Suppressed Wages from AI or Aliens?

Suppressed Wages from AI or Aliens?

          Over the past 5 years we have seen wages for the bottom quarter of workers in the US go from the fastest growing segment in 2022 to the slowest growing quartile. This could be cyclical since this group is the most exposed to economic cycles. Since 2014 the bottom quartile has seen the highest wage growth per year but that ended in 2023. Could this have been due to the inflow of illegal immigrants to the US? From 2021 through 2024 they estimate 2.7 Million people illegally crossed the boarder per year. That is 5 times more people per year than previous years looking back to 2008. Could this have caused wages to lag for workers in the bottom quartile?

          Alternatively, we are seeing a massive impact from AI in our economy. It is being incorporated into all aspects of our lives. Software companies like Microsoft have seen the impact of AI forcing investors to reevaluate their business model. The pressure on companies, especially large publicly traded companies, to use AI or be devalued by investors is a real pressure. AI will and arguably already is replacing the low skill, repetitive, and often entry level jobs in many industries. On the other hand, it is helping the high skill jobs be more productive. Could this be the cause of the wage drag for the bottom half of employees in the US?

          Each of us have our own opinion on these two concepts but it doesn’t mean either of them are correctly labeled as the cause of wage discrepancies in the US economy. Nor do we really know the long-term impact of either. AI has the larger risk to all American workers as it continues to advance. It would be wonderful if all of the AI advancements made us more productive and valuable. But I expect to see job losses for many Americans over the next decade which will be replaced by AI and those who can utilize AI.

          Since the economy is large and complex, it is extremely unlikely that we will see a smooth and always positive path between where we are now and where we are going to be in 10 years. There will likely be a recession and several market pullbacks between now and then as progress gets us to a better place eventually but does so in a painful and chaotic fashion as usual. As an investor, we want to stay ahead of these trends. As a member of the labor force, I am constantly paying attention to what I can do better or what could undermine what I do to provide value. You should do the same and do your part to not be devastated by what could be a bumpy road for your wages over the next 10 years.