FORECASTS & TRENDS E-LETTER
by Spencer Wright
October 8, 2024
AI – Job Destruction and Job Creation
IN THIS ISSUE:
The Economic Concept of Creative Destruction
AI Job Destruction
AI Job Creation
Final Thoughts
The Economic Concept of Creative Destruction
Creative destruction is an economic concept developed by economist Joseph Schumpeter in the 1930s and 40s. Schumpeter’s creative destruction is a concept that describes the process of innovation-driven change in an economy, where new products, processes and industries emerge, replacing and making existing ones obsolete. This perpetual cycle of innovation and obsolescence is a fundamental characteristic of capitalism. According to Schumpeter, “The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
Schumpeter considered these inevitable changes were powered by waves of innovation. Consider this illustration:
Looking back as far as 1785 you can see what led the waves of innovation and thus creative destruction. The 2020s represent the sixth wave of innovation, led by AI. Schumpeter’s creative destruction is a fundamental concept in economics that highlights the dynamic and innovative nature of capitalism. Creative destruction is challenging for workers and communities. It is a catalyst for economic progress, driving both growth and productivity as well as raising living standards across the board.
AI Job Destruction
About a month ago, Techtarget.com produced a great paper on how AI will impact jobs. It’s what sparked this newsletter installment. According to Techtarget.com:
“AI is already replacing jobs, responsible for nearly 4,000 cuts made in May 2023, according to data from Challenger, Gray & Christmas Inc. OpenAI — the company that created ChatGPT — estimated 80% of the U.S. workforce would have at least 10% of their jobs affected by large language models (LLMs).”
The same paper identified the jobs most likely to be impacted by or eliminated by AI. These jobs are in the following areas: Administrative, content writers, coding, customer service, drivers, legal, market, manufacturing, teachers, travel and tourism, translators, finance, graphic design, engineering, human resources, retail and supply chain. Wow. That is an astounding array of vocations. Let’s take a closer look at a couple of them.
Customer Service: Many companies are replacing human customer service agents with AI-powered chatbots, citing cost savings and improved efficiency. AI chatbots can provide real-time, accurate responses to routine queries. Users are generally not aware that they are dealing with AIs.
Legal: This one is interesting. I must admit that I did not consider that AI would find a place in the law. But it does make sense. AI will eventually perform many of the tasks of paralegals and legal assistants. According to Techtarget.com, “…one study by authors from Princeton University, New York University and the University of Pennsylvania. A March 2023 study from Goldman Sachs said AI could perform 44% of the tasks that U.S. and European legal assistants typically handle. GPT-4, OpenAI's latest and greatest language model, passed the Uniform Bar Examination in the 90th percentile.”
AI lawyers? That might be an improvement!
Consider this graphic from a recent Goldman Sachs study:
From the report, “We find that roughly two-thirds of US occupations are exposed to some degree of automation by AI, and that of those occupations which are exposed, most have a significant—but partial—share of their workload (25-50%) that can be replaced.”
This infographic from the same Goldman report is by far the most interesting, it shows how exposed various industries are to AI automation. Administrative and legal are right out front.
In past waves of innovation, it was usually “muscle” jobs that were creatively destroyed. Not this time. The above graph demonstrates that wave six displacement will affect skilled workers, professionals and experts. Many so-called “white collar” jobs will be redistributed to Generative AIs.
AI Job Creation
There is a belief that AI will create more jobs than it destroys. That AI will lead to long-term job growth, augmenting human capabilities, improving efficiency, and enabling new industries and opportunities. Even though there have been some recent studies that support this notion, I think that the impact of AI will be so vast as to be currently unknowable.
The Bureau of Labor Statistics is forecasting job growth and a “labor realignment” because of AI innovations. What follows is a link to a rather lengthy paper on the subject. “Firm investments in artificial intelligence technologies and changes in workforce composition” (National Bureau of Economic Research, Working Paper 31325, June 2023). You can download the pdf at that link. In short, the report forecasts a reduction of middle and upper management in some segments and a redefinition of entry-level positions. It also predicts new positions that will exist as a result in AI investments.
It is hard to say exactly what types of jobs AI will create as the full impact of AI remains unknown. What is clear, however, is that upskilling and reskilling will become very common during the transition period of this innovation wave. As AI automates routine tasks, workers will need to develop new skills to adapt to changing job requirements, driving demand for training and education services, which would be AI-created jobs.
AI job creation is a promising trend, driven by its ability to augment human capabilities, improve efficiency and enable new industries and opportunities. But will it be enough? Again, this is unknowable currently. In many cases jobs will be eliminated, in some they will be augmented. One thing is sure, the transition will be rough.
Final Thoughts
A very important aspect I have not mentioned is the involvement of the government in the form of AI regulations. What will that look like and how will it work? No one knows – certainly not Congress. The impact of AI will be widespread and complex. I think it will be hard for the government at any level to curb, reform, block or otherwise modify the expansion of AI without unintended consequences. We find ourselves in uncharted waters.
I could not help myself and will leave you with this. I asked MS Co-Pilot to render an image of AI created jobs.
Thanks for reading,
[Spencer]
Spencer Wright is an investment advisor with Halbert Wealth Management, Inc. and a regular contributor to Forecasts & Trends. He has been with HWM for over twenty-five years and serves on the Due Diligence Committee and the Investment Committee. His experience in domestic and international investments gives him valuable insight to those markets.
