---
type: claim
domain: internet-finance
description: "Aldasoro et al (BIS/EU study) find AI-adopting firms show ~4% productivity gains but NO evidence of employment reduction — AI is making existing workers more productive (capital deepening) rather than replacing them, which means the displacement crisis scenario requires a mechanism beyond simple substitution"
confidence: experimental
source: "Aldasoro et al (BIS), cited in Noah Smith 'Roundup #78: Roboliberalism' (Feb 2026, Noahopinion); EU firm-level data"
created: 2026-03-06
challenges:
  - "[[AI labor displacement operates as a self-funding feedback loop because companies substitute AI for labor as OpEx not CapEx meaning falling aggregate demand does not slow AI adoption]]"
---

# early AI adoption increases firm productivity without reducing employment suggesting capital deepening not labor replacement as the dominant mechanism

The Aldasoro et al study (BIS, European firm-level data) provides the cleanest empirical test of the displacement thesis available: firms that adopt AI show approximately 4% productivity improvement, but show NO statistically significant reduction in employment.

**What capital deepening means:** AI is functioning like other capital investments — making each worker's output more valuable rather than eliminating the worker's role. The firm gets more output for the same labor input. This is the standard mechanism of productivity growth that has driven rising living standards for centuries. It is categorically different from labor substitution.

**Why this matters for the displacement debate:** The Citrini thesis and the self-funding feedback loop claim both assume that AI adoption = labor elimination. If the dominant mechanism is actually capital deepening, then:
- Companies don't save money by laying off workers — they make more money with the same workers
- Aggregate demand doesn't fall — workers keep their jobs and incomes
- The "doom loop" (lay off → save money → buy more AI → lay off more) doesn't activate
- The macro crisis requires a *different* mechanism than simple substitution

**Limitations:**
- This is early-stage adoption data. The capital deepening phase may precede a labor substitution phase as AI capabilities improve. The trajectory matters more than the current state.
- European firms may adopt AI differently than US firms due to stronger labor protections, different corporate culture around layoffs, and different regulatory environments.
- Surviving firms in the sample may show capital deepening while non-adopting competitors fail — the displacement could show up in firm exits rather than within-firm layoffs.
- A 4% productivity gain is modest. If AI capabilities continue to improve rapidly, the equilibrium relationship between AI adoption and employment could shift.

**The Jevons Paradox connection:** If AI makes workers more productive, firms may hire *more* workers to capture the expanded opportunity set — the same mechanism Loeber invoked against Citrini. Capital deepening + Jevons Paradox = growing employment, not shrinking.

**Open question:** Is capital deepening the stable equilibrium, or is it a phase that precedes labor substitution as AI capabilities cross some threshold? The study can't answer this — it reports a snapshot, not a trajectory.

---

Relevant Notes:
- [[AI labor displacement operates as a self-funding feedback loop because companies substitute AI for labor as OpEx not CapEx meaning falling aggregate demand does not slow AI adoption]] — this claim assumes substitution as the dominant mechanism; the Aldasoro evidence suggests complementarity may dominate instead, at least in the current adoption phase
- [[LLMs shift investment management from economies of scale to economies of edge because AI collapses the analyst labor cost that forced funds to accumulate AUM rather than generate alpha]] — a domain-specific case where AI could go either way (complement existing analysts or replace them)
- [[knowledge embodiment lag means technology is available decades before organizations learn to use it optimally creating a productivity paradox]] — capital deepening may be the early phase of the knowledge embodiment cycle, with labor substitution emerging later as organizations learn to restructure around AI

Topics:
- [[internet finance and decision markets]]
