Tech: Implications for Labor Markets and Productivity
This post is part two of a three-part series titled “Tech is the New Macro”. Click here to read part one.
- 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.
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