Abstract
Firms are increasingly interested in investing in artificial intelligence (AI), but what drives this trend? Our research reveals that media coverage of labor issues plays a significant role. When firms face public scrutiny through media exposure of labor issues, the reputational pressure pushes them to act. AI emerges as a strategic response, offering powerful capabilities to automate and augment human tasks. Analyzing data from U.S. public firms, we found that labor issue-related media coverage significantly increases AI investments, particularly among firms with the motivation and resources to invest in AI, whereas other IT or general investments are not similarly influenced, suggesting that firms view AI as uniquely suitable to address labor challenges. Interestingly, firms appear to prioritize AI for its automation capabilities, particularly targeting high-skilled labor, contrasting with traditional automation investments focused on lower-skilled tasks. This shift signals a transformation in how companies are reimaging the future of work. For business leaders, our findings also reveal that AI investment not only reduces future media scrutiny but also decreases labor reliance. Policymakers, however, must consider the broader implications, particularly the impact of AI investment on labor markets and the need for proactive workforce planning.
Despite growing interest in how artificial intelligence (AI) affects the labor market, there is limited understanding of the labor-related factors driving firms to invest in AI. Drawing on the institutional perspective of media coverage, we propose that media exposure of labor issues exerts reputational pressure on firms, heightening their awareness of the necessity and urgency to address these problems. Consequently, firms are driven to invest in AI as a potential solution, given its capabilities in both augmenting and automating human tasks. Analyzing a unique data set that combines various archival data sources from U.S. public firms, we find support for this argument. Our analyses reveal that when firms have stronger motivation and capability to invest in AI, this effect becomes more pronounced. In contrast, firms are not inclined to engage in non-AI information technology (IT) or general non-AI investments in response to media exposure of labor issues, indicating their preference for AI investment to address labor challenges. Our exploration of plausible mechanisms suggests a distinct automation motive underlying firms’ AI investment, particularly geared toward high-skilled labor, in contrast to traditional automation investment, which primarily targets non-high-skilled labor. Further, our findings suggest that AI investment reduces future media exposure of labor issues and leads to less labor use, indicating that firms likely engage in AI investment for automation rather than augmentation purposes. This study contributes to AI research in management information systems by identifying AI investment as a strategic response to media exposure of labor issues. Our findings also have meaningful implications for managers and policymakers regarding firm AI investment.
History: Sam Ransbotham, Senior Editor; Chad Ho, Associate Editor.
Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.0402 .