The next jobs downturn could mean an AI-induced purge of millions of workers
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In the next job market downturn — whether it's already starting or years away — there just might be a bloodbath for millions of workers whose jobs can be supplanted by artificial intelligence.
The big picture: In the last several economic cycles, recessions have been a period in which companies opportunistically ramped up their use of automation to lower their long-term need for workers.
- If that pattern holds, AI-driven productivity gains and job losses are likely to be more severe in any bumpy period for the overall economy.
- If last week's soft jobs report and negative revisions turn out to be an early warning sign of a broader labor market downturn, this moment of rapid technological change could make it particularly painful.
Zoom out: When times turn tough, it heightens the urgency for companies seeking to use technology to supplant expensive labor.
- U.S. manufacturing employment fell 26% from 2000 to 2019, for example, in significant part due to productivity-enhancing automation.
- But it was not anything close to a straight line. Rather, there were steep declines in the 2001 recession and its aftermath and then in the 2008 recession and its aftermath. Manufacturing employment was steadier between those episodes.
- If AI eventually replaces many white-collar jobs, that pattern suggests the impact on the job market would be most intense during a period of economic weakness.
Between the lines: This dynamic helps explain why the 1991, 2001 and 2008 recessions experienced long, "jobless" recoveries in which employment did not rebound nearly as quickly as GDP did.
- In those downturns, output bounced back but unemployment remained elevated for years.
What they're saying: "[W]e think that during the course of the next recession the speed and the breadth of the adoption of the AI tools and applications in the workplace might induce large scale displacement for occupations that consist of primarily non-routine cognitive tasks," wrote Murat Tasci, a senior U.S. economist at JPMorgan, in a note.
- "If firms face a costly adaptation process for automation to replace workers, then the cost of adjustment comes down during recessions when the opportunity cost of not producing is relatively low," Tasci added.
- "Traditional stabilization policies such as monetary policy easing and fiscal stimulus will have to contend with this new source of unemployment risk, for a large share of the workforce," wrote Tasci.
Of note: This possibility is on the radar of Federal Reserve officials. "AI is poised to reshape our labor market, which in turn could affect our notion of maximum employment or our estimate of the natural rate of unemployment," governor Lisa Cook said in a speech last month.
- "As with many technological breakthroughs, a certain set of jobs may be replaced. We must recognize the challenges and potential pain this may bring, and we are watching this closely."
