Every time there is fresh evidence of labor market softness, as with last month’s jobs report, an obvious question is raised about the health of the US economy. Increasingly, economists and employees are asking a second question: Are we seeing the effects of artificial intelligence (AI) on knowledge workers?
There are plenty of signs that AI is making the job market tougher for young college graduates, but for the 22 million people with jobs that are categorized as professional and business services, wage growth has actually accelerated over the past year to levels solidly above pre-COVID-19 pandemic rates. That suggests the state of the labor market for white-collar workers is best described as bifurcated — one in which there are winners and losers rather than one in which most workers are worse off.
Despite the overall unemployment rate being a solid 4.2 percent, conditions for young workers are soft. Only 65.3 percent of 20-to-24-year-olds were employed last month, nearly three percentage points lower than the post-pandemic peak in January last year, and about the same proportion as in December 2008, following Lehman Brothers Holdings Inc’s collapse.
For the millions of college graduates in the 22-to-29 age group, the unemployment rate stood at 3.7 percent in the first six months of the year, compared with 2.8 percent in 2019, Current Population Survey data showed.
Such numbers are backed up by numerous news reports, as well as comments from corporate executives on how they see AI transforming labor needs. Internship postings in the spring were down.
A recent Wall Street Journal report said that the share of entry-level hires relative to all new hires had slumped by 50 percent since 2019 among the biggest technology companies, while another pointed to consultancy firm McKinsey putting together smaller but more experienced teams as it adds AI to the mix.
It is also becoming more common for CEOs to talk about AI eventually leading to significant layoffs.
At Meta Platforms Inc, Alphabet Inc and Microsoft Corp, employee headcount grew 64 percent from 2019 to 2022, but just 3 percent over the past three years. That comes as the three tech juggernauts collectively plan more than US$250 billion in capital expenditures over the next 12 months, suggesting there is a tradeoff between investing in AI and hiring workers.
While the number of jobs in the professional and business services’ category of the nonfarm payrolls data shrank slightly over the past year, wage growth accelerated to just more than 5 percent last month. Compare that with 2019, when employment growth averaged 1.3 percent, while wages rose 3.7 percent.
One explanation for is that there are composition effects at work. If companies are not hiring young workers, who tend to be lower paid, there would be lower employment growth in professional and business services along with increasing average compensation levels, which could overstate the extent to which older, more experienced workers are getting raises.
However, there are reasons to believe some workers really are gaining from this phase of the AI boom. There is the pro athlete-type offers being made to the select few engineers building new AI models. Outside the tech sector, there is the experience of companies such as McKinsey, where “mediocre expertise” is going away, while specialized expertise becomes more valuable in combination with AI agents.
That dovetails with Nvidia Corp CEO Jensen Huang’s (黃仁勳) prediction that workers who use AI would be fine in such a transition.
It is reasonable for all workers to be uncomfortable with a technological innovation that has not disrupted most workers yet, but where the ultimate outcome is so uncertain. There is no guarantee that the next generation of AI models would not come after workers with more advanced skills.
It is also a far cry from the technology boom of the late 1990s, which was accompanied by broad-based employment, compensation and consumption growth.
With the AI boom, it feels like the bigger it gets, the more losers there will eventually be, either from workforce disruption or a malinvestment-induced bust. Unless there are signs that it is leading to more winners than losers, this is a boom that understandably generates as much fear as it does optimism.
Conor Sen is a Bloomberg Opinion columnist. He is founder of Peachtree Creek Investments. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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