ChatGPT, Artificial Intelligence and Automation
I usually write about financial topics and especially the stock market (on Medium and mostly on Seeking Alpha). And while everyone should know his or her own circle of competence, it is a deep-rooted believe of mine that a good investor should have knowledge in many different fields — including finance, psychology, history, or sociology. And it also a deep-rooted believe that looking over the edge is extremely important for an investor and that we should try to keep an open mind.
One of the topics that is interesting — not only for investing — is the future of work and how automation will impact companies, workers as well as our society. In the following article we will look at some major trends and shifts and what to expect in the coming years and decades. And we will rather look at individual employees (and not companies) and how you can prepare and minimize the risk of job losses in the next 5, 10 or 20 years.
ChatGPT and AI Hype
When talking about automation there is one subtopic of automation that is dominating the news right now — artificial intelligence. And especially the launch of ChatGPT in late 2022 created a major hype all around the world (I already wrote an article about ChatGPT and how it can be used for investing).
The current hype can be made visible by looking at Google Trends for example (the search volume for “artificial intelligence” constantly increased since late 2022 — especially in the United States). In a study done by Goldman Sachs, the analysts are showing that the hype also reached the C-Suite of major corporations. When looking at the mentions of “AI” or “artificial intelligence” in earnings calls since 2010, we can see how companies mentioning the topic started increasing in 2016 and constantly moved higher. But between the third quarter of 2022 and the fourth quarter of 2022 — when ChatGPT was released — the number jumped.
AI: Impact on Industries
It is probably not surprising to learn that software like ChatGPT won’t impact every sector and every worker in a similar way. Goldman Sachs sees 13 out of 39 work activities (according to the O-NET database) as exposed to AI automation. On a 7-point scale, the analysts assume that artificial intelligence (and software like ChatGPT) can reach a difficulty level of 4 (out of 7) right now.
When looking for patterns, we can see occupations with a significant share of workers’ time being spent outdoors, or which are performing physical labor cannot be automated by AI. On the other hand, jobs that rely heavily on computer, software and technology can rather by automated by AI. As a result, jobs in building and ground cleaning, maintenance, installation, construction, or production are hardly affected by artificial intelligence. Workers in office and administrative support, legal jobs, architecture, and engineering as well as business and financial operations are much more affected by artificial intelligence.
AI: Subtopic of Automation
But — as already mentioned above — artificial intelligence is just one subtopic of the trend towards automation. And while artificial intelligence (and ChatGPT for example) won’t affect jobs outdoor or jobs relying heavily on physical labor, other ways of automation will have a huge impact on these jobs. We are now looking at the broader picture and what jobs or task could be automated in the years (and decades) to come. And automation will have a major impact on almost every industry and almost every job.
Automation: Jobs Complemented, Not Substituted
When talking about automation (and/or artificial intelligence) the impact will be significant and almost all industries will be affected. And is seems quite natural that workers are afraid to lose their jobs and fear that millions of people will be unemployed in the future. However, this will most likely not be the case. When looking at the impact artificial intelligence will have, most jobs and industries will only be partially exposed to automation and most jobs are therefore more likely to be complemented by artificial intelligence and not substituted. The baseline cases (of the Goldman Sachs study) assumes only 7% of workers being substituted, while 63% of workers being complemented by AI and 30% of workers will be completely unaffected right now.
And this also seems to be a logical conclusion when looking at the past. We already saw several innovations and new technologies — like the electric motor or the personal computer — and while all these had a huge impact on the way we work and altered many job descriptions, there is no precedent of mass unemployment due to innovations or new technologies.
And when looking at the workforce in the United States, we can see how several sectors lost jobs in the past 150 years. Especially in mining, household work, and manufacturing jobs were lost. But the biggest shift happened in agriculture. In the 19th century more than half of the workforce was employed in agriculture. But during the same period other sectors increased their workforce and “absorbed” the workers not needed in sectors like agriculture. Growing sectors were health care, education, government, or financial services.
McKinsey writes in its study Skill Shift — Automation And The Future Of The Workforce:
Technical innovation brought about shifts in skills needed in the workplace long before the advent of today’s automation technologies. During the Industrial Revolution in Europe and the United States in the early 19th century, the steam engine and other technologies raised the productivity of workers with primarily basic manual skills, enabling them to undertake work that had previously been done by high-skill and high-paid laborers, including master weavers and other artisans. In our era, computers and robots have had the opposite effect, increasing the productivity and complementing the work of high-skill workers, even as they substitute for the routine tasks previously undertaken by low-skill workers, such as those working on assembly lines or as switchboard operators.
New Set of Skills
However, workers cannot just be “absorbed” by another sector — the skill mismatch is a huge problem. Therefore, workers often must be retrained and acquire new skills needed for jobs that might be dominant in the future. Such skill shifts are normal and have occurred many times in the past — for example when workers from agriculture must shift to education, government, health care or financial services (see section above).
Therefore, let’s not focus so much on jobs or sectors, but rather look at the different skills that might be required in the years to come — and skills that will make workers valuable to companies in the future. McKinsey is breaking down the skills in five categories — physical and manual skills, basic as well as higher cognitive skills, social and emotional skills, and technological skills.
And in the years to come, especially higher cognitive skills, social and emotional skills as well as technological skills will become more important — therefore we will look at these skills in more detail.
Higher cognitive skills
Demand for higher cognitive skills — this is including creativity, cognitive thinking and decision making as well as complex information processing — will grow in the years to come. And it is also worth mentioning that other higher cognitive skills — like advanced literacy and writing or quantitative statistics skills — will not see a similar increase in demand. These skills — although being categorized as higher cognitive skills — can more easily be automated and ChatGPT is already demonstrating that generating content can also be automated.
Social and emotional Skills
We will most likely need more workers in the years to come with finely tuned social and emotional skills as machines are a long way from learning these skills. And academic research has shown that nonroutine, interpersonal and analytical tasks in occupations have been rising over the past 50 years. This is including empathy, but also negotiation skills as well as leadership and managing others.
Technological skills
These advanced technological skills require people who understand how they work and who are able to innovate, develop, and adapt these technologies. Time spent on these skills will grow rapidly in the coming years. This is especially including advanced IT skills and programming, but also basic digital skills.
When trying to combine the different skills, the upper right corner (see chart above) is important as these are the skills that are important and growing and should be the skills with high demand on the labor market. This is including skills like leadership, communication, critical thinking, project management or advanced IT knowledge.
Megatrends
We can — and should — also look at some megatrends that will shift society on a global scale and have long-lasting effects. One obvious example is the demographic change that will happen especially in the advanced economies in Western Europe and the United States. In Japan and many European countries this shift is already underway. When looking at the United States, the working age population (defined as people between 15 and 64 years) will continue to increase slightly in the next few decades before it will stagnate. However, the elderly population will increase dramatically, which will have a huge effect on society and certain sectors — especially healthcare.
The situation will be even worse in the European Union. The working age population is already declining and will continue to decline dramatically — from about 500 million at its peak to slightly above 300 million in 2100. And similar to the United States, the elderly population will increase in the next few decades.
The increasing elderly population will lead to a high demand for pharmaceutical and medical devices — and a high demand for the companies offering these products. Additionally, the demand for healthcare staff will increase — especially doctors, nurses and geriatric nurses will be needed. And these will be areas where we see high workforce demand.
Conclusion
The message is quite simple: Some jobs will vanish over time and some new jobs will be created over time. And some jobs will prevail, but the job description might change and the set of skills necessary for these jobs will change. We should not be afraid to become unemployed or assume times of mass unemployment heading our way. But workers must adapt to the new environment and gain new set of skills.
John Oliver and “Last week tonight” actually did a good job to make an entertaining show by are still staying quite close to the facts.
