The rise of artificial intelligence (AI) is met with both optimism and pessimism. On the latter, some worry that AI could upend labor demand and the need for human capital going forward. There are many unanswered questions when it comes to the future with AI: What happens with the next generation of workers? The impact on society? The social contract between citizens and their government? What about the future of the economy itself? Those are some concerns, but there are positives to look towards. En Centro de perspectivas globales de The Hartford, we believe that AI will ultimately augment labor and further enhance productivity over the next 30 plus years.
How did we come to this belief? To understand this view, past technological cycles need to be considered and their impact on productivity, layered with the expected outlook for U.S. labor and demographics. To help paint this story, we tracked over 250 years of productivity rates of change, analyzing the effects on the labor market per each.
Productivity as a Gauge for Economic Gains
Productivity refers to the amount of output divided by the collective number of hours for that output, which we observed year over year. For example, if it takes one hour to make a sheet of metal, then the next year it takes just 30 minutes. Productivity (output per hour) goes from one sheet to two sheets, or an increase of 100%. During this time, we’ve enhanced productivity.
1700s to 1900s
As many are hesitant to address AI in fear of what it means for the labor market, we can look back in history to where new adjustments in productivity have been good for the labor force and overall global economy.
In our study, Centro de perspectivas globales de The Hartford began tracking productivity in the United Kingdom (the dominant global economy in the 1700s-early 1900s) then transitioned productivity in the United States from the mid-1950s onwards. We noted five specific intervals over almost 250 years where productivity increased for a sustained period of 20 to 40 years, or approximately a generation.
- Early 1800s: Colonialism gathered during this time and the U.K. likely accrued increases in output from the nations it took over.
- Mid 1800s: The Industrial Revolution takes place and new technologies (mainly the steam engine) improved efficiencies and output. It ended around 1880 when the gains from the industrial revolution were fully integrated into the economy.
- Early 1900s: Before World War I, improvements in shipping, a drop in tariffs and the advent of trade-relations led to an increase in global interconnectedness. This ended around the time of the Great Depression.
- 1950s: After the end of World War II, military/industrial output grew due to investments in technologies and the Marshal Plan helping Europe’s economy, while spending on the U.S. highway program helped overall output, effectively reducing transit times. This era ended in the 1970s, likely due to the decline in U.S. manufacturing.
- 1990s: The advancement and adoption of the internet increased productivity but began to wane after the financial crisis in 2008. It went on to create more jobs in industries that we could not even fathom in the 1990s.
The 21st Century: Innovation of AI
In 2024, we are on the cusp of a potential sixth generation-long increase in productivity, the integration of AI into modern society. Like the previous five noted, all occurred largely due to the introduction of a new technology, which appeared worrisome to many at first.
Similarly, AI, at a minimum, has the potential to increase productivity. Of course, productivity can replace labor, making certain jobs obsolete, but new technologies like AI can spur industries we cannot even imagine today. To emphasize this point, let’s remember that the past technological cycles took 20 to 40 years to play out entirely. Hence, market conditions have ample time to conform allowing labor to find a way and not be upended immediately.
Current Labor Market Status
It's also important to consider that we have a labor shortage in America. According to the numbers, we are entering a cycle where it will be difficult to backfill jobs as workers retire, and even more difficult to expand the national labor headcount. The U.S. has been running an economy with more open positions than available workers, making labor a scarce resource. Upcoming demographic shifts may further exacerbate hiring challenges.
Because scarce resources are rarely discarded, we expect AI will be used to boost labor rather than replace it, given our structural labor shortages. Some individual skills and job duties may shift, but this should be the exception rather than the rule.
The Fight for AI Ownership
On a more macro basis, the question also comes down to which nations can harness and dominate the AI landscape. Like the industrial revolution, the nations that dominated shipping and trade in the early 1900s, the countries that pivoted post World War II to launch an investment cycle, or the operators that captured the gains from the internet era early, the rise of AI will be dominated by the nations that can truly leverage its potential.
Based off this, we can conclude that AI “ownership” will be a dominating facet of geopolitics in the decades ahead. This includes a global competition over resources integral to:
- Semiconductors development
- Growth in technological capabilities
- Capital investments
- Access to and the development of necessary power generation
- Imposition of tariffs
- Trade restrictions on nations seen as adversaries in this space
- A fight for labor (i.e. potential changes to immigration laws)
No nation can afford to fall behind, because if they do, they will likely not be able to bend the benefits of AI to support their economies and generate prosperity in the face of labor shortages. Today, we are already seeing the early stages of this ownership struggle through restrictions on the trade of technological hardware, which is integral to the development of AI.
Artificial intelligence deserves more hope than fear. AI, like past technological cycles, can lead to a generation-long increase in productivity. Granted, productivity can rise absent human capital. However, we need to remember the labor shortage our country is currently dealing with and how AI can support the future labor dynamics. Similar to past cycles, we believe labor conditions will comport and evolve over that generation to work alongside AI and vice versa. The critical question comes down to which nation or nations will control AI to benefit their labor and productivity needs. That, in turn, reveals to us the geopolitical fault lines that have already emerged and will only widen over the years to come.
For more insight on the latest industry trends, read our 2024 Risk Monitor Report.
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