Hey, that’s my job!

Despite most traditional thinking that productivity gains are good for employment, consider the other side and check out this blog we wrote in November 2023 entitled That old bugaboo… . The potential for higher levels of structural unemployment in the coming years, due to technological advancements, is now supercharged by the sudden accelerated adoption of AI throughout the enterprise.  We never bought the logic that AI would create a utopia for workers with more rewarding, higher-purpose jobs for everyone. The idea that “You’ll never have to do a mundane task again” meets you won’t be doing any task at all.

But it’s much worse than that, because many companies – especially the larger ones – loaded up on employees at higher wages, post-COVID, in a frenzied attempt to address what everyone believed was the new normal.  They over-hired and over-paid, temporarily shifting the balance of power to employees and causing many to herald a new era of workers’ rights.  This “moment in the sun” has passed in our estimation.  And these companies are now in the process of normalizing their workforces either through hiring freezes, where attrition leads to fewer employees more slowly over time (much as the Fed is doing with its balance sheet as bonds mature), or with outright layoffs / terminations.  For example, Intel Corp., the struggling US chip maker that’s seemingly lost its way, was the latest to announce a 15% reduction of its workforce (15,000 employees) earlier this month. 

And Sebastian Siemiatkowski, the CEO of Klarna seems to agree.  It was reported in the Financial Times and in other business publications that Klarna, a private fintech “buy now, pay later” juggernaut, plans to eliminate roughly half (50%) of its workforce over the next few years, after already cutting staff by almost 25% over the last year, because “[n]ot only can we do more with less, but we can do much more with less….”  Apparently, Klarna’s CEO has become one of the most vocal advocates among European corporate leaders of the beneficial impacts of AI, even if it should result in lower employment levels.  According to the article, he argues that employment is an issue for governments to worry about.  Turns out, something else we agree on.

The job of corporations is to maximize profits for its shareholders while being generally good public citizens – obeying the laws, treating workers fairly, etc.  The ESG “hooey” (yes, that’s a technical term) that suggests equal stakeholder-ship for environmental, social and governance causes is also fading as those that have embraced this logic, some under threat, have failed to keep pace both in terms of fundamental and stock price performance.  And yes, we are capitalists.  In the end, it’s not a company’s responsibility to ensure full employment for workers.  Rather, this responsibility falls to governments in the form of things like monetary policy, lawmaking and regulation.

As all this unfolds, expect to hear more and more calls for “universal income” from politicians and wealthy elites – essentially unearned, unworked income and something Pope John Paul II warned the world about when he discussed the “dignity of work” in Laborem Exercens, after living under the thumb of communist totalitarian regimes throughout most of his life.

Technology and progress are not bad things in and of themselves.  However, with such a substantial societal inflection like AI, there will be significant ancillary impacts that may take more time to prepare for and adjust to when juxtaposed against the faster pace of technology adoption.  For many, small businesses, including boutique RIAs like ours, where machining processes with AI allows for getting more done with less, it could be a big win.