Why the Goldman Sachs CEO isn’t buying the AI jobs freakout

Economic

Summary:

Goldman Sachs CEO David Solomon argues AI won’t cause lasting mass job loss. While adoption is fast and disruptions likely, he believes the workforce will adapt and new jobs will emerge, despite short-term layoffs.

The fingerprints of artificial intelligence are all over mass layoffs and downsizing at Meta (META), Amazon (AMZN), Salesforce (CRM), YouTube and other major companies, raising fears of an AI-fueled jobs wipeout for white-collar workers.

AI may hurt demand for office workers, but there’s reason for hope, Goldman Sachs CEO David Solomon believes. The dynamic American workforce will evolve, as it has in the past, Solomon told CNN during a sit-down interview.

Solomon, speaking from the sidelines of the Goldman Sachs (GS) 10,000 Small Businesses Summit in Washington, cited the disruption caused by the invention in the late 1700s of the steam engine, which helped fuel the first industrial revolution.

“There will be disruption. But I’m a big believer that our economy is very nimble, very flexible. And when you look at the technology that has flooded over hundreds of years into our society, we adapt,” Solomon said. “We find new businesses. We find new jobs. I don’t believe it will be different this time.”

Of course, that adjustment process can be difficult – especially for the workers whose careers have been sidelined by new technology.

AI is advancing rapidly

A key difference this time is the explosive speed at which AI is being embraced by businesses – and how rapidly AI itself is advancing. A Goldman Sachs survey of bankers found that 37% of clients are using AI for regular production, with adoption expected to hit 50% next year and 74% in the next three years.

ChatGPT launched in November 2022 and now boasts 800 million weekly active users. Its parent company OpenAI is reportedly laying the groundwork for an IPO that could value it at up to $1 trillion.

Today’s AI chatbots can do deep research, generate stunningly realistic films, compose music and instantly flag financial fraud before it can even get completed.

That speed could make the transition bumpier this time around.

“The pace of adoption of this technology is going a little bit faster. As businesses wrestle with deploying the technology and the automation, the short-term disruption might be a little bit higher,” the Goldman Sachs CEO said. “But our economy is incredibly broad and nimble.”

White-collar jobs exposed to AI

Office workers may be especially exposed to that disruption.

Although Amazon CEO Andy Jassy told analysts the company’s recent 14,000 layoffs were “not even really AI driven,” he said in June that adopting generative AI and AI agents will shrink the company’s corporate workforce.

Meta recently cut 600 roles within its AI team, which reports have indicated is part of an effort to move more nimbly. YouTube this week began offering voluntary buyouts to US employees as part of an AI-focused restructuring.

Workers at Chegg, an online education company, are being hurt by AI on two fronts. First, the rise of ChatGPT is lowering demand for Chegg’s education services. Secondly, Chegg itself is investing in AI, promising to run its business leaner with fewer workers to compete. This week Chegg said it will slash nearly half its workforce as it grapples with the “new realities of AI” and lower search traffic.

AI was cited as a reason for 17,375 layoff announcements this year tracked by outplacement and coaching firm Challenger, Gray & Christmas through the end of September. That represents less than 2% of the total layoffs announced this year.

However, Challenger noted that this tally likely undershoots AI-linked layoffs. Another 20,219 job cuts announced during that period were tied to companies citing unspecified technological updates – some of which could be related to AI.

“The need for some white-collar office jobs will be diminished, but they’ll be picked up in other parts of the economy,” said Solomon.

By contrast, Anthropic CEO Dario Amodei has warned that AI could eliminate half of entry-level jobs in white-collar professions, lifting the unemployment rate to up to 20% in the near future.

“It’s eerie the extent to which the broader public and politicians, legislators, I don’t think, are fully aware of what’s going on,” Amodei told CNN’s Anderson Cooper in May. “We have to act now. We can’t just sleepwalk into it.”

‘Transformative impact’

Federal Reserve Chairman Jerome Powell acknowledged during a press conference that a “significant number of companies” are either doing layoffs or saying they won’t hire much in part because of AI.

“We’re watching that very carefully…It could absolutely have implications for job creation,” Powell said.

A survey of over 100 Goldman Sachs investment bankers finds that just 11% of US companies are “actively reducing headcount due to AI,” a report published last week said. However, that figure rises to 31% for tech, media and telecom companies.

Goldman Sachs bankers expect AI will lead to “modest headcount reductions” of 4% over the next year. But that number could rise to 11% over the next three years – especially in customer service jobs.

Jan Hatzius, Goldman’s chief economist, wrote that the findings support the bank’s view that AI will have a “transformative impact on the labor market and economy,” and that rapid adoption signals that “AI impacts on the US labor market could arrive sooner than expected.”

‘Bumps along the way’

The AI boom has also raised worries about a bubble forming in this red-hot part of the market.

Solomon said that while many “great companies” will be formed during the AI boom, at some point the exuberance could get overdone and it won’t be a “straight line up” in value.

One scenario he laid out is that demand for AI services may at some point fail to reach lofty expectations, driving valuations down.

But that process could take time to play out because, as Solomon noted, most public tech companies are well-established and the newer AI companies are largely still in private markets, where valuation markdowns only change slowly.

“The technology is exciting – there should be a lot of enthusiasm for it,” Solomon said. “But there will be bumps along the way, too.”

Source: finance.yahoo

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Why the Goldman Sachs CEO isn’t buying the AI jobs freakout

Source: finance.yahoo

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