“Generate” the Future of Work through AI: Empirical Evidence from Online Labor Markets

Abstract

Large Language Model (LLM)-based generative AI systems are general-purpose tools capable of augmenting or even automating a wide range of job functions, positioning them to reshape labor market dynamics. However, predicting their precise impact a priori is challenging, given AI’s simultaneous effects on both demand and supply, as well as the strategic responses of market participants. Leveraging an extensive dataset from a leading online labor platform, we document a pronounced displacement effect and an overall contraction in submarkets where required skills closely align with core LLM functionalities. Although demand and supply both decline, the reduction in supply is comparatively smaller, thereby intensifying competition among freelancers. Notably, further analysis shows that this heightened competition is especially pronounced in programming-intensive submarkets. This pattern is attributed to skill-transition effects: by lowering the human-capital barrier to programming, ChatGPT enables incumbent freelancers to enter programming tasks. Moreover, these transitions are not homogeneous, with high-skilled freelancers contributing disproportionately to the shift. Our findings illuminate the multifaceted impacts of general-purpose AI on labor markets, highlighting not only the displacement of certain occupations but also the inducement of skill transitions within the labor supply. These insights offer practical implications for policymakers, platform operators, and workers.