

small businesses to support local economy. The “pivotal” shifts in spending habits since the

pandemic has drifted customers away from mall shopping with 75% of consumers planning to

shop more locally, according to a study by Brightpearl (Thau, 2021). In a 2022 small business

consumer survey, the International Council of Shopping Centers (ICSC) found that 94% of

adults either shop, spend at or use the services of small businesses. Of this percentage,

consumers have several motivations for deciding where to shop. Fifty-two percent want to keep

money local, 49% prefer the quality of goods and services, 47% enjoy the convenience, and 46%

prefer the price and value of the products purchased (ICSC, 2022).

Conclusion

Developments in technology has progressed the evolution of the business industry

immensely. The way organizations run has changed as a result of technology over time, moving

from manual to automated processes. Computer software is updating constantly to keep up with

and enhance the abilities of the market.

Artificial Intelligence Chatbots have the potential to offer numerous services such as 24/7

customer support, personalized engagement, and data collection which subsequently lead to

increased efficiency, increased sales, and a cost-effective addition to the business. By equipping

firms with AI Chatbots, income inequality becomes an important topic of reality. Will this

technology boost the economy as a whole or just the market? Will technology lead to further

separation between the financial classes? Truly, only time will tell.
 What we do know is all levels of businesses in the market will have increased

competition rates between battling firms. Small businesses and independent contractors will have

leverage to successfully compete with large enterprises who have dominated the market of

decades. There is also recognition of displacement of low-level workers with the presence of AI

Chatbots. Large businesses have monopolized the industry and employment market in such a

way that many of the nations ‘unskilled’ worker population are at risk of unemployment thanks

to them. Regardless of the data collected, there are many uncertainties of the future of the market

and how it will affect the income inequality of the nation.

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