Artificial intelligence (AI) is engendering all kinds of breathless headlines, from being able to play Go to spotting rare cancer tumors. But how will AI impact the economy in broad terms? The answer hinges on both on what AI can be used for and the dynamics of a competitive race to adopt AI that’s set to unfold between firms.
New research from the McKinsey Global Institute simulates the potential global macroeconomic impact of five powerful technologies (computer vision, natural language, virtual assistants, robotic process automation, and advanced machine learning). It finds that AI could (in aggregate and netting out competition effects and transition costs) deliver an additional $13 trillion to global GDP by 2030, averaging about 1.2% GDP growth a year across the period. This would compare well with the impact of steam during the 1800s, robots in manufacturing in the 1900s, and IT during
This month marks the 10-year anniversary of the Lehman Brothers collapse, the prelude to the worst global financial crisis since 1929. As we pass that mark, we are also approaching the 20-year anniversary of the launch of the Euro. And when the retrospective assessments of the Euro’s first two decades are written, they will all be set in the context of the economic disaster that followed the Lehman collapse.
Back in January 2009 European officials assumed that the crisis was purely a U.S. phenomenon, unlikely to affect European economies. This assumption could not have been farther from the truth; a recession started in Europe in the first quarter of 2009, just a couple of months after it hit the U.S.
But the real tragedy happened later: a timid recovery during 2010-11 was followed by a second recession starting in the third quarter of 2011, from
We live in unequal times. The causes and consequences of widening disparities in income and wealth have become a defining debate of our age. Researchers have made major inroads into documenting trends in either income or wealth inequality in the United States, but we still know little about how the two evolve together — an important question to understand the causes of wealth inequality.
We do know that asset prices have been a key determinant of inequality in postwar America, based on our recent research. Although income inequality has been on the rise for decades, wealth inequality hadn’t changed much until more recently. Why not?
Our research demonstrates that wealthier and less-wealthy people own different types of assets: the middle class has a higher share of its wealth in housing, whereas the rich own more stock. An important consequence of this finding is that housing booms lead to
The number of listed firms can decline because of three developments: 1) bankruptcy, failure, or closure of listed firms, 2) delisting of firms going private or acquired, and 3) decrease in number of initial public offerings (IPOs). All three factors have become more common over time, which we argue stems from firms’ increasing reliance on intangible and knowledge inputs in their business models.
Although the unemployment rate is currently at a historic low of 4%, economists are still struggling to understand why it remained so painfully high after the Great Recession—and why it took five years to return to its pre-recession level. Our research points to one possible reason: employers increased skill requirements during the recession, when high-skill workers were more plentiful, making it more difficult to fill those positions as the job market began to recover. However, since then, some employers have been lowering education and experience requirements in an effort to clear the backlog of open vacancies.
First, some context. Typically, there’s a stable tradeoff between the unemployment rate and the job vacancy rate (this is known as the “Beveridge Curve”). During a recession, the job vacancy rate falls as the unemployment rate rises, and during a recovery, the reverse happens. However, after 2009, despite employers
As cities compete for Amazon’s second headquarters, many flexed their tax incentive packages and real estate options in hopes of luring the tech giant to select their city. It’s tempting to think the right financial perks is all it takes for a company to successfully expand to a new city. In fact, success requires a solid base of nearby talent — or the ability to entice skilled workers to relocate for new job opportunities.
The reality is that most job seekers don’t want to move. Most apply to jobs close to home, with government data showing the urge to move is only declining. So when a company opens a new location, it must expect to draw mostly from the local labor force. In a time when unemployment is near historic lows amid one of the longest economic expansions in history, finding the right talent is harder than ever.
“We lose $800 billion a year on trade, every year,” President Trump said in March when he announced his new tariff plan, referring to the size of the U.S. trade deficit in goods. Trump has lamented the U.S. trade deficit repeatedly, tweeting that as a result of it, “our jobs and wealth are being given to other countries.”
The trade skirmishes that have broken out as a result have the potential of becoming a full-scale trade war of the sort that the Smoot-Hawley Tariff Act of 1930 started, which is widely credited with either triggering or deepening the Great Depression.
But what is the trade deficit, and what causes it? And is it a bad thing?
For decades, the U.S. has run a deficit in the trade of goods — in other words, importing more goods than it exports. The dominant narrative is
The European Union’s recent announcement that it is preparing to retaliate if the Trump administration imposes tariffs on EU-made autos leaves no doubt that EU-U.S. cooperation on global trade will be compromised for some time if the tariffs go into effect. Besides whatever damage the conflict could do to U.S. jobs, industry, and consumers, this conflict will jeopardize essential allied collaboration to confront Chinese state capitalism, the underlying cause of much of the current trade conflict. When EU President Jean-Claude Juncker visits Washington on July 25, the administration should use the visit to find ways to step back from this precipice.
The primary tool of China’s industrial policy is subsidies to state-owned enterprises (SOEs) for key industries such as robotics, advanced computers, and electric vehicles. SOEs receive preferential access to land, finance, telecom, hydrocarbons, and electricity. They enjoy lower taxes and selective anti-trust enforcement to
The movement to make cities smarter is transforming municipal governments worldwide. But that’s only one side of the story. For companies, smart cities represent major business opportunities — and not only for tech firms selling systems to government agencies.
Technology is reconfiguring traditional roles and divisions of labor. City governments don’t have to provide every type of application and service themselves. In fact, they can’t — and this realization opens the door for other entities with capital and capabilities to step in, particularly where there may be opportunities to generate revenue. Smart cities have become more intricate ecosystems over time, with the degree and mix of private-sector participation varying from city to city.
Even if they don’t become providers of systems or services, many companies will need to adapt in some way as cities become more digitally connected. Digitization has upended industry after industry —
But are we scaling the right model? How do we make sure that the blossoming impact investment movement — especially as it starts to supplant traditional aid — actually leads to improvements in outcomes for the people and communities it is supposed to benefit?
Earlier this spring, Amazon CEO Jeff Bezos released his annual letter to shareholders. Like every shareholders letter Bezos has written since his company went public in 1997, this year’s version was brilliant, entertaining, and filled with big strategic insights and gritty management takeaways.
To my eyes, though, it was also missing something — an omission that became even more glaring a week or so later. For the first time, public companies were required to publish not only compensation figures for their CEO but also the median pay package earned by their workers. As the Wall Street Journal noted, median compensation at many high-tech companies was astounding — $240,000 at Facebook, for example, and $253,000 at a biotech firm called Incyte. At Amazon, though, median compensation was only $28,446 — evidence not that Jeff Bezos is cheap, but that Amazon’s workforce is fundamentally different from the coders and engineers
President Emmanuel Macron together with many Silicon Valley CEOs will kick off the VivaTech conference in Paris this week with the aim of showcasing the “good” side of technology. Our research highlights some of those benefits, especially the productivity growth and performance gains that automation and artificial intelligence can bring to the economy — and to society more broadly, if these technologies are used to tackle major issues such as fighting disease and tackling climate change. But we also note some critical challenges that need to be overcome. Foremost among them: a massive shift in the skills that we will need in the workplace in the future.
To see just how big those shifts could be, our latest research analyzed skill requirements for individual work activities in more than 800 occupations to examine the number of hours that the workforce spends on 25 core skills today. We then
After the stock market’s rocky ride in recent months, some analysts are wondering whether a new economic crisis might be around the corner. Judging by the economy’s overall performance, there is no need for immediate concern. But for entrepreneurs who prefer to be safe than sorry, the question remains: what should you do when the next crisis hits?
The answer is different for entrepreneurs and start-up employees than for investors. For most investors, the options are straightforward: sell shares to limit financial losses, hold shares and hope everything will blow over, or buy shares if there’s a belief the market has bottomed out. Either way, the gains and losses are mostly financial, and while the right choice may be hard to determine, the options are clear.
For entrepreneurs and employees, however, it’s not that simple. Imagine having put not only your money into a project, but also your sweat,
Do you value bitcoin in dollars or dollars in bitcoin? Few serious economists imagine that the new cryptocurrencies, for all the hype, will make national currencies redundant. By and large they are right, because conventional money actually does a pretty good job. The U.S. dollar and other reserve currencies have historically performed well as a medium of exchange and as a store of value — the two principal functions of a currency. Bitcoin and its derivatives perform poorly on both accounts and will not disrupt money as we know it.
But that doesn’t mean that new technologies aren’t going to usher in a lot of disruption to the financial system. Traditional economists (and, yes, that label could well describe both of us) often ignore a crucial separation between money (the “what”) and the payment technology (the “how”). This confusion originates in the fact that for older forms of
You may not be sharing your office with a robot yet, but the next wave of automation has begun. Humanoid service robots, machine learning algorithms and autonomous logistics will replace millions of service workers in the coming decade. Experts are rushing to forecast the likely impact on jobs. But most projections overlook two powerful forces that will combine with automation to reshape the global economy by 2030: rapidly aging populations and rising inequality.
The collision of these three forces sets the stage for a 10- to 15-year economic boom followed by a bust. An aging workforce, advances in automation, and growing income inequality point to an era of rapid and volatile change—and greater economic disruption than we have seen over the past 60 years. In the coming decade extremes are likely to become more extreme.
How would this boom-bust cycle likely play out? As populations
In a White House signing ceremony on Thursday, March 8, President Donald Trump announced he was imposing import tariffs of 25% on steel and 10% on aluminum. After invoking a rarely-used Cold War-era law last year, Commerce Secretary Wilbur Ross had spent nine months investigating whether imports of steel and aluminum posed a threat to American national security. Ross concluded imports were a threat, and he recommended Trump impose new restrictions covering an estimated $46.1 billion of imports, or about 2% of total U.S. goods imports in 2017.
Just a week earlier, Trump had issued the surprise announcement that he was going to impose these tariffs on all trading partners. The tariffs would have eliminated an estimated $14.2 billion of foreign steel and aluminum from the American market. Tariffs would increase metal prices, thereby raising costs for downstream industries like auto and
The U.S. supply chain is generally recognized as an integral part of the American economy. From Intel’s semiconductors to Microsoft’s enterprise software, the supply chain builds the goods and services that businesses need. But for all of its importance, no one has identified what industries comprise the U.S. supply chain economy, quantified the number and quality of jobs it contains, or assessed how much it matters for innovation. We attempted to answer these questions by creating a novel categorization of the U.S. economy that reveals new ways to drive American growth and innovation.
The U.S. supply chain economy is large and distinct. It represents the industries that sell to businesses and the government, as opposed to business-to-consumer (B2C) industries that sell for personal consumption. The U.S. supply chain contains 37% of all jobs, employing 44 million people. These jobs have significantly
Last year Facebook became the second largest e-commerce company in Africa after Jumia, the industry leader. The American social media giant did not celebrate that feat, though, because it never promoted itself as an e-commerce firm. But as global technology brands penetrate African economies, it is becoming evident that most local startups are experiencing new levels of competition, which could potentially disrupt their operations.
Across African markets, information and communication technology (ICT) is facilitating the process of socioeconomic developments. ICT has offered new ways of exchanging information and transacting business efficiently and cheaply. It has also changed the dynamic architectures of the financial, entertainment, and communication industries and provided better means of using the human and institutional capabilities of countries in both the public and private sectors.
The impact has been consequential: ICT is rapidly moving Africa toward knowledge-based economic structures and information societies, comprising
For months now, much of the media attention on the crypto space has been directed at ebbs and flows in the price of bitcoin on one side, and whiz-bang ICOs on the other.
The price of the most valuable cryptocurrency, Bitcoin (specifically the BTC chain), has backpedaled significantly from highs set in December 2017. The chart below shows pricing data from the CoinDesk Bitcoin Price Index… Read More
Three beliefs about globalization have propagated since the early 1980s. First, that globalization leads to a reduction in global inequality. Second, that high income growth among the richest will lift the incomes of the poorest. Third, that there is no alternative to rising inequality without turning our backs on trade and technology. The recently released World Inequality Report, the first research study to comprehensively examine wealth and income inequality trends across rich and emerging countries over approximately 40 years, dispels these notions.
Globalization has led to a rise in global income inequality, not a reduction
Inequality between individuals across the world is the result of two competing forces: inequality between countries and inequality within countries. For example, strong growth in China and India contributed to significant global income growth, and therefore, decreased inequality between countries. However, inequality within these countries rose sharply. The top 1% income