Sunday, June 16, 2024

Half a million job cuts could be just the start

(Bloomberg Opinion) – In April 2020, with around half the world locked down, video-streaming website Vimeo Inc. was dealing with “unprecedented” demand, funneling investment in customer support and technical infrastructure, and hosting virtual lunches for new hires. Three years on, revenue is in decline, its shares have slumped 93% since going public and it’s slashing jobs. It’s not alone.

There have been more than 500,000 job cuts announced around the world since October, as tracked by Bloomberg, dominated by white-collar firms like Vimeo. What began with a wave of layoffs among high-profile big tech companies is spreading. Consultants at McKinsey and KPMG are downsizing themselves; companies like FedEx Corp. and Boeing Co. are cutting middle management and “bureaucracy”; weak banks like Credit Suisse Group AG are being buried.

Such is life in a normal economy, one might say. With everything snapping back to pre-pandemic reality, from hours spent watching online videos to corporate takeover activity to interest rates, it’s hardly a shock to see companies scrambling to restructure. “During the pandemic, everyone’s using video and what happens is you start to get a little bit of ‘shiny object syndrome,’” Vimeo CEO Anjali Sud recently told Forbes, saying the company now wanted to focus on enterprise customers.

But this stands in fairly stark contrast with demand for blue-collar jobs, where a declining supply of older workers has kept labor markets tight. And it’s surely the opposite of what one might have expected from the Age of Zoom, where headset-and-keyboard-toting elites able to work remotely were set to leave less digitally-literate elders in the dust. What’s happening now isn’t exactly a white-collar “recession” — unemployment rates for professionals in the US are still in the low single-digits overall — but the Zoomocrats now seem to be first in line when the ax swings.

The question is now whether this is a temporary phenomenon or something longer lasting. A full-blown recession might well distribute the pain more evenly. However, given disappointing recent trends in productivity, and where automation trends are heading in the era of ChatGPT, there’s a real chance that this could be just the start. 

While there was undoubtedly a life-saving shift to digital and remote work during Covid-19, productivity trends have returned to pre-pandemic levels, or slightly below, according to a November paper co-authored by Stanford University’s Nicholas Bloom. An International Monetary Fund discussion paper released last month suggests that pandemic digitization led to a broad catchup in adopting essential technologies, but not a boost for investments in anything more revolutionary. Countries like digital laggard Portugal saw a surge in digital employment, but tech-savvy Denmark didn’t see a sustained increase.

And while one might have expected a jump in job qualifications to go with a more connected world, the IMF paper doesn’t find evidence of increased demand for digital skills within occupations. It chimes with research last year that identified evidence of “down-skilling” rather than up-skilling, as employers relaxed job requirements to cope with the labor-supply crunch. 

The “shiny object syndrome” mentioned by Vimeo’s Sud is also pretty revealing: The digital rush during Covid-19 opened up a deluge of short-term business opportunities that seemed too good to turn down, but which in the post-pandemic world has ebbed away; hence, why consultants who lecture CEOs on productivity are also having to cut back — somewhat to the chagrin of digital nomads who envisioned setting up their office at the beach.

Unlike the productivity boom seen in the 1990s — the age of pagers, text-messaging and dial-up modems — the Age of Zoom, so far, has had a pretty incremental effect. “We don’t really see any major productivity gains,” says Nomura International Plc economist George Moran.

Yet what Zoom has sowed, ChatGPT could reap. After bringing more jobs online without a corresponding jump in skills or investment in productive innovation, there’s a risk that white-collar work is now more vulnerable to disruption than it was before. Without slipping into dystopian visions of AI run amok, a world where more cognitive tasks can be automated is a big deal for the office (remote or otherwise). Ask ChatGPT for advice on fixing a burst water pipe, however, and the reply includes: “It’s best to contact a licensed plumber who can help you with the repair.”

No wonder CEOs are excited about AI. Vimeo’s CEO recently told analysts that AI can automatically do cognitive and creative tasks like make videos for customers, and added that generative AI is an area the company is looking at. “Every month there are hundreds more job postings mentioning generative AI,” ZipRecruiter Inc’s chief economist recently told the Wall Street Journal. Whether the tech itself is worth the hype, this looks like another shiny object that will have white-collar workers quaking on their sofas.

 

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