ECB chief economist warns AI could curb wages and tighten euro-area financing

Philip Lane, the European Central Bank’s chief economist, told an audience in Dublin that the expanding use of artificial intelligence by companies in the euro zone may erode workers’ leverage to secure higher wages, offering a possible explanation for the deceleration in wage growth amid still-high inflation. While AI has not yet altered hiring trends, muted recruitment plans further limit workers’ negotiating power. Lane also highlighted that firms are borrowing heavily to finance AI investments, a practice that is lifting long-term bond yields and tightening financing conditions across the euro area.

He noted that this spillover into the bond market is a material factor for the ECB when setting monetary policy. Additionally, Lane pointed out that AI could boost potential output and help offset the demographic decline in the working-age population, raising the economy’s long-run growth capacity.