Has the start of the AI Job Apocalypse just Begun?

3/10/24

In the first few months of 2024 alone, over 42,000 jobs have been slashed across the tech industry, with companies like Google, Microsoft, IBM, and Amazon all citing AI and automation as one of the factors behind the cuts.

The tech industry has been hit by a wave of over 42,000 job losses in 2024, despite a booming U.S. economy and record profits among tech giants. This paradoxical situation has been attributed to a combination of factors, including companies correcting pandemic-era over hiring, adjusting to high inflation and weak consumer demand, and strategically shifting towards greater efficiency and profitability.

Further, the rapid advancement of AI technologies has accelerated significant investment reallocations, leading to workforce adjustments. Additionally, investor expectations and stock market responses have incentivized cost-cutting measures, while the herding effect and social contagion have normalized layoffs within the industry.

These job losses reflect a complex interplay of economic adjustments, social dynamics, and broader market forces shaping company behaviors and priorities in the post-pandemic era. And yes, technological advancements have played a significant role as well.

There's a strategic shift underway towards improving efficiency and profitability within tech companies that involves reevaluating workforce needs considering new operational realities and integrating new technologies like artificial intelligence (AI). As a result, many fear that the specter of artificial intelligence displacing human workers is no longer a distant threat - it's already here.

If that’s the case, then it likely represents just the tip of the iceberg in terms of AI's ultimate impact on white collar employment. A recent Goldman Sachs report estimates that generative AI tools like ChatGPT could eventually automate 300 million full-time jobs globally. McKinsey projects that 50% of current work activities are automatable by 2045, potentially displacing up to 800 million workers. No sector of the economy will be untouched.

The jobs most immediately vulnerable are those involving predictable physical work, data processing, and information collection - think manufacturing, transportation, administrative support, and customer service. But even high-skilled knowledge work is far from safe. With AI now increasingly capable of complex reasoning, analysis, and content creation, everyone from accountants and lawyers to journalists and programmers could see their roles diminished or eliminated. As I have often said, professionals coworking with AI will replace professionals without AI, and enhancements in productivity will just mean that fewer will be needed.

Tech companies cutting headcount while simultaneously pouring billions into AI R&D are the canary in the coal mine. Automation has always destroyed some jobs while creating others, but the speed and scale of the current AI revolution is unprecedented. The concern is that even if new roles emerge, and they will, it’s likely they won't materialize quickly enough to absorb the millions displaced. Further, these jobs will likely require specialized skills that many workers lack.

If this scenario holds true, the productivity gains and cost savings from AI will accrue mainly to corporations and shareholders, not workers. In which case we're facing a future in which the demand for human labor could decline precipitously, with grim implications for wages, economic security, and inequality. As AI continues its inexorable march, we may see mass unemployment on a scale not witnessed since the Great Depression, and this is not an exaggeration.

Apart from the human misery, this would have a substantial negative impact on the US economy, especially considering that consumption accounts for about 70%. So it’s worth contemplating some of the potential consequences.

As highly paid white-collar workers lose their jobs, their disposable income will decrease, leading to a decline in overall consumer spending. This would trigger a ripple effect across various sectors of the economy that depend on consumer demand. As people lose their jobs or face reduced income, they will have to prioritize essential goods and services over discretionary spending, altering the consumption landscape. With more people unemployed, there will be an increased demand for government assistance programs like unemployment benefits and welfare, putting additional strain on government budgets at a time when tax receipts would be declining.

On average, during post-World War II recessions, federal tax receipts declined by around 2-7% per year for the duration of the recession. For example, during the 2007-2009 recession, federal tax receipts declined by approximately 17%. However, the short-term impact of very rapid GenAI adoption and significant white-collar job losses could potentially be much more severe, as it would represent a structural shift in the economy rather than a cyclical downturn. Think depression rather than recession.

The Great Depression saw consumption crushed, unemployment rates as high as 25% and devastating social and economic consequences leading to widespread poverty and homelessness. Federal tax receipts declined by 40% between 1929 and 1933 alone. It also caused a massive structural shift in the economy that saw increased government intervention, the rise of organized labor, the decline of agriculture together with massive urbanization, and banking and financial reforms.

Some argue there's no need for alarm, pointing to the gradual pace of AI adoption and the challenges of implementing it in the workplace. But this ignores the exponential rate of AI progress and the enormous commercial incentives driving its rollout. Together, these form a positive reinforcement feedback loop. The question is not if AI will disrupt employment on a mass scale, but when. And all signs point to that reckoning may be coming much sooner than most anticipate.

So, what can be done?

Given the forces at work, resisting AI is futile. But we can prepare for the turbulence ahead. At the individual level, both employers and workers must embrace continuous upskilling and cultivate resilient, adaptable mindsets. At the societal level, we need a serious discussion about stronger social safety nets, including exploring unpopular ideas like universal basic income, to support those displaced while they retrain.

Businesses, for their part, must prioritize retraining and job transition programs as they integrate AI. This will be in their own best long-term interest.

But ultimately, staving off an AI-induced jobs crisis will require bold, proactive leadership and policies that put people first. Sadly, this leadership is currently lacking. We will likely have to evolve a new economic model and provide a new social contract appropriate for the age of mass automation, one that ensures the benefits of AI are shared broadly rather than concentrated in the hands of a few.

The ugly alternative is to sleepwalk into a future of mass joblessness, crippling inequality and a downward economic spiral despite massive productivity gains.

Sources:

[1] https://fortune.com/2024/02/13/ai-is-leading-to-job-losses-but-not-in-the-way-people-feared/

[2] https://www.pewresearch.org/social-trends/2023/07/26/which-u-s-workers-are-more-exposed-to-ai-on-their-jobs/

[3] https://www.techopedia.com/ai-job-loss-predictions

[4] https://www.axios.com/2023/12/19/ai-inequality-black-workers-mckinsey

[5] https://jobs.washingtonpost.com/article/ai-and-job-displacement-the-realities-and-harms-of-technological-unemployment/

[6] https://www.forbes.com/sites/jackkelly/2023/03/31/goldman-sachs-predicts-300-million-jobs-will-be-lost-or-degraded-by-artificial-intelligence/?sh=58d61460782b

[7] https://www.cnbc.com/2024/01/26/ai-hiring-frenzy-to-fuel-layoffs-in-other-tech-segments-this-year.html

[8] https://www.forbes.com/sites/heatherwishartsmith/2024/02/13/not-so-fast-study-finds-ai-job-displacement-likely-substantial-yet-gradual/?sh=58dca4791e9f

[9] https://www.reddit.com/r/singularity/comments/14yu4av/what_are_you_predictions_as_to_when_ai_will_start/

[10] https://www.cbsnews.com/news/ai-job-losses-artificial-intelligence-challenger-report/

[11] https://www.businessinsider.com/chatgpt-jobs-at-risk-replacement-artificial-intelligence-ai-labor-trends-2023-02