With the recovery from the global financial crisis of 2007-09 taking time, some 7% of the labor force in the OECD club of rich countries lacked work altogether. Wage growth was weak, and income inequality seemed to be rising inexorably.
Fast forward to today, and the narrative has taken a remarkable turn. In the rich world, workers now face a bronzy. As societies age, labor is becoming scarcer and better rewarded, especially manual activity that is hard to replace with technology. Governments are spending big and running economies hot, supporting demands for higher wages, and artificial intelligence (AI) is giving workers, particularly less skilled ones, a productivity boost, potentially leading to higher wages.
To understand this transformation, let's revisit the gloomy scenario of the mid-2010s. At its peak in 2015, China’s working-age population was at 998 million people. Western firms could use the threat of relocation to force down wages. Now, China’s working-age population is declining, other poor countries are struggling to build industrial capacity, and geopolitical instability is making outsourcing less appealing. The rich world is also facing a dearth of workers. A recent survey found that 77% of companies across 41 countries are struggling to fill roles, signaling a scarcity of labor.
Governments are actively contributing to this positive shift for workers. Most countries in the OECD have managed to maintain or increase minimum wages in real terms during the recent bout of inflation. Trillions of dollars are being spent to speed up the green transition, reduce dependence on China, and create jobs, providing workers in protected industries with bargaining chips.
The macroeconomic policy mix favored by today’s politicians also suits workers. Governments are determined to maintain a "high-pressure economy" that runs close to its potential, ensuring healthy employment and rising wages. This approach is already yielding positive outcomes for workers, with tight labor markets leading to fast wage growth, especially for lower-paid employees.
Artificial intelligence is playing a pivotal role, giving workers a productivity boost. AI can perform tasks that require creativity, improvisation, and learning, enhancing productivity and job satisfaction. A more productive economy is a richer economy, creating demand for labor and goods less affected by new technology.
While there are concerns about job displacement due to AI, historical evidence suggests that new tasks will be created around it and in other parts of the economy. The skills required for these tasks will complement AI, benefiting those with fewer qualifications who are already seeing higher wages due to labor scarcity.
The forces transforming labor markets—demographic change, policy, and AI—will interact differently in different conditions. Places with fast-aging populations will experience chronic worker shortages, ensuring upward pressure on wages. Governments must remove barriers to AI use in regulated professions, facilitating these benefits.
In America, where demographic pressure is less intense, AI's impact is harder to predict. However, historical resilience and dynamism suggest that the country will generate new jobs that benefit from the greater affluence AI brings. Politicians should not stand in the way but support the transition, ensuring that those who lose jobs are taken care of.
