AI Sparks 'Violent Task Churn' in Economy, JPMorgan Warns Productivity Boom May Be Underestimated

Historical Patterns of Technological Change

The history of technological innovation over the past two centuries has shown that while some industries have faced significant disruption, overall employment has generally seen net gains. This trend is expected to continue with the AI revolution, according to JPMorgan. In a recent note, Jacob Manoukian, U.S. head of investment strategy for JPMorgan Private Bank and Wealth Management, examined the transformations brought about by the steam engine, electricity, and computers.

Instead of leading to mass unemployment, these breakthroughs reduced costs and created new functions that more than offset job losses from obsolete roles. Manoukian noted that AI could follow a similar trajectory: initial task churn followed by broad productivity growth.

Past Disruptions and New Opportunities

While workers in traditional roles have experienced significant job losses, historical examples show that new opportunities often emerge. For instance, hand-loom weavers saw their real wages cut in half between 1806 and 1820 after the introduction of the steam engine. Canal boatmen and cart drivers lost their jobs as steam-powered trains became the dominant form of transportation.

However, as textile production and consumption increased and shipping costs decreased, demand for labor in coal mining, rail maintenance, and urban retail surged. Similarly, the advent of electricity and computers led to widespread transformations, many of which were unforeseen. Productivity boomed during these periods, with companies needing eight employees for every $1 million in revenue in the 1980s, but that number dropped to six by the 2000s.

Predicting the Next Boom

Manoukian believes that even AI optimists may be underestimating how quickly the next boom will arrive. The time it took for productivity to rise after major technological innovations has been decreasing. After the steam engine was introduced, it took 61 years for productivity to increase. That interval shrank to 32 years with electricity and 15 years with computers and the internet. For AI, JPMorgan estimates it will be less than seven years.

This view contrasts with more pessimistic predictions from some experts. Computer scientist Geoffrey Hinton, often called the “godfather of AI,” has warned that AI could create massive unemployment and enrich a few while most people become poorer. Anthropic CEO Dario Amodei has suggested that AI could eliminate roughly 50% of all entry-level white-collar jobs within five years, potentially causing unemployment to spike as high as 20%.

Current Evidence of Impact

Evidence is already emerging that AI is affecting job opportunities, particularly at the entry level. The Bank of America recently noted that the unemployment rate for recent college graduates is now higher than the overall rate, breaking a long-standing trend.

Despite these challenges, Manoukian highlights several enduring advantages that humans have over AI, including common sense, causal inference, dexterity, emotional intelligence, high stakes accountability, adaptive learning, and intrinsic motivation. Additionally, AI could help offset declines in the working-age population caused by aging demographics and stricter immigration policies.

Mitigating Negative Impacts

There are ways to mitigate the negative impacts of AI. The Federal Reserve can lower interest rates to stimulate demand in areas like housing, which are sensitive to borrowing costs. Policymakers can also encourage apprenticeship programs. Employers can use AI to replace low-value jobs and retrain workers for new roles.

Businesses are likely to reinvest savings from AI into new growth areas, Manoukian said. Expect more hiring from companies that build software applications and data infrastructure, as well as those that integrate AI tools into workflows and systems.

The Value Proposition of AI

The value proposition of AI lies in its ability to reduce costs and increase output for enterprises by making all workers more productive and rendering specific tasks obsolete. In other words, the total addressable market for AI is human labor.

However, the pattern observed across generations of technological innovations strongly suggests that AI will boost productivity and economic growth, creating new channels for aggregate demand without lasting damage to the labor market. While there will be disruption, it does not necessarily mean destruction.