Financial Advice: (A)m (I) Replaceable

AI is coming faster than most people would like and the financial impact will be large. The reason so much money is flooding into this area is because Artificial Intelligence (AI)will save companies a lot of money and increase productivity. For most companies out there, the highest cost is labour and if AI can replace jobs, then companies can reduce their largest cost. From another perspective, AI can save significant time. If you can cut 20% of the time from a project, companies can handle 25% more projects in the same amount of time. This is a large financial change that is taking place extremely quickly, but these technology jumps have happened before.

Topics

AI Job Replacement

Technology's Impact on Inflation

Financial Impact

How long do you have?

AI Job Replacement

Today many people use Chat GPT (or Generative Artificial Intelligence) to aid you in your job. This is great because work efficiency increases, and economic output grows. But if you are using it then a portion of your job or someone else job may be replaceable.

In a survey called “The Future of Employment”, listed over 700 jobs and the probability of those jobs being taken over by computerization. There were about 100 jobs with a 95% probability that they would be taken over by computerization. Meaning their job can be replaced by a machine. Here are a few jobs that led the pack:

Telemarketers

Sewers (by hand)

Tax Preparers

Umpires, Referees, Sports Officials

Real Estate Brokers

Models

Mathematical Technicians

Cashiers

On the flip side here are some jobs that have a low likelihood of replacement:

Therapists

Doctors

First Line Responders

Teachers

Coaches

Engineers

CEOs

Looking at the list there are not many surprises. The more your job is related to unique human interactions or dynamic complex situations, the more unlikely you are to be replaced. For us models were a surprise, but less surprising when you start to think about it and the amount of editing that goes on already. Except for a few very well-known faces, a large portion could be replaced by computer-generated images and people may never even know.

Even more fun you can visit willrobotstakemyjob.com and see the risk level of being replaced by a machine, using a machine.

Technology Advancements and Inflation

Technology is one of the largest contributors to inflation. In theory, by creating a more efficient production cycle you can reduce cost and provide a lower-cost solution to the end user. This can lead to price competition and force prices low. Therefore, technology is very deflationary. 

We can see this firsthand in a useful index produced by Adobe that tracks the cost of goods sold online. Last year, it showed a reading of -5.27% for all goods sold online in the US. This is a very large difference from the headline inflation US CPI number of 3.4%. 

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This is a small example of how digitalization reduces the costs of goods and lowers inflation. While prices are soaring purchasing items online continues to get cheaper and many items are cheaper online than they were 5-10 years ago. Online sites have reduced labour and more computerization to lower costs and at scale have lower costs than a storefront.

As our environment becomes more and more digital, there will be a natural deflationary factor on many items. This is due to cost savings in the process throughout which is a financial benefit to the companies and people that can take advantage of this.

Financial Impact

The financial impact will take place over time, but the cost savings are there. Artificial intelligence just broadened the opening for more jobs to be replaced. Before this, cars, planes, the internet, etc. all have had an impact on this. But, in the past machines and the internet replaced our physical limitations, whereas AI is looking to replace our mental limitations. Therefore, the impact could be larger and far faster.

Financially, companies that can improve productivity through AI and shorten their production cycle or companies that can replace a human with a lower-cost machine, will be able to create greater profits. Or increase the productivity in the project cycle. If a team can produce 1 project every 5 days, they can produce 4 projects in 20 days. If AI can help them do their job faster and produce the same project in 4 days, they can produce 5 projects in 20 days. That is a 25% improvement in efficiency and will bring the cost of each project down.

This is a long-term deflationary trend because of the cost savings. Economies that can take advantage of AI should be able to keep their inflation and interest rates lower for longer. This creates a greater opportunity for economic growth in those countries. It would be very difficult for an economy without AI to keep up with an economy with it. From an efficiency and capital requirement standpoint, it is not even fair. 

Overall, the economies with AI should outperform due to operation efficiency, lower inflationary, and potentially lower interest rates.

How Long Do You Have?

Depends on the job. As an example, cashiers are one of the easiest and most obvious areas to replace. But the number of cashiers since 2018 in the US has only decreased by 10%. This is an area we see every day at the grocery store, and it has taken 6 years to reduce that count by 10%.

For other jobs, this may take place faster. Back office or data entry jobs would likely be reduced if software is created to make this position far faster. This is similar to a payroll manager, back in the day there would be one person or a team of people to calculate every one's hours for the week. Now that is done automatically, and that job no longer exists. As soon as it became cost-effective it snowballed very quickly.

In the short-term new technology creates more jobs than it replaces though. It is estimated AI will replace 85 million jobs by 2025 and create 97 million new ones. But, while the creation of new jobs will slow, job replacement will grow and by 2030 it is estimated that 14% of the global workforce will be affected. 

AI is here to stay

AI is here and it’s not going anywhere. Positions that do require and desire human contact will be better insulated than positions that do not require it. Also, positions where there is not a cookie-cutter repeatable solution will still be required. This will lead to economic improvements overall and create greater wealth for the economies and people with the capability. Currently, there is an arms race to stay ahead of this trend. We would caution that just like the internet, this will not happen overnight, and the current hype may just be that for now. But eventually, it is coming.

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Sincerely,

Justin, Konrad, and Merriel

More articles and information are available at www.knowprotectgrow.com 

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by the author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions, and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

These estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

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