Companies Cutting Workers
Companies have been trying to cut down on workers for as long as those workers have demanded pay and benefits. Whether it’s through:
- Downsizing
- Outsourcing
- Streamlining
- Understaffing
- Automating
If a business can find a way to get rid of workers and their salaries, they will absolutely do it.
This time, though, things feel a bit different. Recent advances in Artificial Intelligence (AI) have been poked fun at because they don’t always live up to the big talk of the tech founders. But even in their current, not-perfect state, AI tools like Large Language Models (LLMs), general use robots, and generative models are already taking over jobs. And they’re getting better every single day.
Now, that sounds bad for workers, right? But if you’re a senior boss or company owner, maybe you should ask yourself: if we automate everyone’s job, who exactly is going to buy all your stuff?
AI’s Impact: Numbers and Examples
A new study just came out predicting that almost half of all global jobs could be affected by AI. It found that 40% of all jobs around the world will be impacted. The study also predicted AI could replace 300 million full-time jobs. This includes jobs in fields you might not expect, like legal and engineering.
Here’s a look at some specific examples:
- There’s a place with just nine robots doing the work of over 250 humans.
- Think about the company you work for (the theoretical one, remember?). The good news is that systems for cutting labor have already gotten rid of millions of man-hours in America alone. Plus, they’ve made the workers who are left more efficient.
- AI is just another tool your company can use to get more work done with fewer staff, or even get rid of whole teams.
Even at the place making this video, little o Works Media Group, they used to have someone working part-time just to cut out images in Photoshop for their goofy little animations. Now, the Adobe suite has built-in AI features that can automatically remove backgrounds from any image. Zero human time or skill needed. They liked their editor, so they gave him more work editing history videos instead. But lots of companies nowadays don’t need, or don’t want, to employ people for those simple tasks.
The Contact Center Story
According to a survey of 697 companies by Metro g (a research and strategic advisory firm, whatever that means), the numbers are pretty eye-opening:
- Companies that did not use AI in calendar year 2023 hired 89% more agents than those who did use AI in their contact centers.
- For people already working there, it was even worse. When AI was added to a contact center, 36.8% of companies laid off an average of 26.1% of their employees.
These numbers are alarming, and they happened within just one year and only in call centers. Call centers have already been hit harder than most other professional jobs by outsourcing, understaffing, and automation for a while now.
So, congrats! Your business now has fewer employees and much lower costs. But here comes the not-so-great news.
The Economic Paradox: Who Buys Your Stuff?
Let’s talk about a famous story. Back in 1914, Henry Ford supposedly doubled the pay of his factory workers to $5 per day. The story goes that he did this so his employees could afford to buy a Ford Model T of their own, which would boost the company’s sales.
Honestly? This story is mostly made up nonsense. In reality, Ford just wanted to cut down on people quitting and keep talented workers away from new car companies like Dodge so he could stay on top of the growing car business.
But, like any good fairy tale, there’s a little bit of truth hidden in there. If lots of companies around the world suddenly cut jobs as hard as they did in those call centers from the study, companies are absolutely going to have trouble selling things. Why? Because people without jobs don’t have the money they used to. And even people who still have jobs will likely spend less because they’ll be worried they might be next.
The Emerging Strategy: Catering to the Rich
But what if you’re a hypothetical super-rich business owner? There’s a business plan you might consider to avoid this problem. That plan is to just make stuff exclusively for other wealthy business owners. You’d take your resources away from regular people who don’t have anything to offer you that a machine or a cheaper worker somewhere else in the world can’t do better or cheaper.
If that sounds a bit wild, you should know it’s kind of happening already. And one of the best places to see it is in video games. Yep, those things you play to relax are actually a perfect example of this shift happening in the real world right now. Let me explain.
Video Games: The Freemium Model
According to Grand View Research, the video game industry is now bigger than the movie, music, and television industries combined. And they’ve really figured out their most profitable trick.
Free-to-play games, oddly enough, are some of the most profitable games out there. This is because they’ve perfected something called freemium pricing. Most people can play these games for free. But a small group of players, often called “Whales” in the industry, will spend thousands, sometimes even millions of dollars on a single game. They do this to get special in-game perks that would be almost impossible to get if you only played for free.
Now, it’s actually important for these games to have free players too. Without them, the “Whales” wouldn’t have anyone to show off their expensive stuff to or easily beat using their paid advantages.
In a world where people are looking for cheaper ways to have fun, the game industry figured out the best way to make money is to focus on the people who have the money (or at least the credit card limit) to spend crazy amounts on a video game.
Assets vs. Labor: The Real Shift
The people who have the most money generally don’t earn it from a job. They own things that make money, like income-producing assets. If automation really does replace jobs on a much larger scale, it means:
- Your ability to work becomes less valuable.
- Things that make money (assets) become more valuable.
How fast AI and automation are changing things makes it impossible to know exactly what the future holds. But the people putting money into these technologies want to make a profit. They are going to learn what the video game industry already knows: you can make more money focusing on other rich people, and everyone else can just be kept around for entertainment.
If you think that sounds a bit sad, well, welcome to this channel. But also, market trends already show this is happening. AI isn’t going to completely change your world; it’s just going to speed up a trend that’s been going on for years.
Learning How Money Works
So, it’s time to understand how money really works. To find out how companies are trying to do business in a world where maybe nobody can afford anything anymore…
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The Luxury Market Boom
Let’s look at another example showing this trend. In the 1992 movie Glen Gary Glenn Ross, there’s that famous “always be closing” scene. Alec Baldwin’s character brags to another salesman about driving an $80,000 BMW.
Adjusted for inflation from 1992, according to the Bureau of Labor Statistics, that would be about $182,000 today. That’s definitely an expensive car. But today, if you drive around a big city, you’ll probably see tons of cars that cost that much or more, and they probably wouldn’t even stand out much.
Look at Lamborghini. Based on their sales data and history, they’ve sold more cars in the last 10 years alone than they did in all the company’s history combined before that. Why? Because there’s simply a bigger market for $300,000 cars than ever before.
This same general trend is true for other super expensive brands and items like:
- Bentley
- Ferrari
- Patek Philippe (fancy watches)
- Luxury grocery stores like Erewhon
- Gym memberships that cost more than rent
- Hotels that make places like Hilton look cheap
- And to top it off, private jets are way more popular now than they’ve ever been.
One thing people often miss when talking about wealth inequality is that, yes, billionaires are getting way richer. But there are also far more rich people around than ever before.
Why More Rich People?
This is happening because the value of one hour of human work has stayed pretty much the same, while the value of assets and how easy it is to get credit has gone through the roof.
People who just held onto even a small investment portfolio over the last few years now have huge amounts of money. Some people got really lucky with good investments. Others easily got credit and borrowed heavily (leveraged up) to ride the longest period of asset prices going up in history.
Very few people have become rich recently just by working a job alone. You might have even noticed that investing went from something you should do for retirement to something you need to do just to have a decent life at all.
If robots really do take over, it will just keep pushing the value of human work down because a machine could do it instead. At the same time, it will push the value of assets up because business owners and investors will benefit from basically getting labor for free.
Universal Basic Income (UBI)
This is where some people suggest policy fixes, like Universal Basic Income (UBI). If you haven’t heard of this idea by now, that’s impressive! But basically, it’s a payment from the government given to everyone, no matter how much money they have. The idea is that it should be enough to cover basic living costs.
UBI has been suggested as a way to keep the whole system from falling apart if people can’t earn money from a job because their work has been outsourced or automated.
But honestly, that’s still not a great situation for anyone. If automation of human jobs goes so far that we need UBI, you’ll likely fall into one of two groups:
- You’ll be getting by thanks to a government payment.
- You’ll be in the group of people who own the businesses and are complaining about having to pay taxes to fund those government payments.
It’s a little easier to feel sympathy for one of those groups, but really, there are no true winners in that scenario.
The Texas/Illinois UBI Study
Just last week, the results of one of the most detailed experiments with Universal Basic Income were published. The research gave 1,000 people living in Texas and Illinois $1,000 a month with absolutely no rules on how they had to spend it.
To qualify for the study, their household income in 2019 had to be less than 300% of the federal poverty line (which was $37,470 for one person back then).
There was also a control group of 2,000 people who only got $50 a month. This was done because when someone is studying your personal finances, you’re more likely to be careful with your spending, and the researchers wanted to control for that effect.
The study itself was paid for by an organization called Open Research. They aren’t officially part of OpenAI, but both are managed by Sam Altman. Sam Altman has been very public about how AI technology could cause billions of job losses.
Now, if you ever find yourself running an AI company that’s burning through millions of dollars every day, one of the best ways to keep investors happy and the money coming in is to act really worried about how your technology is going to replace workers. Because, well, replacing workers is actually super exciting to investors.
So, realistically, this study was probably mostly just a marketing move by one of the richest organizations in the field. But that doesn’t mean the results aren’t still interesting.
UBI Study Results
The key finding about jobs was that the group who got the 12,000 a year from UBI alone isn’t enough to live anywhere in America without other help.
All the households in the study ended up with more total income, but that was largely because this experiment started right at the beginning of COVID, when jobs, especially low-paying ones, were hurt by lockdowns.
The reason the researchers gave for the UBI group earning less money on their own was that many people saw it as a chance to work less and spend more time on leisure or taking care of their family. This fits the hopeful idea of an AI future where machines do everything while we relax and collect UBI.
But the results still showed people who were having a tough time financially. Mental health improved because people felt less stressed, but those improvements didn’t last past the end of the first year. Food security also increased, but again, only in the first year, as even people with extra UBI money struggled with rising living costs. And this was back when they could still work to earn more money.
Compared to being completely poor, it’s an okay compromise. But this isn’t going to happen overnight. Outsourcing turned entire cities in America into ghost towns, but it happened so slowly that big, scary changes like this never really got fixed.
The ultimate goal for the people investing in automation is to build that automated perfect future. The goal for everyone else is just to make sure they don’t get left out of it completely.
Keep Learning How Money Works
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Now, while everyone is worried about not having enough work, there’s one country that has decided the answer is to get people to work 6 days a week. Go watch this video to keep on learning how money works!