Productivity in regards to A.I. and productivity paradigm shifts

Tech, and the broader market are quickly realizing some combination of the following concepts:

  1. They “over-hired” personnel and at least some of that personnel was not strong from a  human capital perspective
  2. A.I is going to have huge impacts on productivity

But these two concepts, even as they are playing out in the markets and the broader economy in a polarizing way, are just the tip of the iceberg. 

What actually exists, is a MUCH more nuanced landscape that has most analysts realizing that there is a wholesale change in how we view the labor pool, education, training, and even hiring.

This is a commentary about those nuances on the backdrop of these macro concepts.

Some background on the current situation

 

What is most apparent to those that are listening, is that there are fundamental issues with the way we look at labor, or at least the way we looked at labor in the past decade or so. 

It’s also apparent that while the “getting is good”, there is an abundance of tolerance for an under-productive workforce. 

The problem with these issues is that small businesses (and small privately owned businesses still rule the market landscape, representing more than 70% of the economy) don’t have the same ability to hire or fire as quickly and selectively as public companies. So, there is a bit of a disconnect in the markets when you look at how SMB’s are locked into their poor hiring decisions to a greater degree than bigger companies. Furthermore, early A.I. adoption doesn’t equate to a smooth productivity increase for smaller businesses – especially those that cannot rely on public investment to improve the economics of the balance sheet, like public companies can.


Does A.I. ACTUALLY equate to productivity?

 

And while we’re on that topic: let’s talk a bit about this whole: “AI = productivity” concept. If that’s the case, why wouldn’t we want more workers in our companies, and more workers being efficient. There is no such thing as being too efficient, or delivering too much value as a company, and yet, companies tell us daily the forward-expected efficiency benefits of A.I. adoption IS the future. 

Don’t blow smoke up my skirt by telling me you think that A.I. doesn’t take jobs. This is in fact, the perfect opportunity to rid your payroll of poorly performing human capital. While A.I. might lead to massive improvements on productivity, it won’t be for the people being hired at public companies unless they are in the top, say 20% of the workforce. With those productivity improvements, companies will need less humans operating processes, and there will be an even greater gulf between how many people we use in tech and highly-skilled positions, and the type of people that are considered for such positions. The job market is going to get A LOT tougher for those that don’t have specialized skills, or cannot operate in the upper end of their technical capacities relative to peers. 

So, stop trying to sell me on this idea that we will forge a new path through innovation on the backs of a subpar workforce. China, India, and other nations are going to gain more on the USA as we continue to try to tell people they are good enough, hire them into overpaid positions, and then push the worst 40% out, followed by the next worse 10%, every year thereafter.

We have a skills issue. We have a pay expectation issue. We have a lack of value being created by personnel hired in public companies, and while the big public companies are big enough and make enough money to weather that churn rate, the private market and SMB’s aren’t. And there is about to be a glut on the market, of people who expect to be paid at the levels they left their public company jobs at, while the public companies have made a clear rebuke of those same employees. In no uncertain terms: big public companies have told their former tech and “highly skilled” employees that they don’t deserve the money they were being paid, by laying them off. 

There was recently an ability to hop from company to company and make huge salary improvements. I reckon that will catch up to a lot of highly compensated employees sooner rather than later, as their landing spots will become much more competitive as A.I. adopters improve their total value quotient for companies on an individual basis. This means that the best skilled and most creative employees, and those willing to adapt to this new shift in innovation, will now widen the productivity gap significantly against those that simply exist. Those perennial job hoppers will eventually be realized for some of the “leverage” they have been beneficiaries of, and will be ousted from mid/top positions in the middle management and high low tier employee spaces.

How long will it take before those employees improve their capabilities? How long until the private market can cycle through these employees? (The biggest public companies won’t have a use for them). How bad will unemployment rates be? It sure seems like a dangerous ‘beneath the surface’ scenario at this point in time, if you’re actually looking at the way it’s playing out. 

Even if A.I. does equate to a large productivity boost, the length of time it will take to see such productivity in the broader market, significantly underscores the value of A.I. in real-time for the broader economy, in the here and now. Yes, tech will improve. Yes, the best of the best of skilled professionals will have more time to focus on more important aspects of their jobs, thanks to A.I. investments and utilization. But, it’s unlikely that “regular” employees will benefit in clear cut ways like this in the near future. 

So what does that mean for a lionshare of the people who make up the labor force?

For now, it can’t look good. 

Why would you hire 10 good workers when you could hire 3 great ones, and employ a one time fixed cap-ex expense, and minimal budget looking forward to A.I. adoption for those 3 superstars? You’ll even get a tax advantage for the investment in infrastructure or A.I. services. Pair that tax advantage with savings on payroll, and you are likely to grow as a company without as much need for as many employees. 

So, yes, productivity is the impact from A.I., but not necessarily for employees on a per employee basis, at least not from the employee’s perspective.

So why would you hire the way you used to? You wouldn’t. And that’s the point. And where will all those unnecessary employees go? Certainly the immediate effect will be some combination of a return to more blue-collar work, and a more robust, if not gimmicky “high tech skills” training market. We’re about to see a lot of money be made peddling sub-par products in the educational system to people who are currently non-competitive now as labor pool inclusions. 

This is going to get ugly. 

What does that mean for the United States? It most certainly doesn’t mean that people are going to get better education and advanced, sophisticated training in important innovation sectors. At least not in comparison to other competitive tech-oriented countries, like China, Korea, Taiwan, India, etc. Our attention span precludes this from happening. I hope I’m wrong.

So, while we have a labor pool looking for their next big thing, through the most “immediate gratification” prospects they can find, we will continue to lose ground in the tech innovation game, to foreign competitors. 

 

This doesn’t mean worker’s rights shouldn’t exist

By the way, it should be clear that this author sees nothing wrong with immigrants grabbing more market share from unproductive, or entitled Americans that refuse to improve their skill sets to stay competitive. Rather, this is a rebuke of that ridiculous attitude that just because we once made more money than we were worth as employees, that it somehow means we are worth that pay rate going forward, even though we vastly refuse to progress in our skills and education, relative to competition.

We’ve set ourselves up for failure, it seems. We think we are worth what the market pays for an expert because the cost of living is high. But is it really believable that we each think we are worth what we get paid, just because of “fairness”? Are we really delivering value for our pay points? I would state that big companies do not believe that we are. And while the past required a larger labor force to grow, the advent of A.I. means that is likely to be: no longer a crucial piece of the calculation. 

The smartest CEOs will withhold large hiring pushes in favor of better recruitment and will slow the growth in labor pools, in order to extract maximum value out of these smart A.I. infrastructure investments. 

Again, why would you riddle yourself with all the entanglements of hiring subpar performers, when you don’t have to? You thought as an employee that you were competing against highly valuable talent in the wage space, before? Get buckled in, it’s about to be a bumpy ride. 

And what does that mean for the economy? I predict it means that a lot of people are about to come to a harsh realization that they aren’t competitive, and no amount of A.I. will make them better at their jobs, even if it allows them to do more remedial work throughout the day, more efficiently. 

These people will need to pivot, and quickly, towards learning new skills, leveraging the right training and development, and starting to understand their place in the economy. No amount of government aid or unemployment money is going to help them progress. 

 

What are the bright spots in this paradigm shift brought on by A.I.?

 

So, enough with this doom and gloom. What does this mean for the state of the workforce going forward? 

It certainly sets the stage for the brightest entrepreneurs to take advantage of the space, and build a better educational model. To build better recruiting tooling. Build a more efficient recruitment and training industry. To improve investments in productivity for the hires they MUST employ (and that number will be lower than historical numbers). 

And, while it probably means a lot of people will not have jobs in their previous profession, many of them will pivot to blue-collar or more hands-on professions that may actually help to solve some other problems we have right now, namely: a lack of skilled professionals in the trades. 

People will realize that the immediate answer to maintaining their quality of life, at least for those that don’t have the technical capacity to move seamlessly into the entrepreneurial space, or the high-tech skill sets, they might have to take more labor-specific jobs. 

Certainly the pay rates and by extension, the costs passed onto the end user consumer are high right now for trades like plumbing, electrical work, construction and manufacturing are edging higher. This may offer a softer landing spot for those caught up in the glut of big company layoffs. 

This is true for a few of reasons:

  1. The huge push towards an optimistic A.I. segment will mean a lot of people will think that’s the place they want to move towards, making the temporary labor pool in the trade professions even smaller driving prices higher
  2. A.I. will improve the ability to service clients and help improve the streamlining of trade-related companies
  3. Innovative tech-oriented people may help to push some of the benefits of being in the tech space into the more “manual” and “analog” trades, further improving the ability to charge premiums for work to end user consumers

And, maybe more importantly, once there is a glut of labor on the market, SMB’s will begin to weed out the worst performers, and connect only with the best skilled and most efficient leftovers from the public firing sprees that are beginning to happen now. 

We may even see a fundamental shift in how we recruit, train, and build human capital, because now we have the base level tools to do it (some of it will be built on A.I.), and the reasoning. 

I want to be clear here: It’s NOT OK for big business to take advantage of labor. It is not ok for companies to underpay or expect too much from the employee. It is similarly not ok for labor market personnel to think that they are owed something simply for existing. There used to be much more of a concept for employees that they should drive value. Some of that has dropped off of a cliff. One should not think that they deserve anything just because they exist as part of the labor force. One must produce value too. 

So does that mean A.I. is good for the economy? Of course. That goes without saying, and maybe, if it wasn’t clear earlier on in this commentary, it was never my intent to say that A.I. wouldn’t be good for productivity. Rather, that A.I. may not be the panacea that we all think it is in our sky high predictions right now. 

Instead, I believe that the productivity gains will come from a paradigm shift that is built in part by the immediate productivity gains of an infrastructure rooted in this A.I. thinking. Not necessarily the implementation of A.I. at the singular employee level. 

Additionally, I believe that a paradigm shift is needed to freshen up the balance sheet of the way we look at labor. We need to stop looking at temporary ways of bolstering profits and move towards creating better, smarter, more capable employees, students, creative thinkers, and pushing a broader outlook on the labor force. Our inclination in the past 15 years to push singular themes in the labor market has led us down a disturbing road when new “killer apps” show up.

And while you’ll probably not convince me that we need MORE worker protections and a sea change in employment rigidity currently, You will hear me acknowledge that part of the reason there is about to be a negative impact on the American worker should be blamed on public company’s desire to prop up share prices through poor hiring, and productivity cycling. 

We need to do better.