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Paper · arXiv

Managing the Human Fallback: Skill Investment Under Improving AI and Worker Mobility

When firms deploy autonomous AI, they must decide how much work to leave to the system and how much to keep workers engaged. This decision affects current output and future human capital. We develop a parsimonious two-period model in which AI may outperform the worker when it functions, but may fail with positive probability. A firm chooses worker engagement; engagement lowers current output for below-benchmark workers, but changes future skill through learning and erosion. We distinguish two dimensions of AI progress: capability, the system's output when it works, and reliability, the probability that it works. In a single-firm benchmark, engagement is valuable only as fallback investmen...

AuthorsSimrita Singh, Naireet Ghosh, Tinglong Dai
Primary categorycs.AI
Published27 June 2026
Last updated at source27 June 2026
cs.AIecon.GNecon.TH
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