Over 200 years of technical advancements show that, despite significant disruptions to some industries, total employment increased. JPMorgan says the AI revolution will be no different.
Jacob Manoukian, head of investment strategy for JPMorgan Private Bank and Wealth Management in the United States, detailed the changes brought about by the invention of computers, electricity, and the steam engine.
He noted that rather than causing widespread unemployment, the innovations reduced expenses and created new roles that more than made up for the losses from outdated employment.
“We think AI could follow the same trajectory: broad productivity growth, followed by violent task churn,” Manoukian wrote.
To be sure, those who performed old tasks incurred huge losses. Hand-loom weavers, for example, saw their actual salaries slashed in half between 1806 and 1820 as a result of the advent of steam engines. Canal boatmen and cart drivers lost their employment when steam-powered trains became the primary mode of transit.
However, as textile output and consumption increased and transportation prices declined, the demand for workers in coal mine, train maintenance, and urban retail increased, he said.
Electricity and computers triggered comparable massive shifts, many of which were unexpected. Productivity increased along the way. In the 1980s, Manoukian estimated that corporations needed eight people for every $1 million in revenue, but by the 2000s, that figure had dropped to six.
He went on to say, “This demonstrates another long-term trend: New innovations are accelerating the growth of overall productivity.”
Forecasting the next boom
Manoukian believes that even AI optimists are underestimating the speed of the next boom, considering how rapidly new technologies have been translating into increases in productivity.
It took 61 years after the invention of the steam engine for productivity to increase. With electricity, the gap decreased to 32 years, and with computers and the internet, it decreased to 15 years. According to JPMorgan, AI will be developed in less than seven years.
Other forecasts are even more pessimistic than JPMorgan’s. Geoffrey Hinton, a computer scientist who has won a Nobel Prize and is known as the “godfather of AI,” cautioned that artificial intelligence will lead to widespread unemployment and enrich a select few while making the majority of people poorer.
According to Anthropic CEO Dario Amodei, within five years, AI may eliminate around half of all entry-level white-collar occupations, leading to a 20% increase in unemployment overall.
Evidence is already accumulating that AI is reducing opportunities, particularly for entry-level positions. Recently, Bank of America reported that unemployment among new college graduates had surpassed the national rate, breaking a pattern that had been in place for years.
Some long-term advantages that humans have over AI, according to Manoukian of JPMorgan, are common sense, causal inference, dexterity, emotional intelligence, high stakes accountability, adaptive learning, and intrinsic drive. Additionally, AI may help counteract working-age population decreases brought on by aging populations and more stringent immigration laws.
Reducing the effect
Nevertheless, there are strategies to lessen AI’s adverse effects. For example, the Federal Reserve can reduce interest rates to boost demand in sectors that are sensitive to borrowing costs, such as housing. Lawmakers have the power to support apprenticeship initiatives. Employers may also retrain employees for new responsibilities and replace low-value positions with AI.
Businesses would probably reinvest a portion of the savings from AI into new areas of development at the same time, according to Manoukian. Thus, anticipate a rise in employment from businesses that develop data infrastructure and software applications as well as those that incorporate AI technologies into workflows and systems.
AI offers businesses the advantage of lower costs and higher production by increasing worker productivity and rendering some occupations obsolete. In other words, human work is the whole market that AI can reach, he continued.
However, the trend we’ve seen over decades of technical advancements clearly points to AI as a driver of economic development and productivity, as well as a way to open up new avenues for aggregate demand without permanently harming the labor market. Not destruction but disturbance.
