Intuitively you would expect given the advancing technology in the last ten years, productivity growth would have also been high.
A study by McKinsey Global Institute has shown that productivity growth has been below average for the last 20 years in the US. Interestingly the US is exhibiting the highest productivity in the G7, showing other countries are even less productive.
The graph below from McKinsey highlights the last 50 plus years labour productivity in the US.
The study shows that only a small number of industries have benefited from productivity growth driven by AI and Cloud Computing (automation). Interestingly the most recent period of strong productivity growth between 1995-2004 was driven by the rise in the personal computer, offering hope for a better result in the next ten years. As I write this article Nvidia is posed to overtake the market cap of Amazon.
The report also highlighted a big gap in outcomes between employers that embraced and invested in technology and those that didn’t.
Industries experiencing productivity gains have not been those that employ a large percentage of the workforce, thus the demand for labour has not greatly reduced.
However, until recently labour has not been a large issue. This is changing, the boom following the Covid lockdowns saw employers struggling to fill vacancies. Most Western countries either have or will start to experience shrinking workforces.
Employers will need to embrace technology and productivity growth more seriously. The best way to protect from a labour shortage is to require less labour in your business.
Increasing productivity will not only solve the issue of labour, but it also brings along with it the chance for increased profitability and increased compensation for the workers that remain.
As you can see below McKinsey have forecast that in the US increased productivity can add $10trillion to output in the next ten years.
So whilst the doomsdayers would have us believe that inflation and debt will not be contained due to the challenges ahead, we take a different outlook.
Whilst business may be forced to take up the productivity initiatives, rather than willingly embrace them, the end result will be an improvement for both business and workers.
There is a risk that the initiatives fail, but overall capitalism has found a way to overcome hurdles, and we think that this will happen again. The tools and opportunities exist, business and government just need to invest and embrace the opportunity to boost productivity and engender better outcomes for everyone.
Of course, there will be winners and losers from AI. You can invest in AI companies themselves, and also there will be opportunities to find businesses that will benefit from AI to improve margins and profitability. We are researching both for our portfolio's.
For more professional retirement planning advice, call 02 9634 6698 or book a free consultation online with our expert financial advisors at our office in Sydney's Norwest.
Please note the views expressed above are for general information purposes only and are not meant to be taken as personal financial advice.
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