Recent corporate profit surges and a weakening job market have presented contrasting narratives, with Chen Zhao, chief global strategist at Alpine Macro, suggesting AI is the probable cause.
TL;DR
- AI is likely causing permanent job losses and fueling corporate profit surges, according to Chen Zhao.
- Tech companies show soaring profits despite three years of employment "recession" due to AI displacement.
- Private-sector jobs are 5% below pre-pandemic trends, indicating permanent losses amid record profits.
- Rising productivity, driven by AI replacing workers, allows higher output and profits with fewer employees.
That dichotomy is exemplified in the tech sector, which has seen profits soar while employment has been in a “recession” for three years, he said in a Monday note titled “A Jobless Profit Boom.”
“We suspect that job losses in tech have been driven mainly by AI displacement,” Zhao added, pointing to recent cuts at Amazon, Meta and Salesforce. “These layoffs, however, are happening amid exceptionally strong profit growth in these companies—a significant departure from the past, when job cuts typically followed declining profitability.”
According to him, this profit surge without job growth isn't confined to technology but has rapidly spread across the entire economy.
Actually, though private-sector jobs have recovered since the start of COVID, they remain 5% lower than what the pre-pandemic trend would have indicated by now.
“In other words, there has been a permanent loss of jobs since the pandemic crisis, even as corporate profits have surged to record highs,” Zhao said.
Productivity has seen a significant surge lately, now expanding at a pace more than double that of the preceding decade.
Zhao attributes this to AI, observing that the technology is increasingly replacing workers. However, alongside reduced labor demand, an aging population and President Donald Trump's stricter immigration policies have also diminished the available workforce.
These shifts have established a new balance, which is preventing unemployment from rising significantly despite a slowdown in job creation.
“Under normal circumstances, slower labor force growth should weigh on economic growth,” Zhao explained. “However, rising productivity has allowed the U.S. Economy to produce more output—and higher profits—with fewer workers.”
The analysis from Alpine Macro, a division of Oxford Economics, supports the findings of computer scientist and Nobel laureate Geoffrey Hinton has been saying about AI’s impact on the labor market and highlights the significance of pioneering companies.
In an interview with Bloomberg TV’s Wall Street Week on Friday, he said the obvious way to make money off AI investments, aside from charging fees to use chatbots, is to replace workers with something cheaper.
Hinton, a Nobel laureate also known as “godfather of AI,”, expressed that while certain economists highlight how past disruptive technologies have both generated and eliminated employment, he's uncertain if AI will follow a similar pattern.
“I think the big companies are betting on it causing massive job replacement by AI, because that’s where the big money is going to be,” he warned.
The remarks echo what he said in September, when he told the Financial Times that AI will “create massive unemployment and a huge rise in profits,” attributing it to the capitalist system.