Booming corporate earnings and sluggish labor markets have told very different stories lately, and artificial intelligence is the likely explanation, according to Chen Zhaochief global strategist Alpine Macro.
That dichotomy is reflected in the tech industry, which has seen profits soar while employment has been “in decline” for three years, he said in Monday’s report titled “Jobless Profits Boom.”
“We suspect that the job losses in the technology industry are mainly caused by artificial intelligence replacement,” Zhao added, referring to recent layoffs Amazon, Yuan and salesperson. “However, these layoffs are occurring at a time when these companies are experiencing exceptionally strong profit growth, which is a significant departure from the past when layoffs have typically been accompanied by declining profitability.”
He said this unemployment profit boom is not limited to the tech industry but has quickly become an economy-wide phenomenon.
In fact, although overall private sector employment has rebounded from the early stages of the COVID-19 outbreak, it is still 5% below pre-pandemic trends.
“In other words, there is already a eternal Since the pandemic crisis, jobs have been lost even as corporate profits have soared to record highs,” Zhao said.
Alpine Macro
Meanwhile, productivity has been surging in recent years and is now growing at more than twice the rate of the past decade.
Zhao believes artificial intelligence is the cause, noting that the technology is accelerating in replacing labor. But even as labor demand falls, an aging population and President Donald Trump’s immigration crackdown have also weakened labor supply.
These trends create a new equilibrium that limits unemployment even as hiring remains sluggish.
“Under normal circumstances, slower labor force growth should put pressure on economic growth,” Zhao explained. “However, productivity gains allow the U.S. economy to produce more output and higher profits with fewer workers.”
Analysis by Alpine Macro, a division of Oxford Economics, reinforces the views of computer scientists and Nobel laureates Geoffrey Hinton has been talking about the impact of artificial intelligence on the labor market and corporate leadership.
in a Interviewed by Bloomberg TV wall street weekly On Friday, he said that the obvious way to make money from AI investments, besides charging fees to use chatbots, is to replace workers with something cheaper.
Hinton, whose work earned him a Nobel Prize and the nickname “The Godfather of Artificial Intelligence,” added that while some economists note that previous disruptive technologies have created jobs but also destroyed them, he doesn’t know whether AI will do the same.
“I think big companies are betting that it will lead to AI displacing a lot of jobs because that’s where the big money is,” he warned.
Remark echoing what he said in Septemberwhen he told financial times Artificial intelligence will “cause massive unemployment and huge increases in profits,” which he attributes to the capitalist system.