China Economic Journal

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The effect of artificial intelligence on China’s labor

market

Guangsu Zhou, Gaosi Chu, Lixing Li & Lingsheng Meng

To cite this article: Guangsu Zhou, Gaosi Chu, Lixing Li & Lingsheng Meng (2019): The
effect of artificial intelligence on China’s labor market, China Economic Journal, DOI:
10.1080/17538963.2019.1681201

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CHINA ECONOMIC JOURNAL
https://doi.org/10.1080/17538963.2019.1681201

The effect of artificial intelligence on China’s labor market

Guangsu Zhoua, Gaosi Chub, Lixing Li c
and Lingsheng Mengd
a
School of Labor and Human Resources, Renmin University of China, Beijing, China; bBaidu Inc., Beijing,
China; cNational School of Development, Peking University, Beijing, China; dDepartment of Economics, The
Chinese University of Hong Kong, Hong Kong, China

ABSTRACT KEYWORDS
Automation and artificial intelligence technology have played Artificial intelligence (AI);
a pivotal role in today’s economic and social development. They Internet of things (IoT);
represent a labor-substituted technological progress, featuring Council of Economic Advisers
more and more jobs to be replaced by AI. Based on the adoption (CEA)
rate calculated in our paper and theoretical substitution probability JEL Classification
estimated by existing studies, our research estimates the actual sub- O33; E24; J24; J31
stitution probability by AI for various occupations in China. By using
this actual substitution probability on occupation level, we also
explore the substitution effects on labor force with different charac-
teristics and find that AI has larger substitution impacts on labors of
female, old age, low education and low income. We also predict the
number of employed people that would be replaced by AI in each
industry, and the results show that China will have 278 million labors
(201 ~ 333 million under different adoption rates) replaced by AI by
2049, representing 35.8% of the current employment in China.

Abbreviation: Artificial intelligence (AI), internet of things (IoT),

Council of Economic Advisers (CEA)

1. Introduction
Automation and artificial intelligence (AI) are important trends of today’s development,
which play an important role in the improvement of productivity and economic growth
(Graetz and Michaels 2015). With the development of ‘Internet +’, big data, cloud
computing and other related technologies, the concept and technology of AI are launch-
ing a profound technological revolution, which might also have significant impacts on
the traditional social order and value system. In 2017, the Chinese government issued
new national plans for AI development, proposing the strategic goal that China will
become one of the world’s major artificial intelligence innovation centers by 2030.
Therefore, whether we can seize the opportunity of AI development and properly handle
the relationship between AI and traditional economic and social system, will be related to
China’s future economic and social development.
While automation and AI technologies have created momentum for economic
growth, they have also had significant impacts on many occupations and jobs. More
and more jobs may be replaced by robots or AI technologies. Some studies have shown

CONTACT Lixing Li lilixing@nsd.pku.edu.cn

© 2019 Informa UK Limited, trading as Taylor & Francis Group
2 G. ZHOU ET AL.

that the decline in employment rate and wages of low- and medium-skilled workers is
largely due to the development and application of intelligent machines (Autor, Levy, and
Murnane 2003; Acemoglu and Autor 2011; Autor and Dorn 2013). Different from the
substitution of machines for physical labor in the past three technological revolutions, AI
is gradually integrating ‘intelligence’ into the production process. It not only requires the
dexterity of the machine to gradually approach the human ability, but more importantly,
makes the machine gradually have the ability to ‘think’ as humans. The process of
‘automation-intellectualization-artificial intelligence’ will have a further impact on the
labor market. ‘The Future of Jobs’ report released by the 2016 World Economic Forum
(WEF) pointed out that in the next 5 years, the development of robotics and AI
technology will lead to a reduction of 7.1 million jobs in 15 major economies around
the world. The World Bank’s 2016 World Development Report also reached a similar
conclusion: 57% of jobs in OECD countries will be replaced by automation in the next 20
years. However, the impact of automation and intellectualization on China’s labor
market will be more significant. On the one hand, China is at the forefront of AI
development, and on the other hand, it is due to China’s large population and labor-
intensive industrial structure.
Many papers have explored the impacts of automation and AI on labor markets, and
point out that the total effect depends on the substitution effect, complementary effect
and creation effect brought by new technologies (Autor 2015; Bakhshi et al. 2017; Bloom,
McKenna, and Prettner 2018). The substitution effect means AI’s negative impacts on
employment, while the complementary and creation effect will have positive effects on
employment and might create some new occupations. Aghion and Howitt (1994) com-
pare two competing effects on unemployment and find that capitalisation effect raises the
capitalised returns from creating jobs and consequently reduces the rate of unemploy-
ment, while the creative destruction effect raises the equilibrium level of unemployment.
Autor (2015) explains the reasons why automation has not wiped out a majority of jobs in
the past time. Even though automation indeed substitutes for labor, there is also
a significant complementary effect that raises output and leads to higher demand for
labor. Automation replaces workers’ original comparative advantages in performing
routine and codifiable tasks, but it greatly amplifies people’s comparative advantages in
problem-solving, adaptability and creativity. Autor, Dorn, and Hanson (2015) examine
the impacts of trade and technology on the US labor market from 1980 to 2007 and find
that computerization brought about occupational polarization in the manufacturing and
non-manufacturing sectors, but did not significantly reduce net employment. Gregory,
Salomons, and Zierahn (2016) use data from the European regions in 1999–2010 to study
the impact of routine-replacing technological change on labor demand and shows that
the substitution effects have been overcompensated by the expansion of product demand
and its associated spillovers. Acemoglu & Restrepo (2017) demonstrate that robots have
a significant negative impact on workers’ employment and wages through data from the
US labor market between 1990 and 2007. For every one-thousandth of the increase in the
ratio of robots to workers, the employment to population ratio will be reduced by
0.18–0.34 percentage points, while wages will be reduced by 0.25–0.5%.
Although the labor market is affected by AI comprehensively, different industries might
show heterogenous impacts depending on different degrees of scale economy, and different
knowledge and technology intensity. Autor, Levy, and Murnane (2003) use representative
 CHINA ECONOMIC JOURNAL 3

data from 1960–1998 to explore how computerization changes the demand for job skills.
The results show that computerization decline relative industry demand for routine manual
and cognitive tasks, but increase the relative demand for non-routine cognitive tasks.
Brynjolfsson and McAfee (2014) point out that rapid digitization provides a good oppor-
tunity for groups with special skills and higher education levels, but it has occupied the
living space of low-skilled workers. Frey and Osborne (2017) study the extent to which
occupations can be replaced by computers. Through variables describing the level of
recognition and operation, creativity, and social intelligence, they estimate the substitution
probability of 702 occupations by computerization and find that 47% of the occupations
will be replaced. The substitution probability of each occupation is quite different, and it is
decreasing as wages and education levels increase. Based on Frey and Osborne (2017)
calculation, Kleinaltenkamp (2017) estimates the probability of substitution for China
workers by sub-industry, education, gender, immigration status, etc. However, due to the
limitation of the sample size and occupations of workers in this dataset, the conclusion
lacks national representation.
From the brief review of the literature, it can be seen that the existing research
mainly focuses on the impacts of AI on developed countries and lacks relevant
discussions on developing countries that are more affected by AI. Based on the
adoption rate calculated in our paper and theoretical substitution probability esti-
mated by Frey and Osborne (2017), our research estimates the actual substitution
probability by AI for various occupations in China. By using this actual substitution
probability on occupation level, we also explore the substitution effects on the labor
force with different characteristics and find that AI has larger substitution impacts
on labors of female, old age, low education and low income. We also predict the
number of employed people that would be replaced by AI in each industry, and the
results show that China will have 278 million labors (201 ~ 333 million under
different adoption rates) replaced by AI by 2049, representing 35.8% of the current
employment in China.
Compared with the existing literature, the main contributions of this paper are as
follows: First, this paper provides new evidence about the effect of AI on the labor market
in developing countries. The existing literature mainly focuses on the effects of intellec-
tualization development in developed countries. However, the impact of AI on the
medium and low-skilled labor forces is more significant, which indicates that AI’s impact
on developing countries is greater, and should be given more attention in academic
research. Secondly, our paper estimates the actual substitution probability of AI for
various occupations in China, and also presents the substitution probability of labors
in different industries and with different characteristics. As a result, our paper provides
a comprehensive assessment of the substitution effect of AI on China’s labor market.
The structure of this paper is as follows: The second part introduces the data and
methods used in the empirical section; the third part presents the estimations of the
theoretical substitution probability and adoption rate of AI for each occupation and
industry; the fourth part shows the substitution effect of AI on labor forces with different
characteristics and in different industries, and predicts the number of employment that
might be replaced by AI by 2049; the last part summarizes the whole paper and proposes
some important policy recommendations.
4 G. ZHOU ET AL.

2. Data and empirical method

2.1. Data
The data used in the calculation of the theoretical substitution probability of AI come
from Frey and Osborne (2017). They estimate the probability of computerization for
702 detailed occupations according to the Standard Occupational Classification (US
Department of Labor). They use objective O*NET variables describing the level of
perception and manipulation, creativity, and social intelligence to estimate the function
for the determination of computerization and predict the probability of computeriza-
tion for 702 occupations according to this function. The theoretical substitution
probability for China’s occupation categories is shown in appendix Table A1.
And in the calculation of AI adoption rate by industry, the data from AI practice are
used to measure the current AI usage rate in different industries. The statistics is
provided by China’s top TMT companies’ reports on AI-related revenue and key
industry personnel.
We also use China’s Census Data of 2005, 2010, and 2015 to analyze the substitution
effect of AI on labor forces’ with different characteristics and to calculate the employment
structure.

2.2. Empirical method

First, to estimate the adoption of AI in practice, we calculate the 2049 AI adoption
rate by industry in China by defining and then working out three main evaluation
dimensions: the AI adoption rate 2017, an industry’s potential for digitization, and
a best-fit coefficient. The AI adoption rate in 2017 was taken as the current AI usage
rate in different industries. And the index for each industry became the starting
point for calculating the adoption rate in 2049. The industry’s potential for digitiza-
tion and best-fit coefficients decide how fast the adoption grows in the next three
decades. And with the match with occupations and industries, we get the adoption
rate of AI for each occupation in 2049.
Second, we estimate the actual substitution probability of AI for labor forces with
different characteristics by using the theoretical substitution probability (Frey and
Osborne 2017) and the adoption rate in 2049, and the census data of 2005 and 2010.
For example, for the calculation female group, we can use each occupation’s employment
number of female as the weight matrix and calculate the weighted means of the actual
substitution probability as the average substitution probability for female. By using
a similar method, we can also calculate the substitution probability for other subgroups.
We also predict the number of employed people that would be replaced by AI in each
industry by 2049. We calculate the number of employed people in the main 19 industries
using the employment structure given by 2015 Census data and the total employment
number of China in 2018. Combined with the actual probability of substitution by AI, it
is easy to make the prediction.
 CHINA ECONOMIC JOURNAL 5

3. Calculation of actual substitution probability of AI to 2049

To analyze the substitution effect of AI on labor forces with different characteristics, we
matched the occupations with industries by the corresponding AI adoption rate, group-
ing them by job categories. The results show that according to AI adoption degree in
industries, the ratio of employment will be affected in reality. First, the adoption rate by
industry in 2049 is decided by the following three subindexes:
Adoption Rate 2017: Based on statistics provided by China’s top AI companies and
interviews with key industry personnel, we constructed the index by calculating the relative
added value provided by AI. For example, we divide the annual AI-related agriculture
revenue with the total Agricultural output, to get the AI adoption rate. We found that
despite the general adoption of multiple AI capabilities in the full value chain in occupa-
tions ranging from biological research to wealth management to call center operations, the
financial industry was the only one with an adoption rate above 10% in 2017.
Digitization Potential: All AI models must be trained on data to achieve an automated
data analysis capability. Moreover, AI training requires big data. As a result, the acces-
sibility of data, in terms of both cost and amount, is a critical factor deciding the
feasibility of AI solutions in a specific industry.
In our calculation, accessibility is quantified as the digitization rate, which is roughly
equal to the rate of spending on the internet of things (IoT) as a share of industry
revenue. According to AI usage in practice, the greater the IoT investment an industry
made, the more data availability it owns.
The assumption is that in 2049, the digitization process in China will have concluded
and the digitization rate for all industries will have reached the ceiling of full digitization
(all main data can be obtained online), which is 8% (equal to the current level of Amazon
and other top digital companies; CB insights 2018). A high IoT investment rate will boost
the digitization of traditional industries and translate the current drag into a late-mover
advantage in the AI adoption process.
Improved Fitting Based on Scenario Limitations: The index shows an increased curve
fitting with industry characteristics. The analogy with electricity notwithstanding, we
found that the adoption of AI solutions by industry relies heavily on deployment
customization and varies significantly under different industry scenario assumptions.
With the lessons learned from the practical deployment of AI solution, the relative pace
of different industries' adoption of AI and constraints on adoption are shown in
Table 1.

Table 1. The industries’ increase speed.

Category Feature
Aggressive The adoption in scenarios is low as it highly relies on infrastructure, such as sensors’ deployment.
later comer Once the infrastructure is ready, the adoption rate will increase sharply, e.g. mining and
advantage energy plants
Later comer Relies on infrastructure and automation progress, e.g. agriculture and transport
advantage
Quick increase Partially limited by infrastructure while partially limited by commercial motivation, e.g.
manufacturing, education and medical
Liner increase Mainly motivated by consumers and users
Slow increase Limited by alternately high adoption rate and ROI
Sufficient market Adoption rate is quite high, only motived by technology upgrade, e.g. finance and security
6 G. ZHOU ET AL.

The projected AI adoption rate in 2049 by industry, based on the three subindexes, is
shown in Table 2. Two assumptions are that the current AI application level we identified
may move through the various stages and that the coefficient of improved fitting may
follow different curves in the next three decades.
Secondly, to calculate the AI adoption by occupations, we matched the occupations
with industries. The occupations list is based on the official two-digit codes, while the
correspondence is a rough one concluded with the occupation definition, as accurate
industry employment numbers are not available. Most occupations are connected with
only one industry; for example, Financial professionals is connected to Finance Industry.
For one occupation matching with two or more industries, such as Cultural and art
professionals connecting both to Education and to Culture, sports, and entertainment,
weights measured by definition (50:50%, for example) would be added to balance the
corresponding relation. Based on the calculation, the 2049 AI adoption rate by occupa-
tion is shown in Table 3.

Table 2. AI adoption rate by industry in China, 2017 and 2049.

Increase Adoption rate,
Industry Adoption Digitization Digitization fitting 2049 (%)
code Industry name rate, 2017 (%) rate, 2017 (%) potential (to 2049) Low Medium High
A Agriculture, forestry, animal 0.5 0.4 18.14 6.62 42.1 60.0 77.8
husbandry, and fishery
B Mining 0.5 1.0 8.00 11.05 34.3 44.2 60.5
C Manufacturing 3.7 2.0 4.00 4.34 46.3 64.2 68.7
D Production and supply of 1.0 2.0 4.09 11.05 35.1 45.1 61.8
electricity, heat, gas, and
water
E Construction 1.9 1.0 8.00 4.34 48.4 67.1 71.7
F Transport, storage, and post 4.5 3.0 2.67 6.62 52.1 55.7 79.4
G Information transmission, 8.0 4.0 2.00 2.57 35.3 41.1 61.4
computer services, and
software industry
H Wholesale and retail trades 5.6 2.0 4.00 3.13 65.3 70.0 85.9
I Hotel and catering services 5.5 2.0 4.00 2.92 56.6 64.4 84.6
J Financial intermediation 14.0 5.0 1.60 2.57 49.4 57.3 85.8
K Real estate 1.9 1.0 8.00 2.57 34.2 39.7 59.4
L Leasing and business 2.0 6.0 1.33 4.64 11.6 12.4 17.7
services
M Scientific research, technical 3.5 8.0 1.00 2.92 9.0 10.2 13.4
services, and geological
survey industry
N Management of water 2.9 3.5 2.29 6.62 30.8 43.9 56.9
conservancy,
environment, and public
facilities
O Services to households, 1.9 1.4 6.93 2.92 34.7 36.4 51.8
repair and other services
P Education 3.0 3.9 2.05 4.64 26.6 28.5 40.6
Q Health, social security, and 0.5 0.8 9.76 4.64 21.2 22.6 32.3
social service
R Culture, sports, and 6.0 5.0 1.60 2.57 21.2 24.6 36.9
entertainment
S Public management and 2.0 3.0 2.67 4.34 16.7 23.1 35.3
social organization
Source: Baidu & Alibaba AI Reports, IHS, Harvard Business Review, Experts Interviews, Gartner Report (Wiles 2018)
 CHINA ECONOMIC JOURNAL 7

Table 3. AI adoption rate by occupation in China, 2049 (projected).

Probability Probability
Code Occupation (%) Code Occupation (%)
11 Social science researchers (sociology, 21.48 55 Water facilities maintainers 43.87
literature, economics, etc.)
12 Scientific researchers (science, 9.55 59 Other agricultural, forestry, 60.02
engineering, medical science, etc.) husbandry, fishery, and water
facilities workers
13 Engineers and technicians (geology, 15.39 61 Mining and quarrying workers 44.18
energy science, chemical
engineering, space engineering)
14 Engineers and technicians (TMT, 7.14 62 Metal producing and processing 54.19
transportation, electrical workers (steels)
engineering)
15 Engineers and technicians 5.38 64 Chemical production workers 54.19
(transportation, oceanic science, (chemical oil production)
hydraulic engineering, architecture)
16 Engineers and technicians (food 14.43 65 Chemical production workers (fining 46.35
science, seismology, quality and compounding)
assurance, environmental
protection)
17 Agricultural technicians 1.54 66 Machine producing and processing 64.19
workers
18 Aircraft and ship technicians 20.13 67 Mechanical and electronic 64.19
equipment installing workers
(common machines)
19 Medical technicians 3.08 68 Mechanical and electronic 64.19
equipment producing workers
(arms)
21 Economics professionals 46.01 69 Mechanical and electronic 43.66
equipment installing workers
(high-precision trajectory)
22 Financial professionals 47.67 71 Machine repairers 64.19
23 Legal professionals 11.86 72 Electronic equipment installing, 45.15
operating, maintaining, and
powering workers
24 Teachers 7.76 73 Electronic component and 41.06
equipment producing, installing,
testing, and maintaining workers
25 Cultural and art professionals 12.76 74 Rubber and plastic producing 64.19
workers
26 Athletic professionals 24.30 75 Weaving, knitting, and bleaching 64.19
workers
27 Media professionals and publishers 30.46 76 Tailoring, sewing, and leather and 64.19
fur producing workers
28 Religious professionals 1.66 77 Oil, food, beverage, and their 64.19
materials producing and
processing workers
32 Security guards and firefighters 41.73 78 Tabaco producing and processing 64.19
workers
33 Mail and teleservice workers 43.70 79 Medicine producing workers 22.65
39 Other clerical workers 74.88 81 Wood, cabinet, and paper producing 64.19
and processing workers
41 Sales clerks 61.15 82 Building materials producing and 67.07
processing workers
42 Stock clerks 46.12 83 Glass, pottery, and enamel 64.19
producing and processing
workers
43 Food service workers 74.62 84 Media and film producers, cultural 24.64
relic protectors
44 Hotels, travel and fitting service 38.74 86 Artwork makers 64.19
workers
(Continued)
8 G. ZHOU ET AL.

Table 3. (Continued).
Probability Probability
Code Occupation (%) Code Occupation (%)
46 Medical assistant service workers 36.57 87 Educational and sport products 64.19
makers
47 Social and residential service workers 47.27 88 Construction workers 39.68
(agencies, photographers,
hairdressers, housekeepers)
48 Social and residential service workers 57.83 89 Construction workers (construction 41.93
(repairers, dustman, nursery maids) equipment installment)
51 Agronomic growers 71.08 91 Transport equipment operators and 79.42
related workers
52 Forestry producers, wild animal and 77.92 92 Environment monitoring and waste 43.87
plant protectors disposal workers
53 Crop and animal producers 64.55 99 Other production and transport 79.42
equipment operators and related
workers
54 Fishery workers 53.87
Table shows the AI adoption rate corresponding to China’s two-digit occupation code. The occupation names of some
two-digit codes are the same, but that does not mean they are identical occupation categories (the specific division
needs to refer to the three-digit occupation code).

4. The impact of AI on employment to 2049

After estimating the substitution rate for each industry and each occupation, we will
examine the multi-level effect of AI on employment in the future. In this part, we will first
combine the theoretical substitution probability for each occupation with the adoption
rate to estimate the actual substitution probability. Secondly, we will use China’s Census
Data of 2005, 2010, and 2015 to analyze the substitution effect of AI on labor forces’ with
different characteristics. Finally, we will calculate the employment structure on the
industry level and predict the number of employed people substituted by AI in each
industry.

4.1. Analysis of the substitution effect of AI on labor forces with different

characteristics
Although AI has significant impacts on the overall labor market, its effect on workers
with different characteristics would be different. Next, we divide our sample into
different subgroups by worker’s characteristics such as age, gender, educational attain-
ment and income level, and estimate the actual probability substituted by AI for
workers with different characteristics. The actual substitution probability equals to
the theoretical substitution probability multiplying the adoption rate. For example, for
the calculation of the substitution probability of different age groups, we use each
occupation’s employment number (calculated from China’s Census Data 2010) as the
weight matrix in each age group and calculate the weighted means for the probability of
each age group.

4.1.1. By different age

First, we calculate the weighted average of the substitution probabilities by different age
of the workers, and the results are shown in Figure 1. We divide the workers into five
groups according to their age. It is shown that the 20–29 age group is the least likely to be
 CHINA ECONOMIC JOURNAL 9

42.00%

41.00%

40.00%

39.00%

38.00%

37.00%

36.00%

35.00%
20-29 30-39 40-49 50-59 60-69

Figure 1. The substitution effect for different age groups.

substituted, while the 60–69 age group is the one with the highest substitution prob-
ability. The main reason for this phenomenon is that young people are more likely to
acquire new knowledge and new skills, while the older labor force is less able to adapt to
technological changes, and thus is more likely to be replaced by AI.

4.1.2. By different gender

Figure 2 shows the weighted average of the substitution probabilities according to the
gender of workers. The results show that female workers are more likely to be substituted
by AI than male workers, but the gap is only about 1 percentage points. Some studies
have shown that women are more likely to be discriminated in the labor market than men
in job search, promotion opportunities, and payment for labor (Darity and Mason 1998).
If the impact of AI is inevitable, reducing the discrimination against women is a must to
prevent further gender gaps in labor market.

38.80%
38.60%
38.40%
38.20%
38.00%
37.80%
37.60%
37.40%
37.20%
37.00%
36.80%
male female

Figure 2. The substitution effect for different gender groups.

10 G. ZHOU ET AL.

4.1.3. By different educational attainment

Some studies have shown that AI’s substitution effect on employment is not technically
neutral, and its impact on high-skilled labor and low-skilled labor is quite different
(Brynjolfsson and McAfee 2014; Michaels, Natraj, and Van Reenen 2014). Figure 3
shows the substitution probability of AI calculated according to the level of educational
attainment. We divide the sample into five groups based on their level of education and
report the substitution probability of each group. It can be seen that the substitution
probability by AI is decreasing with the improvement of education level. The illiterate,
primary school, and middle school groups show a rather high probability of being
replaced, while the high school and above group sees a much lower substitution
probability. Especially for those with college and above educational attainment, the
substitution probability is only half of that of low education groups.

4.1.4. By different income

Figure 4 explores the substitution effect of AI on workers with different income levels.
Since the income variable only exists in the 2005 Census data, we use the weight matrix
calculated by 2005 Census data instead of the 2010 dataset in this part. We divide all
workers’ income into five groups from the lowest to the highest and show the substitution
probability for each group. It can be seen that the substitution probability of the highest
income group is only about 30.5%, while that of the lowest income group is up to 41.1%.
What is more, the figure shows a significantly negative correlation between income and
the substitution probability, which is similar to the conclusions of some existing research
studies (Frey and Osborne 2017). CEA’s (Council of Economic Advisers) 2016 economic
report predicts that AI will replace 83% of jobs with a salary below $20, and this
proportion is 31% for jobs with a salary between $20 and $40, and only 4% for jobs
with a salary higher than $40.

45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
illiterate primary school middle school high school college and
above

Figure 3. The substitution effect for different education groups.

 CHINA ECONOMIC JOURNAL 11

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
0-20% 20-40% 40-60% 60-80% 80-100%

Figure 4. The substitution effect for different income groups.

4.2. The estimation of the substitution effect of AI on employment

Based on the results of Frey and Osborne (2017), we calculate the average theoretical
substitution probability for each industry by using the number of employed people of
each occupation in each industry as the weight. Through the calculation in the second
part of this paper, we also get the adoption rate of AI in each industry. The multiplication
of these two can predict the actual substitution probability of AI for each industry in
2049. According to China’s current industry classification, the employed labor force is
mainly distributed in 19 major industries. We can estimate the number of employed
people in those industries using the employment structure given by 2015 Census data and
the total employment number of China in 2018. Combined with the actual probability of
substitution by AI, it is possible to predict the number of employed people that would be
replaced by AI in each industry by 2049.
From the results in Table 4, it can be seen that 142 million urban labor force in China
will be replaced by AI, accounting for 32.7% of the total employment (434 million) in
urban areas. Meanwhile, the number of China’s rural labor force replaced by AI is
135 million, accounting for 39.5% of the total labor force (342 million) in rural areas.
In total, China will have 278 million labors replaced by AI by 2049, representing 35.8% of
current employment in China. Specifically, the three industries with the largest number
of substituted employment in urban China are Manufacturing, Transport, storage and
post, and Agriculture, forestry, animal husbandry and fishery. The three industries with
the largest number of substitutions in rural China are Agriculture, forestry, animal
husbandry and fishery, Manufacturing, and Construction.
Based on the previous estimation, we have also got the adoption rate in the other two
scenarios: high adoption rate and low adoption rate. In Table 5, we present the estimation
of substituted employment in 2049 according to the adoption rate in these two scenarios.
The results show that the number of substituted employment in 2049 is 332.6 million
under the assumption of a high adoption rate of AI, while this number is 200.7 million for
the low adoption rate of AI.
12 G. ZHOU ET AL.

Table 4. The estimation of the substituted employment in 2049.

Urban sub- Rural substi-
Industry Substitution Adoption Urban total stituted Rural total tuted
code Industry name probability rate employment employment employment employment
A Agriculture, forestry, 70.49% 60.02% 6790.73 2872.91 22,170.97 9379.73
animal husbandry
and fishery
B Mining 52.07% 44.18% 664.31 152.82 242.59 55.81
C Manufacturing 63.47% 64.19% 9144.04 3725.66 3966.79 1616.23
D Production and 48.34% 45.15% 534.05 116.55 85.42 18.64
supply of
electricity, heat,
gas and water
E Construction 58.30% 67.07% 3273.79 1280.04 2364.36 924.46
F Transport, storage 56.86% 79.42% 7676.48 3466.77 1950.94 881.06
and post
G Information 37.07% 41.06% 2296.87 349.62 741.42 112.86
transmission,
computer services
and software
industry
H Wholesale and retail 58.14% 70.01% 2166.61 881.92 761.92 310.14
trades
I Hotel and catering 63.85% 64.39% 599.18 246.34 54.67 22.48
services
J Financial 46.48% 57.33% 903.12 240.66 61.50 16.39
intermediation
K Real estate 47.61% 39.68% 707.73 133.71 78.58 14.85
L Leasing and business 42.67% 12.38% 764.17 40.37 136.67 7.22
services
M Scientific research, 28.60% 10.23% 364.72 10.67 34.17 1.00
technical services
and geological
survey industry
N Management of 52.65% 43.87% 286.57 66.19 71.75 16.57
water
conservancy,
environment and
public facilities
O Services to 51.79% 36.40% 1497.96 282.39 515.92 97.26
households, repair
and other services
P Education 12.61% 28.50% 1871.36 67.26 300.67 10.81
Q Health, social 12.12% 22.65% 1063.77 29.20 167.42 4.60
security and social
service
R Culture, sports and 38.44% 24.64% 347.35 32.90 44.42 4.21
entertainment
S Public management 42.80% 23.13% 2461.86 243.75 413.42 40.93
and social
organization
The unit for the employment is 10,000.

According to the estimation, China will have 201 ~ 333 million labors replaced by AI
by 2049. However, the impact of AI on China’s labor market is also affected by many
other factors. First, it depends on the relative cost and benefits of AI technology and
human’s traditional labor. Although China’s current labor cost has increased signifi-
cantly, it remains relatively low compared with developed countries. With the labor
cost factor taken into account, it will take more time for AI to be applied. Second, the
accelerating population aging process in China also influences AI’s impacts on China’s
 CHINA ECONOMIC JOURNAL 13

Table 5. The estimation of the substituted employment in 2049 in other scenarios.

High High substituted Low substituted
Industry adoption employment Low adop- employment
code Industry name rate Urban Rural tion rate Urban Rural
A Agriculture, forestry, animal husbandry 77.77% 3722.86 12,154.70 42.07% 2014.03 6575.57
and fishery
B Mining 60.46% 209.14 76.37 34.31% 118.67 43.34
C Manufacturing 68.67% 3985.53 1728.97 46.32% 2688.52 1166.31
D Production and supply of electricity, 61.78% 159.50 25.51 35.06% 90.51 14.48
heat, gas and water
E Construction 71.74% 1369.33 988.94 48.40% 923.71 667.11
F Transport, storage and post 79.42% 3466.77 881.06 52.08% 2273.21 577.72
G Information transmission, computer 61.44% 523.13 168.87 35.33% 300.84 97.11
services and software industry
H Wholesale and retail trades 85.93% 1082.40 380.64 65.34% 823.11 289.46
I Hotel and catering services 84.58% 323.60 29.52 56.61% 216.59 19.76
J Financial intermediation 85.78% 360.09 24.52 49.37% 207.25 14.11
K Real estate 59.37% 200.06 22.21 34.17% 115.14 12.78
L Leasing and business services 17.65% 57.56 10.29 11.57% 37.74 6.75
M Scientific research, technical services 13.44% 14.02 1.31 9.00% 9.38 0.88
and geological survey industry
N Management of water conservancy, 56.87% 85.81 21.48 30.76% 46.40 11.62
environment and public facilities
O Services to households, repair and other 51.82% 401.98 138.45 34.68% 269.04 92.66
services
P Education 40.64% 95.91 15.41 26.65% 62.88 10.10
Q Health, social security and social service 32.29% 41.63 6.55 21.17% 27.30 4.30
R Culture, sports and entertainment 36.86% 49.22 6.29 21.22% 28.33 3.62
S Public management and social 35.31% 372.02 62.47 16.69% 175.89 29.54
organization
The unit for the employment is 10,000.

labor market. But the latter, in return, compensate for the loss of labor force caused by
the former. According to the latest data predicted by He (2018), the number of work-
ing-age population decreases by 167–257 million from 2018 to 2049 (Figure 5). Such
loss of labor force might be substituted by artificial intelligence. In other words, the
development of AI technology has, to some extent, weakened the impact of aging on
China’s labor market. Third, similar to other technologies, artificial intelligence tech-
nology, while generating a huge substitution effect, has a very significant creation effect.
Artificial intelligence technology will create a series of related jobs or new occupations
driven by the development of the upstream and downstream industry of AI. Although
we cannot make accurate estimates of this number due to limited data and methods, in
a word, artificial intelligence technology will undoubtedly have both positive and
negative impacts on China’s labor market, and such significant impacts need compre-
hensive analysis.

5. Conclusion
Automation and artificial intelligence technology have played a pivotal role in today’s
economic and social development. They represent a labor-substituted technological
progress, featuring more and more jobs to be replaced by AI. Based on the adoption
rate calculated in our paper and theoretical substitution probability estimated by Frey
and Osborne (2017), our research estimates the actual substitution probability by AI for
14 G. ZHOU ET AL.

95000

90000

85000

80000

75000

70000

65000

60000
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
low medium medium-high high

Figure 5. The prediction of working-age population (age 15–59).

Data Source: He (2018). Units: 10 thousand. This figure shows the predictions of working-age population under four
different total fertility rate scenarios.

various occupations in China. By using this actual substitution probability on occupation

level, we also explore the substitution effects on labor force with different characteristics,
and find that AI has larger substitution impacts on labors of female, old age, low
education and low income. We also predict the number of employed people that
would be replaced by AI in each industry, and the results show that China will have
278 million labors (201 ~ 333 million under different adoption rates) replaced by AI by
2049, representing 35.8% of the current employment in China.
Although this research focuses on the analysis of correlation rather than the inference
of causality, it provides the first empirical evidence for the impact of automation and AI
on China’s labor market. While regarding promoting intelligent industries represented
by AI as one of the important national industrial policies, China still needs to carefully
handle the potential impacts of AI on labor market.
First, it is necessary to comprehensively examine the impact of AI on the labor market,
especially on labors with different characteristics. Our study shows that AI has hetero-
genous effects on different occupations, different industries and labors with different
characteristics. Only by accurately analyzing the differential effects of AI, can we for-
mulate more targeted policies.
Second, more attention should be paid to the importance of human capital invest-
ment, and efforts should be made to continuously improve the human capital of Chinese
residents. More efforts should be taken to help the relatively vulnerable groups in the
labor market (such as women, the low educated, the old, and the low-income), especially
to improve their labor skills and human capital through vocational education or training
to avoid the negative impacts of AI. We should also pay attention to AI’s impacts on the
welfare of workers, in order to minimize the welfare loss caused by rarer employment
opportunities and slowdown in wage growth.
 CHINA ECONOMIC JOURNAL 15

At last, the government should pay attention to social polarization and inequality
caused by AI. With the development of AI, labor force will be divided into at least two
different groups, namely high-skilled group and low-skilled group, both of which will
face different working opportunities and income levels. As a result, this division will
further increase inequality and intensify social contradictions. To deal with those pro-
blems, the government can resort to tax and transfer payment system. For example,
taxing AI equipment or robots to subsidize the substituted workers or help improve their
working skills. Furthermore, the tax might also be used to deal with the old-age pension
shortage caused by aging.

Disclosure statement
No potential conflict of interest was reported by the authors.

ORCID
Lixing Li http://orcid.org/0000-0002-1178-5830

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Appendix

Table A1. Theoretical substitution probability for each occupation.

Probability Probability
Code Occupation (%) Code Occupation (%)
11 Social science researchers (sociology, 21.48 55 Water facilities maintainers 88.00
literature, economics, etc.)
12 Scientific researchers (science, 9.55 59 Other agricultural, forestry, 69.33
engineering, medical science, etc.) husbandry, fishery, and water
facilities workers
13 Engineers and technicians (geology, 15.39 61 Mining and quarrying workers 53.88
energy science, chemical
engineering, space engineering)
14 Engineers and technicians (TMT, 7.14 62 Metal producing and processing 87.26
transportation, electrical workers (steels)
engineering)
15 Engineers and technicians 5.38 64 Chemical production workers 83.58
(transportation, oceanic science, (chemical oil production)
hydraulic engineering, architecture)
16 Engineers and technicians (food 14.43 65 Chemical production workers (fining 43.13
science, seismology, quality and compounding)
assurance, environmental
protection)
17 Agricultural technicians 1.54 66 Machine producing and processing 87.67
workers
18 Aircraft and ship technicians 20.13 67 Mechanical and electronic 44.95
equipment installing workers
(common machines)
19 Medical technicians 3.08 68 Mechanical and electronic 59.69
equipment producing workers
(arms)
21 Economic professionals 46.01 69 Mechanical and electronic 41.02
equipment installing workers
(high-precision trajectory)
22 Financial professionals 47.67 71 Machine repairers 45.81
23 Legal professionals 11.86 72 Electronical equipment installing, 57.26
operating, maintaining, and
powering workers
24 Teachers 7.76 73 Electronic component and 55.97
equipment producing, installing,
testing, and maintaining workers
25 Cultural and art professionals 12.76 74 Rubber and plastic producing 44.00
workers
26 Athletic professionals 24.30 75 Weaving, knitting, and bleaching 60.40
workers
27 Media professionals and publishers 30.46 76 Tailoring, sewing, and leather and 83.58
fur producing workers
28 Religious professionals 1.66 77 Oil, food, beverage, and their 84.00
materials producing and
processing workers
32 Security guards and firefighters 41.73 78 Tabaco producing and processing 74.67
workers
33 Mail and teleservice workers 43.70 79 Medicine producing workers 29.16
39 Other clerical workers 74.88 81 Wood, cabinet, and paper producing 63.03
and processing workers
41 Sales clerks 61.15 82 Building materials producing and 75.72
processing workers
42 Stock clerks 46.12 83 Glass, pottery, and enamel 70.15
producing and processing
workers
43 Food service workers 74.62 84 Media and film producers, cultural 58.35
relic protectors
(Continued)
18 G. ZHOU ET AL.

Table A1. (Continued).

Probability Probability
Code Occupation (%) Code Occupation (%)
44 Hotels, travel and fitting service 38.74 86 Artwork makers 74.72
workers
46 Medical assistant service workers 36.57 87 Educational and sport products 45.65
makers
47 Social and residential service workers 47.27 88 Construction workers 64.01
(agencies, photographers,
hairdressers, housekeepers)
48 Social and residential service workers 57.83 89 Construction workers (construction 26.14
(repairers, dustman, nursery maids) equipment installment)
51 Agronomic growers 71.08 91 Transport equipment operators and 60.23
related workers
52 Forestry producers, wild animal and 77.92 92 Environment monitoring and waste 70.48
plant protectors disposal workers
53 Crop and animal producers 64.55 99 Other production and transport 59.67
equipment operators and related
workers
54 Fishery workers 53.87
This table shows the theoretical substitution probability corresponding to China’s two-digit occupation code. The names
of some two-digit codes are the same, but that does not mean they are identical occupation categories. (The specific
division needs to refer to the three-digit occupation code.)