The Opportunities and Challenges of AI for Labor Markets in the Global South

By Veronica Amarante PEP Research Fellow, Gender Committee - Professor, Instituto de Economía, Universidad de la República, Uruguay and Guillermo Cruces PEP Research Fellow, Resource Person - Experimental Group, Deputy director, CEDLAS, Universidad Nacional de La Plata, Argentina

The rapid advancement and widespread adoption of artificial intelligence (AI) technologies are reshaping the global economic landscape at an unprecedented pace. AI offers the potential to address critical development challenges and create new economic opportunities. AI-powered tools have the potential to improve access to education and healthcare in underserved areas, optimize agricultural practices to boost food security and productivity, and enhance financial inclusion. 

While these AI-powered innovations hold great promise for development, their implementation will fundamentally reshape how work is performed and organized. As these technologies continue to evolve, their potential benefits and other impacts on labor markets worldwide have become a topic of intense discussion and research. While most of this discussion focuses on rich countries, this blog post explores the implications of AI for labor markets in the Global South, examining both the challenges and opportunities that lie ahead for developing economies.

The AI revolution: A new form of global labor division

The current wave of AI technologies, especially large language models (LLMs) - AI systems capable of understanding and generating human-like text-, differs from previous technological revolutions in several crucial ways. Unlike earlier innovations, AI is being adopted at an unprecedented pace and is becoming widely accessible to individuals and businesses of all sizes. This democratization of AI capabilities has the potential to disrupt traditional labor markets in ways we're only beginning to understand.

For the Global South, the AI revolution presents a unique and complex set of challenges and opportunities. On the negative side, AI could potentially reduce the need for offshoring certain tasks, which might impact jobs in developing countries that have benefited from previous waves of globalization. On the plus side, the rise of AI has created demand for new forms of digital labor in the South, particularly in emerging AI-related tasks. This new division of digital labor deserves closer examination.

Global Division of AI Labor: Opportunities and Precarity in the Global South

The development of AI systems relies heavily on large amounts of data, with data collection and labeling processes often carried out in developing countries. This has led to the emergence of a new form of global labor division, where AI systems are concentrated in developed countries but rely on a workforce of data annotators and verifiers in developing nations (Muldoon et al., 2024).

While this creates new employment opportunities, it also raises concerns about working conditions, fair compensation, and labor protections for these workers. Many of these jobs are performed through digital platforms or business process outsourcing (BPO) companies, often with limited regulation or worker protections. For instance, data annotation workers may face precarious employment conditions, including unpredictable hours, piece-rate payments that can amount to below minimum wage, lack of healthcare benefits, among others.

Given these emerging patterns and challenges, there is an urgent need to better understand and shape this new global division of AI labor. Research priorities in developing economies should focus on documenting local innovation models and examining AI's impact on vulnerable workers, particularly in the growing digital labor sector. Critical areas for immediate investigation include mapping the participation of Southern countries in AI value chains, from data annotation to potential higher-value activities, and analyzing how digital labor platforms can be regulated to protect workers' rights while fostering economic growth. Beyond the challenges of digital labor conditions, another relevant barrier to realizing AI's benefits in the Global South is the persistent digital divide.

The digital divide and AI adoption

While the potential benefits of AI for developing economies are significant, realizing these benefits depend heavily on overcoming the digital divide. Access to digital infrastructure, including reliable internet connectivity and affordable devices, remains a significant challenge in many parts of the global South.

Gymrek et al. (2024) pioneered research examining how generative AI might impact jobs in developing countries, moving beyond the usual focus on advanced economies. Their research shows that even workers in occupations that are generally expected to benefit from GenAI may not be able to reap its benefits due to poor access to digital infrastructure. In Latin America and the Caribbean, for example, they found that while 8-12% of employment could potentially benefit from AI augmentation, about half of these positions are hampered by digital shortcomings that will prevent them from realizing that potential.

These infrastructure challenges, combined with the precarious nature of current AI-related work in the Global South, highlight the need for comprehensive policy responses that address both technical and social dimensions of AI adoption.

Policy implications for the Global South

To harness the potential benefits of AI while mitigating its risks, policymakers in the Global South should consider the following interventions addressing infrastructure and skills development (points1, 2 and 3) and work protection and governance (points 4 and 5):

1. Invest in digital infrastructure: Prioritize the development of reliable and affordable internet connectivity and access to digital devices.
2. Focus on AI-complementary skills: Enhance education and training programs that emphasize skills that complement AI, such as critical thinking, creativity, and emotional intelligence.
3. Promote responsible AI development: Encourage the development of AI systems that address local needs and challenges in developing countries.
4. Strengthen labor protections for digital workers: Develop regulations to ensure fair working conditions and adequate protections for workers in AI-related digital labor.
5. Foster international cooperation: Collaborate with other countries and international organizations to develop standards for ethical AI development and deployment, with a focus on the unique challenges faced by the global South.

By taking a proactive and thoughtful approach to AI adoption and development, countries in the global South can position themselves to benefit from the opportunities presented by this technological revolution while mitigating its potential negative impacts.  The choices made today about infrastructure investment, worker protection, and AI governance will play a crucial role in determining whether AI becomes a tool for inclusive development or exacerbates existing inequalities.

  Disclaimer: The views and opinions expressed in PEP blog posts are those of the authors and do not necessarily reflect the official policy or position of the Partnership for Economic Policy (PEP).

Working Paper