The recent boom in corporate profits and slumping labor market tell a very different story, and AI is a likely explanation. Zhao ChenChief Global Strategist alpine macro.
This dichotomy is exemplified by the technology sector, where profits have soared while employment has been in a “recession” for three years, he said in a Monday note titled “Profits Boom Without Unemployment.”
“We suspect job losses in the technology sector are primarily driven by AI substitution,” Zhao added. Amazon, meta and Salesforce. “However, these layoffs are occurring amid unusually strong profit growth for these companies, which is a significant departure from the past, when job cuts typically followed declining profitability.”
This boom in jobless profits is not limited to the tech sector and has quickly become an economy-wide phenomenon, he said.
In fact, while overall private sector salaries have rebounded since the beginning of the pandemic, they are still 5% below pre-pandemic trends at this point.
“I mean, this is what happened. permanent Even as corporate profits soared to record highs, there have been job losses since the pandemic crisis,” Zhao said.
At the same time, productivity has soared in recent years and is now growing at more than twice the rate of the past decade.
Zhao believes AI is the reason, noting that technology is replacing labor at a rapid pace. But while labor demand has declined, labor supply has also weakened due to an aging population and President Donald Trump’s immigration crackdown.
This trend has created a new balance that keeps unemployment in check even as hiring remains stagnant.
“Under normal circumstances, slowing labor force growth would weigh on economic growth,” Zhao explained. “But as productivity has improved, the U.S. economy has been able to produce more output and higher profits with fewer workers.”
Analysis by Alpine Macro, part of Oxford Economics, supports the computer scientist and Nobel Prize winner’s claims. Geoffrey Hinton has been talking about the impact of AI on the labor market. And the role of companies leading this.
to Interview with Bloomberg TV wall street week On Friday, he said that other than charging a fee for chatbot use, the obvious way to make money from AI investments is to replace employees with cheaper ones.
Hinton, who won the Nobel Prize and was nicknamed the ‘Godfather of AI’, added that although some economists point out that previous disruptive technologies have created and destroyed jobs, it is not clear whether AI will do the same.
