Economy
Algorithms Are Making Economic Inequality Worse – Harvard Business Review
Executive Summary
There is a code ceiling that prevents career advancement — irrespective of gender or race — because, in an AI-powered organization, junior employees and freelancers rarely interact with other human co-workers. Instead, they are managed by algorithms. As a result, a global, low-paid, algorithmic workforce is emerging. You will increasingly find a gap between top executives and an outer fringe of transient workers, even within organizations. Whether in retail or financial services, logistics or manufacturing, AI-powered organizations are being run by a small cohort of highly paid employees, supported by sophisticated automation and potentially millions of algorithmically managed, low-paid freelancers at the periphery. Job polarization is only part of the problem. What we should really fear is the algorithmic inequality trap that results from these algorithmic feedback loops.
The risks of algorithmic discrimination and bias have received much attention and scrutiny, and rightly so. Yet there is another more insidious side-effect of our increasingly AI-powered society — the systematic inequality created by the changing nature of work itself. We fear a future where robots take our jobs, but what happens when a significant portion of the workforce ends up in algorithmically managed jobs with little future and few possibilities for advancement?
One of the classic tropes of self-made success is the leader who comes from humble beginnings, working their way up from the mailroom, the cash register, or the factory floor. And while doing that is considerably tougher than Hollywood might suggest, bottom-up mobility was at least possible in traditional organizations. Charlie Bell, former CEO of McDonalds, started as a crew member flipping burgers. Mary Barra, chairman and CEO of General Motors, started on the assembly line. Doug McMillon, CEO of Walmart, started in a distribution center.
By comparison, how many Uber drivers do you think will ever have the chance to attain a managerial position at the company, let alone run the ride-sharing giant? How many future top Amazon executives will start their careers by delivering packages or stacking shelves? The billionaire founder and CEO of Instacart may have personally delivered the company’s first order, but how many others will follow in his footsteps?
Insight Center
Here’s the problem: There’s a “code ceiling” that prevents career advancement — irrespective of gender or race — because, in an AI-powered organization, junior employees and freelancers rarely interact with other human co-workers. Instead, they are managed by algorithms.
In this new era of digitally mediated work, there is typically a hierarchical information flow, in which the company decides the information they choose to share with you. Unlike driving a taxi, where there is open radio communication between drivers and the dispatch operator, and among the drivers themselves, when you work for Uber or Lyft, the content of your interactions is the output of an optimization function designed to maximize efficiency and profit.
To be managed algorithmically is to be subject to constant monitoring and surveillance. If you are one of the millions of food delivery workers in China working for Meituan or Ele.me, an algorithm determines how long it should take you to drop off an order, reducing your pay if you fail to meet your deadline. Similarly, employees in Amazon distribution centers are also carefully tracked by algorithms; they must work at “Amazon pace” — described as “somewhere between walking and jogging.”
When you are a gig economy worker, it is not only your AI bosses that should concern you; your co-workers are often also your competition. For example, Chicago residents who live near Amazon’s distribution points and Whole Foods stores reported the strange appearance of smartphones hanging from trees. The reason? Contract delivery drivers were desperate to trump their rivals for job assignments. They believed that hanging their devices near delivery stations would help them game the work allocation algorithm; a smartphone perched in a tree could be the key to getting a $15 delivery route mere seconds before someone else.
Work has been changing over the last few decades. The labor market has grown increasingly polarized, with middle-skill jobs being eroded relative to entry-level, low-skill work, and high-level employment that requires greater skill levels. The Covid-19 crisis has likely accelerated the process. Since 1990, every U.S. recession has been followed by a jobless recovery. This time, as AI, algorithms, and automation reshape the workforce, we may end up with something worse: a K-shaped recovery — where the prospects of those at the top soar, and everyone else sees their fortunes dive.
The new digital divide is a widening gap between workers with access to higher education, leadership mentoring, and job experience — and those without. In my recent book, The Algorithmic Leader, I explore one particularly dire scenario: a class-based divide between the masses who work for algorithms, a privileged professional class who have the skills and capabilities to design and train algorithmic systems, and a small, ultra-wealthy aristocracy, who own the algorithmic platforms that run the world.
A global, low-paid, algorithmic workforce is already emerging. In Latin America, one of the fastest-growing startups is Rappi, a mix of Uber Eats, Instacart, and TaskRabbit. Customers in cities like Bogotá and Mexico City pay about $1 an order or a flat $7 a month. In return, they can access a vast on-demand network of couriers who deliver food, groceries, and just about anything else you want. Amazon has an informal network of delivery people, called Amazon Flex, ready to drop packages right to your door — and soon even hand them to you in the street, place them in your car trunk, or open the door to your house and store your groceries in your fridge.
In his 1930 lecture Economic Possibilities for Our Grandchildren, John Maynard Keynes predicted that by around 2030, the production problem would be solved, and there would be enough of everything for everyone. The catch, however, is that machines would cause technological unemployment. The scenario that Keynes didn’t fully anticipate was our present case of high technological employment, with an accompanying degree of high inequality.
The workforce is changing; so too is the workplace. You will increasingly find a gap between top executives and an outer fringe of transient workers, even within organizations. Whether in retail or financial services, logistics or manufacturing, AI-powered organizations are run by a small cohort of highly paid employees, supported by sophisticated automation and potentially millions of algorithmically managed, low-paid freelancers at the periphery.
Job polarization is only part of the problem. What we should really fear is the algorithmic inequality trap that results from feedback loops. Once you are a gig economy worker reliant on assignments meted out by your smartphone, not only are there few opportunities for promotion or development, but other algorithms may further compound your situation. Think of it as a digital poorhouse. With their earnings and work assignments held hostage by market fluctuations, the new AI underclass may be penalized by automated systems that determine access to welfare, lending, insurance, or health care, or that set custodial sentences.
Nevertheless, it is dangerous to seek quick fixes for a problem that has yet to fully manifest, especially if it means grafting 20th-century worker protections onto 21st-century business models. Already, governments and regulators supported by populist platforms are focused on attacking global digital giants. They seek to prevent them from avoiding tax liabilities and are working to regulate their freelance workforce’s labor conditions, to apply restrictions on their collection of data, and even to tax their robots. Some of these ideas have merit. Others are premature, or worse, just political theater.
The longer-term solution to algorithmic inequality will not lie in just taxation and regulation, but rather in our ability to provide an adequate education system for the 21st century. Rebooting education will not be easy. Rather than looking for ways to use AI in teaching, the real question is: How do we teach people to harness machine intelligence in their careers? And how do we teach people to be prepared for a lifetime of constant learning and retraining?
Business leaders have a crucial role to play. Not only should they carve out channels of communication, feedback, and advancement for freelancers at the edge of their organizations, they need to get serious about retraining and community engagement. For example, AT&T is retraining half of its workforce, while Cisco, IBM, Caterpillar, McKinsey, and JPMorgan are offering internships to high school students and are working with local schools to upgrade their teaching curriculums. These are all good initiatives, but more will be needed — not just for social cohesion, but also to ensure the diversity and agility of tomorrow’s workforce.
We need a better plan for the future. Without one, the algorithmic inequality trap will be a story told not in statistics and wealth ratios, but in distress signals — smartphones hanging from trees, tent cities for the homeless, and human couriers scanning the skies for the delivery drones that spell their impending end.
German politicians and business leaders, despairing a weak economy, are lately broaching a once taboo topic: claiming their compatriots don’t work enough. They may have a point.
German Finance Minister Christian Lindner fired the latest salvo in this fractious debate last week when he said that “in Italy, France and elsewhere they work a lot more than we do.” Economy Minister Robert Habeck, a Green Party representative, grumbled in March about workers striking, something a country beset by labor shortages “cannot afford.” (Later that month train drivers secured a 35-hour workweek instead of 38, for the same pay.) Signaling his opposition to a four-day work week, Deutsche Bank AG Chief Executive Officer Christian Sewing in January urged Germans “to work more and work harder.”
Canada stands to bear a greater economic burden than the United States if Donald Trump wins the upcoming presidential election and imposes promised tax cuts and tariffs on all U.S. imports, a new report warns.
The analysis released Tuesday by Scotiabank Economics says if Trump returns to the White House and follows through on his vow to slap a 10-per cent tariff on all imported goods — with the exception of China, which would face a 60-per cent carve-out on its U.S. exports — and countries retaliate with their own, there would be “substantial negative impacts” on the U.S. economy. GDP would likely fall by more than two per cent by 2027 relative to current forecasts, while inflation would rise 1.5 per cent, leading to a two per cent interest rate hike.
In Canada, the economic impact would be even more stark with an expected GDP drop of 3.6 per cent, given its reliance on trade with the U.S. Inflation and interest rates would also be pushed up for the next two years — 1.7 per cent and 190 basis points, respectively — the report suggests.
“What Trump is looking to do is much broader, and much more concerning, than the tariffs he imposed during his first term,” said Scotiabank’s chief economist Jean-François Perrault, who authored the report.
The report also serves as another reminder that Canada needs to urgently address its issues with lagging productivity, warning the problem makes Canada more vulnerable to economic shocks brought by trade policy changes in the U.S. and abroad.
Perrault says it’s far too late to fix the problem in time for the U.S. election in November.
“It takes a long time to change direction on productivity,” he said in an interview. “Maybe you can make up some ground over the next few quarters, but we need massive amounts of progress to get to where we need to be (to withstand U.S. economic shocks).”
Trump’s policies seen as more likely than Biden’s
Although the analysis examined the impact of policies proposed by both Trump and U.S. President Joe Biden, it focuses more on the fallout from Trump’s promises.
That’s because they’re not only more potentially harmful, Perrault said, but also because they’re more likely to be implemented than Biden’s vow to raise the corporate tax rate.
“There’s really no appetite in the U.S. right now for any kind of tax hike,” Perrault said.
Implementing a change to the corporate tax rate would require Biden’s Democrat party to control both chambers of Congress — a scenario seen as highly unlikely, given recent polling. Trump’s proposals, meanwhile, are seen as more likely to be implemented quickly and without congressional approval, particularly his expanded tariffs.
During his presidency, Trump imposed tariffs on about US$50 billion worth of Chinese goods imported to the U.S., later expanding to another US$300 billion, sparking a trade war with China. Many of those tariffs have remained in place under the Biden administration.
Trump also slapped tariffs up to 25 per cent on imported washing machines, solar panels, steel and aluminum in 2018. Canada and Mexico were later exempted from the steel and aluminum tariffs in 2019, although the Canadian aluminum tariff was briefly reintroduced in 2020.
U.S. government data shows those tariffs — none of which were legislated or approved by Congress — have cost American manufacturers more than US$230 billion as of March 2024 and have shrunk the U.S. economy by 0.3 per cent.
Trump has repeatedly claimed tariffs serve to punish unfair trade practices from other countries, despite agreement among economists that they raise prices for American consumers, and says he wants to expand them to 10 per cent on all imported goods from every country if he wins in November. He has also said he will seek a 100 per cent tariff on imported cars, and carve out a 60 per cent tariff for Chinese imports specifically.
The most likely scenario — a continuation of Trump’s 2017 tax cuts beyond their 2025 expiration combined with across-the-board tariffs — would see Canada’s GDP stay three per cent lower long-term, and just over one-per cent lower in the U.S.
The Scotiabank report says the economic harm from the tariffs can be reduced on both sides of the Canada-U.S. border if Canada and Mexico negotiate an exemption with the U.S. under the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA) during the Trump administration.
Scotiabank predicts in that scenario, Canada’s GDP would only fall by 1.4 per cent in the short term — half the drop forecast without an exemption — and 0.3 per cent in the long term, while U.S. GDP would fall 1.7 per cent and 1.2 per cent, respectively.
Perrault says he’s “hopeful” such a carve-out could be negotiated, even though Trump would likely insist on further concessions that benefit U.S. trade. That “bigger stick” approach could be somewhat limited compared to the contentious CUSMA negotiations, however.
“Trump owns CUSMA, so he wouldn’t be in as much of a position to throw it away,” he said. “So maybe we get a little bit of a break.”
The report also examines the impact of Trump’s repeated vow to mass deport roughly 10 million undocumented immigrants living illegally in the U.S., which Perrault admits would be “politically and logistically infeasible.” It would also be economically harmful, the analysis found, permanently reducing both U.S. employment and GDP by three per cent, though the impact on Canada would be negligible.
The analysis says Canada and the U.S. could see additional economic impacts due to a number of scenarios it didn’t explore, including China retaliating to tariffs by unloading its U.S. Treasury holdings; further debt ceiling and budgetary crises in the U.S.; Trump’s appeasement of aggressive foreign adversaries like Russia and China; and domestic civil disorder regardless of who wins the U.S. elections.
Perrault said the findings also underscore the key difference between Trump and Biden as Canadian trade partners.
“Biden seems to view negotiations from a collaborative approach: how can everyone come away with a win?” he said. “Trump doesn’t see it that way. He’s very much in the mindset of, ‘How will this benefit me?’”
More on Money
© 2024 Global News, a division of Corus Entertainment Inc.
More than six months into the devastating Gaza war, its impact on the Israeli and Palestinian economies has been huge.
Nearly all economic activity in Gaza has been wiped out and the World Bank says the war has also hit Palestinian businesses in the occupied West Bank hard.
As Israelis mark the Jewish festival of Passover, the much-vaunted “start-up nation” is also trying to remain an attractive proposition for investors.
The cobbled streets of Jerusalem’s Old City are eerily quiet. There are none of the long queues to visit the holy sites – at least those that remain open.
Just after Easter and Ramadan and right in the middle of Passover, all four quarters of the Old City should be teeming with visitors.
Just 68,000 tourists arrived in Israel in February, according to the country’s Central Bureau of Statistics. That’s down massively from 319,100 visitors in the same month last year.
While it may be surprising that any visitors pass through Jerusalem at a time of such tension, many of those who do are religious pilgrims from across the globe who will have paid for their journeys well in advance.
Zak’s Jerusalem Gifts was one of only a handful of stores on Christian Quarter Street in the Old City, which is situated in occupied East Jerusalem, to have bothered opening up on the day I passed by.
“We’re only really doing online sales,” says Zak, whose business specialises in antiques and biblical coins.
“There are no actual people. The last week, after the Iran-Israel escalation, business dropped down again. So we are just hoping that after the holidays some big major miracle will happen.”
It’s not just in Jerusalem’s Old City that they need a miracle.
Some 250km (150 miles) further north, on Israel’s volatile border with Lebanon, almost daily exchanges of fire with Hezbollah since the war in Gaza began have forced the Israeli army to close much of the area and 80,000 residents have been evacuated further south. A similar number of Lebanese have been forced to leave their homes on the other side of the border.
Agriculture in this part of Israel is another economic sector that has been hit hard.
Ofer “Poshko” Moskovitz isn’t really permitted to enter his avocado orchard in the kibbutz of Misgav Am because of its proximity to the border. But he occasionally ventures in anyway, walking wistfully among the trees, to gaze at all of his “money falling on the ground”.
“I must go to pick in the orchard because it’s very important for the next season,” Poshko says. “If I don’t pick this fruit, the next season will be a very poor one.”
He says he is losing a lot of money because he can’t pick the avocados – around 2m shekels ($530,000; £430,000) this season, he says.
Although they provide a living for thousands of people, agriculture and tourism account for relatively small parts of both the Israeli or Palestinian economies.
So what does the wider picture show?
Last week ratings agency S&P Global cut Israel’s long-term ratings (to A-plus from AA-minus) reflecting a loss of market confidence after increased tensions between Israel and Iran and concerns the war in Gaza could spread across the wider Middle East.
That loss of confidence was also reflected in falling Israeli GDP – the total value of goods and services produced in the economy – which decreased by 5.7% in the last quarter of 2023. Many Israelis though say the country’s renowned high-tech and start-up sector is proving to be more “war-proof” than expected.
The coastal city of Tel Aviv is only 54km from Jerusalem. More pertinently, perhaps, it’s less than 70km from Gaza.
At times, you’d be forgiven for forgetting – however momentarily – that Israel is embroiled in its longest war since independence in 1948.
Families make the most of the early summer sun to play in the surf, couples eat lunch in the many open-air beach restaurants and young people strum away on guitars on the green spaces between the coastal road and the Mediterranean.
The backdrop is a city that is economically active and physically growing fast.
“They joke that Israel’s national bird should be the crane – the mechanical kind!” says Jon Medved, founder and CEO of the online global venture investment platform Our Crowd.
An engaging character with an overwhelmingly upbeat view of his world, Medved tells me that, “in the first quarter of this year, almost $2bn was invested in Israeli start-ups… We’re having one of the best years we’ve ever had. People who are engaged with Israel are not disengaging.”
Medved insists that, despite everything, Israel is still the “start-up nation” and a good option for would-be investors.
“There are 400 multinational corporations that have operations here. Not a single multinational, has closed its operation in Israel since the war.”
To an extent, Elise Brezis agrees with Mr Medved’s assessment.
The economics professor at Bar-Ilan University near Tel Aviv acknowledges that despite the last quarter’s GDP figures, Israel’s economy remains “remarkably resilient”.
“When it comes to tourism, yes, we have a reduction in exports. But we had also reduction in imports,” says Brezis. “So in fact, the balance of payments is still okay. That’s what is so problematic is that from the data, you don’t really feel that there is such a terrible situation in Israel.”
But Prof Brezis detects a wider malaise in Israeli society that isn’t reflected in economic data.
“Israel’s economy might be robust, but Israeli society is not robust right now. It’s like looking at a person and saying, ‘Wow, his salary is high,’ […] but in fact he’s depressed. And he’s thinking, ‘What will I do with my life?’ – That’s exactly Israel today.”
If the outlook in Israel is mixed, then across the separation barrier that divides Jerusalem and Bethlehem the view from the Palestinian side is overwhelmingly bleak.
Tourism is especially important to the economies of towns like Bethlehem in the occupied West Bank.
While some people are still heading to Jerusalem’s sites, in the place where Christians believe Jesus was born tourism “stopped immediately” after 7 October last year, says Dr Samir Hazboun, chairman of Bethlehem’s Chamber of Commerce and Industry.
That’s when Hamas attacked Israeli communities near Gaza, killing about 1,200 people, mainly civilians, taking about 250 hostages and sparking the current war.
There’s huge dependence and reliance on Israel’s economy here – but Israel virtually closed off the landlocked West Bank after 7 October and this has had a disastrous impact on the life and work of many Palestinians, Dr Hazboun says.
“The Bethlehem governorate right now is closed,” he says. “There are around 43 gates [in the Israeli security barrier] but only three are open. So with between 16,000 and 20,000 Palestinian workers from our area working in Israel, immediately, they lost their income.”
The chamber of commerce says that the revenues from local Palestinians working in Israel amounted to 22bn shekels ($5.8bn) annually.
“You can imagine the impact on the economy,” says Dr Hazboun, who is particularly concerned for the prospects for younger Palestinians the longer the war continues and more the Israeli and West Bank economies decouple.
“The younger generation now are jobless, they are not working. Many of them are talented people,” he laments.
“In June I’m expecting around 30,000 new graduates from the Palestinian universities. What they will do?
In Gaza itself the economy has been completely destroyed by six months of war. Israel’s relentless aerial bombardment and ground operations have killed 34,183 people, mostly women and children, according to the Hamas-run health ministry.
Unlike in some parts of Israel, where there is optimism around being able to ride out the storm and continue attracting investors, in the West Bank and Gaza there is little hope things will return to any kind of normal.
Giant prehistoric salmon had tusk-like teeth for defence, building nests: study – CP24
Developer Sam Mizrahi files lawsuit against Edward Rogers and his real estate fund, alleges $30-million loss – The Globe and Mail
Are settler politics running unchecked in Israel? – Al Jazeera English
Silver investment demand jumped 12% in 2019
12 Bizarre Things People Did Just To Make Social Media Content
Global Media Markets, 2015-2020, 2020-2025F, 2030F – TV and Radio Broadcasting, Film and Music, Information Services, Web Content, Search Portals And Social Media, Print Media, & Cable – GlobeNewswire
-
Politics24 hours agoOpinion: Fear the politicization of pensions, no matter the politician
-
Politics23 hours ago
Pecker’s Trump Trial Testimony Is a Lesson in Power Politics
-
Science23 hours ago
NASA Celebrates As 1977’s Voyager 1 Phones Home At Last
-
Media22 hours ago
B.C. puts online harms bill on hold after agreement with social media companies
-
Media16 hours ago
B.C. online harms bill on hold after deal with social media firms
-
Business22 hours ago
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
-
Media21 hours ago
Trump poised to clinch US$1.3-billion social media company stock award
-
Politics17 hours ago
Politics Briefing: Younger demographics not swayed by federal budget benefits targeted at them, poll indicates
