Scarcer labor, government spending, and the rise of AI are reshaping the world of work
In the mid-2010s, workers faced a bleak outlook, with stagnant wages, income inequality, and a lack of meaningful employment opportunities. However, a shift is underway, and the rich world is now experiencing a golden age for workers. As societies age and labor becomes scarcer, manual labor is being rewarded more, while governments are investing in their economies and supporting demands for higher wages. Additionally, the rise of artificial intelligence (AI) is boosting productivity and potentially leading to higher wages for less-skilled workers. These interrelated trends are set to transform labor markets in profound ways.
The Changing Landscape of Labor Markets:
The previous era was marked by a surplus of labor, with China’s working-age population peaking in 2015. This allowed Western firms to pressure down wages through the threat of relocation or competition from Chinese counterparts. However, China’s working-age population is now declining, and other developing countries are struggling to build industrial capacity. Geopolitical instability is also making outsourcing less appealing. Simultaneously, the rich world is facing a shortage of workers, with the number of individuals capable of physical labor already plateauing. Companies across 41 countries are struggling to fill roles, and worker shortages are hindering production in various industries. As a result, labor has become a precious resource, with businesses hoarding employees and governments grappling with workforce gaps.
Government Intervention and Policy:
In addition to the natural forces at play, governments are also taking action to support workers. Many countries have increased minimum wages in real terms, and significant investments are being made to accelerate the green transition and reduce dependence on China. While these subsidies primarily benefit firms, they provide workers in protected industries with bargaining power. The macroeconomic policy mix favored by politicians and officials aligns with the interests of workers, aiming for a “high-pressure economy” that prioritizes healthy employment and rising wages. This approach is already yielding positive results, with tight labor markets leading to fast wage growth and a reduction in wage inequality.
The Impact of Artificial Intelligence:
Artificial intelligence presents both challenges and opportunities for workers. AI has the potential to perform tasks that were previously beyond the reach of machines, enhancing productivity and job satisfaction. Service workers, such as call center employees, can benefit from AI assistance, resolving more issues per hour and improving their output. Workers in professional services, like doctors and lawyers, may also benefit from AI’s ability to assist in making high-stakes decisions. However, the impact of AI on certain jobs remains uncertain, and the adjustment of labor markets to this technology will play a crucial role in determining its overall effect on workers.
The Productivity-Driven Economy:
A more productive economy leads to increased demand for labor. While AI may displace some workers, new tasks will be created around it and in other sectors. Between 1980 and 2010, half of employment growth came from the creation of new jobs. This trend is likely to continue, with AI creating opportunities for workers with complementary skills. Demographic changes, government policies, and the rise of AI will interact differently in various conditions. Regions with aging populations will face chronic worker shortages, especially in physically demanding professions. As long as macro policies remain expansionary, wages will continue to rise, and the use of AI will further fuel this trend.
The labor market is undergoing a transformation, with workers in the rich world entering a golden age. Scarcer labor, government spending, and the rise of AI are reshaping the world of work. Workers are benefiting from higher wages, increased job opportunities, and improved productivity. While challenges remain, such as the potential displacement of certain jobs by AI, the overall outlook for workers is positive. Governments must continue to support workers and remove barriers to the use of AI in regulated professions. As labor markets adapt to these changes, the future of work holds promise for workers around the world.