AI and Jobs: Has the Inflection Point Arrived? Evidence from an Online Labor Platform

The emergence of Large Language Models (LLMs) has renewed the debate on the important issue of "technology displacement". While prior research has investigated the effect of information technology in general on human labor from a macro perspective, this paper complements the literature by examining the impact of LLMs on freelancers from a micro perspective. Specifically, we leverage the release of ChatGPT to investigate how AI influences freelancers across different online labor markets (OLMs). Employing the Difference-in-Differences method, we discovered two distinct scenarios following ChatGPT's release: 1) the displacement effect of LLMs, featuring reduced work volume and earnings, as is exemplified by the translation & localization OLM; 2) the productivity effect of LLMs, featuring increased work volume and earnings, as is exemplified by the web development OLM. To shed light on the underlying mechanisms, we developed a Cournot-type competition model to highlight the existence of an inflection point for each occupation which separates the timeline of AI progress into a honeymoon phase and a substitution phase. Before AI performance crosses the inflection point, human labor benefits each time AI improves, resulting in the honeymoon phase. However, after AI performance crosses the inflection point, additional AI enhancement hurts human labor. Further analyzing the progression from ChatGPT 3.5 to 4.0, we found three effect scenarios (i.e., productivity to productivity, displacement to displacement, and productivity to displacement), consistent with the inflection point conjecture. Heterogeneous analyses reveal that U.S. web developers tend to benefit more from the release of ChatGPT compared to their counterparts in other regions, and somewhat surprisingly, experienced translators seem more likely to exit the market than less experienced translators after the release of ChatGPT.