Tech: Implications for Labor Markets and Productivity

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This post is part two of a three-part series titled “Tech is the New Macro”. Read part one and part three for the full story.

  • The accelerated pace of technology means disruptive innovation is affecting every sector of the economy. Through developments, such as e-commerce, robotics, and automation, it is also constraining the labor market and dampening wage growth.
  • Employment tasks most susceptible to automation are those that are highly structured, predictable, and repetitive. These tasks are most prevalent in sectors, such as hotel and food services, manufacturing, transportation, and retail.
  • New jobs will emerge, and the occupations that change will outnumber the ones that are automated away. Still, there will be a great deal of dislocation, as the new jobs may arise only after a considerable lag. These new jobs will often require distinct skill sets and be located in different cities.
  • One puzzling feature is that as technological innovation has accelerated, productivity growth has plummeted. We show that this is at least partly due to the mismeasurement of quality improvements, the exclusion from official statistics of “free” digital services, and underinvestment in IT by physical industries.
  • Further, technological advances have dampened inflationary pressures and flattened the Phillips curve. This presents a challenge for central bankers who remain overreliant on Keynesian models and place insufficient weight on the macro effects of disruptive technologies.
  • Regardless, over the coming quarters, we believe most major central banks will raise policy rates, but will do so cautiously and gradually, at a much slower pace than has historically been the case. Given this, we expect that nominal bond yields will rise only moderately, which should allow equity multiples to remain elevated.
  • Epoch has always favored companies with a demonstrated ability to produce free cash flow and allocate capital effectively, believing they are the most probable winners. These attributes are likely to be even more important going forward, as management is tasked with creating value by marshalling talent and technologies during a period of unprecedented innovation and disruption.

The information contained in this white paper is distributed for informational purposes only and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The information contained in this white paper is accurate as of the date submitted, but is subject to change. Any performance information referenced in this white paper represents past performance and is not indicative of future returns. Any projections, targets, or estimates in this white paper are forward looking statements and are based on Epoch’s research, analysis, and assumptions made by Epoch. There can be no assurances that such projections, targets, or estimates will occur and the actual results may be materially different. Other events which were not taken into account in formulating such projections, targets, or estimates may occur and may significantly affect the returns or performance of any accounts and/or funds managed by Epoch. To the extent this white paper contains information about specific companies or securities including whether they are profitable or not, they are being provided as a means of illustrating our investment thesis. Past references to specific companies or securities are not a complete list of securities selected for clients and not all securities selected for clients in the past year were profitable.

A bond’s prices are inversely affected by interest rates. The price will go up when interest rates fall and go down as interest rates rise. Bonds are subject to credit risk and interest rate risk.

New York Life Investment Management LLC engages the services of Epoch Investment Partners, Inc., an unaffiliated, federally registered investment advisor. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities are distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Epoch Investment Partners, Inc.

Epoch’s investment approach is designed to uncover opportunities that others may miss. In our view, growth of free cash flow, and the intelligent use of that cash flow, represent the best predictor of long-term shareholder return. We look for strong company management with

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