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AZEEM AZHAR: Hi there, Im Azeem Azhar. For the past decade, Ive studied exponential technologies, their emergence, rapid uptake, and the opportunities they create. I wrote a book about this in 2021. Its called The Exponential Age. Even with my expertise, I sometimes find it challenging to keep up with the fast pace of change in the field of artificial intelligence, and thats why Im excited to share a series of weekly insights with you, where we can delve into some of the most intriguing questions about AI. In todays reflection, I look at an insightful research note from Goldman Sachs, titled The Potentially Large Effects of Artificial Intelligence on Economic Growth, in which the authors explore the labor markets future. The study posits that global productivity could see an impressive uptick, ultimately boosting global GDP by 7%. And I wonder, where will the jobs come from after AI? Lets dig in.

The headline finding was that productivity globally could eventually rise, and you could see a rise in global GDP by 7%, which is no slouch. There were also models that showed that US economic growth could jump from that one to one and a half percent anemic level, up to two and a half, three percent, the sorts of levels that were enjoyed during those halcyon period of the 1950s, which is all pretty exciting. But what I thought was quite interesting was how the researchers dug into the impact on the workforce from all of these productivity changes. So they found some quite interesting findings. I suspect if youve been reading the newsletter thinking about these things, you wouldnt be too surprised by them. But lets just go through them because theyre numerical and theyre quite useful.

So, they found that about two thirds of US occupations were exposed to some degree of automation by AI, and a significant share of those had quite a substantial part share of their workload that could be replaced. So running from healthcare supports down the bottom end to health practices, computer and IT sales and management, finance, legal and office admin, you saw that between on average 25% of tasks to 46% of tasks in the case of office admin could be automated with a much larger impact in general in developed markets than in emerging markets. Its pretty interesting because the researchers suggest, and I think this is a kind of reasonable assertion, that if a job would find about 50% or more of its tasks being automated, it would lend itself to being replaced. Whereas jobs that might have 10 to about 49% of their tasks automated lend themselves to using AI as a sort of complement to the human worker.

Ive looked at this question over the last several years, youve probably read a number of those things, and the question is, what might that actually mean as it plays out? So what we found historically is that when new technologies come around, the firms that make use of them tend to be able to grow their headcount, they grow their employment levels, and its the firms that dont use those technologies that tend to lose out. I talk about this in my book. I have the parable of the two men, Indrek and Fred, who are walking in the Canadian wilds and they stop to take a break. They take their shoes off and a grizzly bear approaches them and one of them pops his shoes on and the other says, Why are you putting your shoes on? Youll never outrun the grizzly bear. And his friend says, I dont need to outrun the grizzly bear, I just need to outrun you.

And that of course, is a competitive dynamic. The firms that are well managed, that can manage these new technologies, that make the investment will perform better, as better performing firms always have, and theyll grow, and in the competitive space that will come at the cost to the underperforming firms. So that should create the kind of incentive for companies to invest in these technology. But they wont do evenly. So we will see some winners and well see some losers.

Wed also expect to see widespread downward wage pressure because these jobs are essentially being able to be done more efficiently. So, a smaller number of people potentially could be required. The other thing to wonder is the extent to which this would necessarily lead to job cuts. And you could say, Look, firms wont do this. These are well paid workers, 80k, 100k, 150k or more a year. And they will be protected in some sense for a certain period of time. But even the most protective firms come to really think about their workforces have gone into cost-cutting mode in the last few months, like McKinsey and Google. And its hard to imagine economy-wide that in this type of economy, the opportunity to streamline and be efficient wont be quite tempting for management.

So, the question is, where might those cuts fall in the firm? I have a hunch, and its no more than that, that if you are a manager in a largish, medium size, or even a sort of bigger end of the small firm, it will be quite appealing to look at the middle of your employment base. Because what you have there is you have people who are quite well paid but are not your top leadership. And the temptation will be to go in and thin those ranks, not so far that you deplete all the tacit knowledge and all the sort of socialized information in the firm, the stuff that isnt codified, but enough to cut costs on the basis that AI-enabled juniors working with a small number of well-trained, experienced, more senior professionals will be able to fill in the gaps. And I suspect that will be a kind of tempting strategy for companies as we move on. And that in a sense is a kind of extension of the delayering of firms that we saw when it started to get rolled out in the 1980s and 1990s.

But what about this 7% productivity growth? So, thats got to be doing something. The economy is going to be growing much faster than it was before, and its going to create new opportunities and new needs. Theres a great survey that the Goldman Sachs authors quote from David Orta. He is this amazing economist, and he points out that 85% of employment growth in the US in the last 80 years has been in jobs that didnt exist in 1940 when the period started. So, we know effectively that the economy creates new work, new classes of work very well, although over an 80-year period. And the thing is that if these technologies are going to be rolled out overnight to millions of workers, the impact will be felt quite fast.

I mean, just take a look at lawyers. Therere somewhere between 700,000 lawyers in the US, if you look at the Bureau of Labor Statistics data, or 1.3 million, if you look at the American Bar Association data. Sorry, I dont know the real number. But based on Goldmans estimates, about 40% of those jobs could be up for being replaced. So thats between 250 and 500,000 people. So, the question is not will new jobs be ultimately created. Its when do they get created in the sort of short time that is available? And we can imagine that new sorts of roles emerge that are complementary to the AI tools that get layered in, ones that are syncretic across the specialist expertise of being a particular type of admin or being a particular type of legal profession, and what is now required to make these technologies work. So, that would be one area.

The second is that the growing economy is going to raise the demand in complementary services, which is what you would expect from economic growth. And of course, there are these new sectors like the bioeconomy and the green economy that are developing rapidly and are being stimulated by things like, in the US, the Inflation Reduction Act, and similar sorts of things in the EU and UK, which should create a demand for new types of private sector jobs.

But its a really hard conundrum because how do you re-skill people? How do you ensure that they actually want to make the move? How do you make sure that they have the resources and the emotional psychological capabilities to make the move? And how do you make sure the jobs that are created are in the places where the people actually live? And I say all of this because I know that is material that weve heard before, but I dont get a sense that I see really strong and solid [inaudible 00:08:14] and interventions, and these are the types of things that need to come from government to tackle what could well be a very sharp transition as these productivity enhancing tools start to get rolled out.

Well, thanks for tuning in. If you want to truly grasp the ins and outs of AI, visit http://www.exponentialview.co, where I share expert insights with hundreds of thousands of leaders each week.

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Azeem on AI: Where Will the Jobs Come from After AI? - HBR.org Daily