While everyone is talking about technology destroying jobs, nobody talks about the lack of technology destroying companies.

Over the next decade, labour & commodities shortages will reward the brave worker, the ambitious company & the balanced investor while sinking the others.

This follows the article on inflation & I would recommend starting from there if you didn't read it. I am already sorry to mix up EU and US data. I believe that these are both useful to explain big concepts. This is the first part, a second part on commodities will follow.

---

I strongly believe that the labour market is in a structural shift, and that will influence inflation and practically everything we will deal with over the next decade.

Assumption 1: There's no certainty that "technology & automation" will slash jobs, most likely it will only displace workers.

This might be counter-intuitive and nobody knows where it is going, so I rather take the status quo as my base case.

1. There's not been any industrial revolution since the internet's discovery in the early 90s. Everything else is just improvement of current technologies.
   

   

2. Labour has always adjusted to industrial revolutions. For example, nobody is now talking about the invention of the wheel as a job mass destruction event. Simple to understand: the world is in constant evolution and although new technologies take time to be absorbed, they are part of a continuous process.
   

   

3. When you look at this map of jobs, what you can see is that while some jobs a shredded, others are created (even if some not are on this map). Let's take a practical example, you had a cashier when doing your groceries. So these are disappearing, it's true. What about the food deliveries? 5 years ago I never had my food delivered, now I get the big ones delivered by a truck and the small ones by an e-bike. So jobs are changing, but it doesn't mean they disappear.
   

   

The EU commission came up with this chart of the occupation at risk (link to the full list: tinyurl.com/EUListatrisk). We can see that health professionals are one of the top ones. This does not tie with common sense, nurses & all are missing all over the world.

Employees in EU27 with high automation risk in 2020-2030 by occupation

I don't want to blame them. This is truly unpredictable & the best case is to assume a status quo: as jobs will be shredded, new ones will be created… and a lot of jobs will need to find a new worker to fill them.

Assumption 2: the labour force will fall off a cliff in the next 10 years.

1. Here's a chart of the age pyramid: eyeballing this, we can quickly assume 1% of labourers won't be replaced in the workforce every year, for the next 10 years. More than 10% of the workforce will not be replaced by 2030.
   

   

2. The EU projection is that 1 worker on 30 will not be replaced (aka civilian labour force growth).
   

   

   Working-age % top, total population bottom

3. As 1. is too pessimistic because it doesn't include immigration, 2. is most likely optimistic. The average might be the sweet spot: 1 worker in 20 will not be replaced.

We can already conclude here that although some sectors & companies will be able to automate their processes, some won't. These will push salaries higher, for all companies, and especially in some job sectors (cfr map).

Assumption 3: The increase in the available labour force in the 60s (the boomers) had put negative pressure on salaries. The opposite will be true now.

1. We're all living in the recency bias: for the past 30 years, there was an excess of workers. Boomers were moving up the age pyramid and fighting for the same jobs higher in company hierarchies.

2. We're all living in availability bias: Japan has an old population, and they have structural deflation. In reality, the working-age population create deflation: they produce a lot & consume less than what they produce. While non-working-age population (kids, students, retirees) produce inflation as they produce nothing but consume, relative to that, a lot. Here's a paper from the IMF that summarizes this: https://tinyurl.com/IMFageinflation
   

   

   

3. I have put this on a graph to make it easier to interpret: I recomputed a dependency ratio (the one available didn't account for young, and the working-age 15-65 is overly optimistic). We can see 3 phases: higher dependency with higher inflation in the 60s, lower dependency with lower inflation until 2010 and finally now as the dependency ratio increases, inflation increases.

   

4. In addition, we can see that this also coincides with potential pressure on salaries: 

• In red: number of jobs occupied / total civilian labour force

• In purple: the increasing participation of women in the labour force

• The green boxes represent a positive balance of power for the workers.

  

In conclusion

So the broad-based assumption that automation will reduce jobs might turn out to be a disastrous prediction. Instead, the most likely scenario is that the economy will need to adapt to the (lower) number of available workers. Higher wage (with goods & services), lower production: structural stagflation?

How do you navigate this?

If you're a company, it's clear that your priority will be automation: not only finding workers will be incredibly difficult, but also your current salary base will be increasing as you try to retain workers.

If you're an employee, the market is now on your side. As boomers will exit the workforce, this will create a suction force that will enable the best ones to grow internally very fast. For the other ones, the shortages in some job categories will create an incredible negotiation power. The ones that don't make any of these 2 choices will need to suffer the pain of inflation.

For investors, finally, if the labour condition put deflationary pressure for the past 4 decades, this won't be true anymore. Bonds & equities might have varying levels of performance. Good timing & balanced portfolio will be key.