Taipei: Taiwan and other advanced economies should look beyond manufacturing as AI accelerates automation and reshapes labor markets, Peter Howitt, who shared the 2025 Nobel Prize in Economic Sciences, said Tuesday. Speaking at the Master Forum in Taipei, the Canadian economist suggested that AI will have a neutral impact on job creation over the long term, but the global decline in manufacturing employment that was evident before the advent of AI cannot be reversed.

According to Focus Taiwan, Howitt explained that "manufacturing employment was falling in almost every country, even where the manufacturing output was really rising," emphasizing that this trend is expected to continue. He highlighted that the future job market will likely transition from manufacturing to service industries as AI technologies evolve. Describing AI as a "general purpose technology" akin to electrification and the computer revolution, Howitt noted that such technological breakthroughs typically cause significant labor-market disruptions before their broader economic benefits become evident.

While acknowledging that AI might eliminate some jobs, Howitt believes it will also generate new occupations over time. However, economies must prepare workers for this transition by focusing on new industries and service-oriented roles. He urged governments to invest more in education, worker retraining, and alternative energy development to effectively navigate this shift.

Renowned for his work with French economist Philippe Aghion on "creative destruction," Howitt elaborated on their theory that innovation propels economic growth by continuously replacing outdated technologies, firms, and jobs with new ones. This theory, initially proposed by Austrian economist Joseph Schumpeter, was further developed by Howitt and Aghion into the "Aghion-Howitt model," which portrays growth as a cyclical process of emerging innovations eventually being supplanted.

Decades of research, Howitt stated, indicate that innovation is largely dependent on factors such as competition, openness to trade, intellectual property protection, human capital, and collaboration among governments, businesses, and academia. He cited Taiwan Semiconductor Manufacturing Co. (TSMC) as a prime example of successful industrial coordination, attributing much of Taiwan's success to TSMC's partnership with the government and substantial government financing.