AI Set to Push Unemployment Rate Way Higher
The artificial intelligence (AI)-led stock market rally of the past year is showing few signs of letting up, at least in the near term. What is becoming rapidly apparent is that the impact of AI is no fad, but rather a generational, transformational technological breakthrough that is just beginning to shape the future of how the United States and the rest of the developed world do business and conduct everyday affairs. The pace of change is accelerating and corporations and public entities that have the budgets to implement AI tools and services are just getting started.
Case in point, one of my sons works at TIAA, also known as the Teachers Insurance and Annuity Association of America, which employs over 16,500 people. The organization, which owns Nuveen, is well known for overseeing most of the United States’ university pension plans, and offers retirement plans, IRAs, college savings plans, mutual funds, brokerage services and life insurance nationwide. 2022 revenues were just under $41 billion.
A job at TIAA was always viewed as a job for life — like the Federal Reserve. My son works at TIAA, and this past weekend, we had a long discussion about the company’s new and major AI initiative that will alter the future of employment at TIAA. While most current employees that are “essential” to the company’s operations will for the time being maintain their jobs, it is a clear directive by management that they intend to spend large sums to put in place AI systems that reduce the number of FTEs (full-time employees) and increase productivity by significant margins in all their divisions.
This is just one company that isn’t seasonal, where thousands of people are hired and fired with every economic upswing and downturn, taking aggressive action to reconfigure their workforce. According to Crunchbase, there are approximately 5,163 organizations in the United States with annual revenues ranging from $1 billion to $10 billion. Add on top of this the S&P 500, along with federal and state governments, and you have a potential perfect storm of layoffs in the making.
The McKinsey Global institute estimates that by 2030, up to 30% of tasks currently performed by workers in the United States could be automated by AI. Goldman Sachs predicts that AI will disrupt 300 million jobs worldwide by 2030. According to a survey by www.mindandmetrics.com, 38% of companies are likely to have layoffs in 2024, and four in 10 attribute these layoffs to replacing workers with AI. According to the World Economic Forum held recently in Davos, Switzerland, 83 million jobs worldwide could vanish within the next five years due to automation and AI.
When using Copilot ChatGPT to inquire about which are the most likely jobs AI will replace, it quickly identifies the following:
- Jobs Most Threatened by AI:
- Content Marketers: AI can generate text, making content creation more efficient.
- Data Entry Clerks: Repetitive data entry tasks can be automated.
- Software Engineers and Coders: AI can assist in coding and debugging.
- Customer Service Reps: Chatbots and virtual assistants handle routine inquiries.
- Paralegals: Legal research and document review can be automated.
- Copywriters and Content Roles: AI can create written content.
- Graphic Designers: AI tools can generate visuals and layouts.
- Financial Analysts: Routine financial analysis tasks can be automated.
- Jobs Less Threatened by AI (for now):
- Healthcare Professionals: AI can assist, but human judgment and empathy remain crucial.
- Teachers and Educators: Personalized teaching requires human interaction.
- Creative Professionals (Artists, Musicians): Creativity and emotional expression are hard to replicate.
- Skilled Trades (Plumbers, Electricians): Hands-on work and problem-solving are essential.
- Scientists and Researchers: Complex problem-solving and innovation are uniquely human.
- Managers and Leaders: Decision-making, strategy and interpersonal skills are vital.
But this is just scratching the surface of how AI-assisted robotic systems will replace millions of retail store workers, quick-service restaurants, warehouse workers… the self-serve world is about to undergo exponential growth, with companies radically reducing the size of their HR departments, slashing budgets for salaries, bonuses, stock options, healthcare, paid leave, matching contributions for 401K plans, food services and other people-related expenses.
This wave of change will no doubt trigger a boom in new job training in those fields where AI doesn’t eliminate one’s occupation. And there will be no crocodile tears from most Americans if AI can shrink the size of federal and state government workforces by 50%, which would lead to the greatest government spending cuts of all time. Want to cut spending and work toward balancing the budget while maintaining full social benefits? Start with slashing the size of the number of overpaid bureaucrats with bloated benefits.
As of January 2024, there are 20.54 million people working for a federal, state or local government, and 167 million in the labor force outside government employment. Since 2018, the population in the United States has grown by less than 5 million people, or 1.5%, not counting the flood of illegal immigrants, to around 335 million legal citizens. And yet, the number of government employees at all levels has grown by 10%, which makes this ratio way out of line if you are a hard-working taxpayer.
In the past four years, federal, state and local governments have played a notable role in job creation, particularly during the first half of 2023, when 379,000 new government hires accounted for nearly one-quarter of the 1.7 million new jobs created. If this is Bidenomics, then it needs some closer examination of what the real underlying job growth is, because it isn’t happening at a strong enough rate within the sectors that generate taxable revenue.
To sum up, AI, for all its pros and cons, is going to be the most disruptive force in the labor market during our lifetime, at least as far as I can tell from reading all the data that is trying to forecast its effects on society. It also means that companies will generate wider profit margins from every dollar of goods and services sold, which should translate into higher earnings for the S&P 500 while also generating a long-term deflationary element to the productivity of nearly everything. How this all plays out is to be determined, but it sure looks like the way forward for what we know now.
