Economic Dilemma: Skyrocketing Costs of Job-Securing Solutions Strike Hardest in Times of High Unemployment
In the current economic landscape, several advanced economies are grappling with structural labor shortages due to aging populations, falling birth rates, and shrinking labor forces. This labor shortage is particularly acute in essential sectors such as healthcare, logistics, and manufacturing.
To alleviate these labor shortages, countries like Switzerland and EU member states are investing heavily in automation and artificial intelligence (AI). Switzerland is focusing on AI use in federal administration, while the EU is pushing for AI adoption primarily in large companies and integrating AI into existing industries. However, these solutions are currently caught in a trap, with markets punishing the automation and AI sector before governments and societies step in with structural support.
The mispricing of the solution to the labor shortage problem comes from the time horizon of capital. Labor shortages are structural and play out over decades, while monetary policy is cyclical and reacts in quarters. This creates a feedback loop of dysfunction, where labor shortages drive wage inflation, wage inflation drives price inflation, price inflation triggers rate hikes, rate hikes crush valuations for the automation sector, and automation stalls, leaving the labor shortage unresolved.
Historical examples show that solutions to growth challenges have been suppressed by financial logic. From railroads in the 19th century to electrification in the early 20th century and semiconductors in the 1980s, groundbreaking technologies have faced similar challenges.
The employment paradox highlights a deeper blind spot: markets focus on inflation while economies depend on labor. Higher interest rates make automation and AI technologies harder to finance, due to repriced capital-intensive projects, discounted long-horizon investments, and a drought in venture funding.
However, there are three ways out of this paradox: policy alignment, geopolitical override, and corporate reframing. Policy alignment can be achieved through governments subsidizing or directly funding automation, insulating it from Fed-driven repricing. Corporate reframing involves companies reclassifying automation as a strategic necessity, altering how investors value long-horizon returns. Geopolitical override can occur when automation becomes a national security imperative, suspending ROI logic.
Recognizing this paradox is the first step towards solving it, requiring a shift from short-term monetary reflexes to long-term strategic vision. The long-term winners will be those who can bridge the gap between short-term financial gravity and long-term demographic necessity.
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