AI's Role in Economic Growth: Jobless Recovery Ahead?

crypto market Good morning. Today, Geoff Colvin steps in for Diane. The pressing question of the moment is whether artificial intelligence is allowing the economy to expand without the creation of new jobs. If this is indeed the case, what implications does it hold for our future? This is a significant concern for many leaders in light of recent developments.

Goldman Sachs recently released an insightful analysis titled "Jobless Growth," which highlights the unusual trend of robust economic growth in the U.S. paired with a sluggish job market. Unlike more radical voices like renowned venture capitalist Vinod Khosla, who posits that AI could automate 80% of all jobs by 2030, the Goldman analysts are more moderate in their observations. However, they express concern over the increasing adoption of AI by companies.

AI's Role in Economic Growth: Jobless Recovery Ahead? The analysts suggest that a recession could offer a clearer perspective on this situation. Historically, during economic downturns, workers in routine jobs are often the first to be laid off and may not be reinstated once the economy recovers. A pertinent example would be the 2001 recession that followed the dot-com bubble burst. During that period, CEOs had been eager to leverage the internet for efficiency, leading to significant workforce reductions. Firing employees is typically a difficult decision, and many leaders procrastinate on making such cuts. However, the recession forced companies to confront the reality of their workforce needs, resulting in what economists refer to as a "jobless recovery."

The day following Goldman’s analysis, the firm circulated a memo to its staff indicating potential layoffs and a slowdown in hiring for the remainder of the year, highlighting that "the rapidly accelerating advancements in AI can unlock significant productivity gains for us." According to a spokesperson, the firm still anticipates an increase in total headcount by year’s end. On the same day, Citigroup CEO Jane Fraser shared with Wall Street analysts the various ways her company is harnessing AI for efficiency. One example she provided involved software development, which "saves considerable time and creates around 100,000 hours of weekly capacity," translating to a substantial productivity boost.

The following day, an analyst inquired with Bank of America CEO Brian Moynihan about how AI contributes to efficiency at the bank. Moynihan confirmed that the institution is indeed leveraging AI in this manner. He noted, "If we had 285,000 employees 15 years ago, we now have 213,000." Despite this significant reduction in workforce, the bank's performance has greatly improved: net income, which stood at a $2 billion loss 15 years ago, rose to a $27 billion profit last year with 25% fewer employees.

Historical patterns suggest that there’s no need for alarm. General-purpose technologies like AI are rare, yet when they do emerge, they often lead to the elimination of a large number of jobs, triggering public panic. However, human ingenuity tends to step in, creating new roles that ultimately provide greater value, resulting in overall improvements in living standards. While this transformation may take years, history shows that it has never failed to materialize. Now, with AI's potential to exceed human intelligence, we find ourselves at a pivotal juncture that requires careful consideration.