In 1970, the US had 18 million people working in manufacturing. Today that number is just under 13 million. Over this period, manufacturing jobs as share of total employment have fallen from 25% to 8%.
While the number of workers has fallen, manufacturing output has risen by almost threefold. Many manufacturing jobs have left the country, but those remaining are highly productive.
Globalisation helps explain this shift in the composition of employment. The rise of Japanese exports in the 1970s and 1980s, the end of the Cold War, then the introduction of China into the global trading system in 2000 are key events in the timeline.
Globalisation can be thought of as an accelerated form of capitalism where companies moved their supply chain to the most cost-efficient jurisdictions. Everyone benefits from lower prices for goods, but it has given companies more power over labour. Globalisation has created huge overall wealth, but also relative winners and losers.
Globalisation is only one factor in a shift away from manufacturing jobs in the US.
Automation has been important, and as countries get wealthier, consumers demand more services such as health care, education, travel, and entertainment.
The Artificial Intelligence (AI) revolution has the potential to have a similar impact to globalisation, but this time on white-collar jobs rather than manufacturing. While offshoring manufacturing production was largely a function of unit labour costs, AI is different as it has the ability to mimic cognitive functions.
‘Most transformative technology since the Internet’
A key question is whether AI will replace or complement what workers do, and the answer is likely both and will depend on the role. Jobs involving high levels of predictability with well-defined rules are most at risk, although technology has already been disrupting these.
AI has the ability to simulate judgement by analysing data, recognising patterns, and generating creative content in word, graphical, and even video format.
In a recent letter to Amazon employees, CEO Andy Jassy described AI as “the most transformative technology since the Internet”. He continued, “as we roll out more Generative AI and agents … we will need fewer people doing some of the jobs … and more people doing other types of jobs. It’s hard to know exactly where this nets out over time … we expect that this will reduce our total corporate workforce”.
Ford CEO Jim Farley recently went even further, provocatively claiming that “AI is going to replace literally half of all white-collar workers”. Microsoft has suggested AI now generates 35% of the code for new products, while also allowing them to cut $500 million from their call centre operation.
Technological advances are nothing new, and are how economies grow. Automation disrupted the textile industry in the early 1800s and the agricultural industry in the early 20th century. In 1900, 38% of the US labour force worked in agriculture, but now it is 1%.
New technologies advance living standards by lowering the costs of goods and services. In 1960, US consumer spent 20% of their overall consumption on food, but only 7% today. AI therefore has the potential to benefit everyone.
BCA Research has noted “a country’s GDP must equal the income its inhabitants receive [but] this says nothing about how that income gets distributed”.
Monopoly profits would be detrimental, and Nvidia has arguably seen this recently, but we are only at the early stages.
Antitrust has already been an accusation towards large technology companies. The Department of Justice is looking to break up Alphabet, but AI products like ChatGPT are a threat to Google’s dominance in search.
Monopoly profits could happen with Large Language Models, or the Hyperscalers, but competitive moats are hard to maintain in an age of technological disruption.
New jobs
Historically, technological advances also create many new jobs. The PC created software development and IT support roles, while Search Engine Optimisation didn’t exist 20 years ago. AI is already creating roles such as data labelling and prompt engineers.
Some industries will be more insulated from disruption.
AI can help design houses, complete regulatory and financing paperwork, but is a long way from building a house and installing plumbing and electrics. Wages in the latter are likely to rise relative to the former. Jobs where trust and judgement are key are also more insulated. Eventually, a humanoid robot may be capable of childcare, but in such jobs the cost of mistakes is too high, so humans will remain in demand.
An optimistic perspective comes from MIT economist David Autor. He believes that AI used well could enable workers to upskill and compete with more skilled labour, suggesting it could “temper the monopoly power” in fields such as medicine and law. Furthermore, that AI could help restore “middle-skill, middle-class heart of the US labour market”.
Humans and AI together is a powerful combination.
Ultimately, a vibrant economy should be able to create new jobs. Human nature is to always want more, so this underpins demand for goods and services.
Although, the experience of globalisation suggests that it could be a bumpy ride as the type, or geographical location, of jobs will change. Good policymaking will be required to help ensure the economy can adjust and the benefits of AI can be shared widely.
Nicholas Rilley, CFA, is an investment manager and strategy analyst at Butterfield Bank (Cayman) Limited.
Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information.
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