ARTICLE
AI’s Impact on Labor
During the peak of John Hughes’ movies in the mid-1980s, like The Breakfast Club, Ferris Bueller’s Day Off, and Sixteen Candles, there were about 12 million retail jobs in the U.S. as shopping malls were the place to be. Perhaps surprisingly, there are now more than 15 million retail jobs even though malls across the country are struggling or closing. Technology has reshaped the retail industry, creating jobs overall.
AI’s Impact on Labor: What We Know So Far
Even though technology changes and disrupts industries, it rarely eliminates the need for employees outright. Generative Artificial Intelligence is frequently in the headlines for various reasons, one of which is the concern that it will negatively impact the labor market.
While no one knows exactly how AI will impact the world, its effects will play out over decades. Today, around 60% of U.S. workers are in jobs that did not exist 80 years ago. Though technology continues to advance, the need for workers remains steady. Even with recent AI developments, the unemployment rate is 4.4%, and AI has not led to widespread job losses. To date, major shifts in employment due to AI have not occurred.
Job impacts.
AI could displace anywhere from 3% to 14% of the U.S. workforce under various assumptions, according to Goldman Sachs. However, the disruption is likely to be temporary, as new roles and needs may emerge. For example, automated teller machines (ATMs) started gaining popularity in the 1970s. However, the number of bank teller jobs rose alongside the adoption of ATMs (although the recent trend is down as mobile banking is now widely adopted).
Other reports are more bearish. Research from Anthropic, an AI firm, indicates that AI tools are automating 40% of tasks previously performed by people. That is a high figure; however, the work is largely concentrated on writing tasks and software development. However, AI could replace more than half of the tasks in only 11% of occupations, according to a recent study from Empirical
Research Partners.
AI will likely augment many jobs rather than replace them. Some models suggest AI could add 2% to 4% to U.S. GDP over the next decade, reinforcing the potential economic benefits.
Despite the fear of AI replacing jobs, some industries are experiencing a boom due to related infrastructure spending. Many of the hyperscalers (some of the massive technology companies with cloud businesses) are spending hundreds of billions of dollars on data centers and related projects for AI. Employees in the trades (think electricians and project managers) who are building these centers are reporting pay increases of 25-30%, according to a recent Wall Street Journal article. Data centers are expanding in size and can take years to build, requiring thousands of workers. Currently, the tech giants have more than 400 centers in development, according to Synergy Research Group.
But AI is putting some pressure on entry-level jobs, which is disproportionately impacting younger workers. There has been rising unemployment since 2022 among 22- to 25-year-olds in AI-affected industries.
The long-term impact remains unclear, but a recent Wall Street Journal column had an interesting take: “It’s been historically true that younger workers embrace new technologies while older workers resist change,” Richard Smith and Arafat Kabir wrote in the piece. “But AI seems to have flipped this dynamic.” (Smith is a professor of practice and faculty director of the Human Capital Development Lab at Johns Hopkins University. Kabir is a writer specializing in AI.)
This will take time.
While AI adoption rates are trending above forecasts in many cases, the extent of any disruption will still take years to play out. A Yale Budget Lab analysis has found no discernible economy-wide employment disruption yet, despite concerns raised since the release of ChatGPT in late 2022.
Another aspect that does not get enough attention is that the U.S. will increasingly rely on AI's potential benefits to offset the impacts of several labor force trends. Immigration policy is now restrictive compared to years past, and adults are having fewer children. The U.S. may need AI to sustain economic growth and worker productivity, especially as Baby Boomers retire.
We should note that there is also a risk that companies do not adopt AI at a level to justify the hundreds of billions of dollars in expenditures. As of today, many of AI’s capabilities are theoretical across numerous industries. If the technology is not widely adopted, there could be severe economic ramifications.
While no one can predict outcomes exactly, history shows that technology disrupts jobs but also consistently creates new roles. Mark Twain’s quote seems appropriate: “History doesn’t repeat itself, but it often rhymes.”
As always, reach out to your 1834 team if you have any questions.
SOURCES :
Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, Goldman Sachs, Yale Budget Lab, Wall Street Journal