Bank CEO Apologizes For Saying "AI Replaces Lower Value Human Capital" As NY Fed Reports Actual Impact On Jobs "Muted"

It was apparent that CEOs' bragging about AI's value being enhanced because of all the human jobs it would eliminate had gone too far and would get some executive, as well as the AI industry in trouble. So it is fitting that a bank CEO, a species who can always be counted on to celebrate the numbers over the social cost, became the first to get savaged for his comments. 

Aside from the insensitivity - not that that is considered a serious faux pas these days - the comment turns out to be wrong so far. Research from the New York Federal Reserve Bank reveals that tech layoffs began showing up in the data four years ago so that AI is not only not the primary cause, but is not even mostly responsible for entry level hiring slowdowns. Interestingly, research suggests that AI usage remains relatively low due to cost and complexity, which explains why its impact on hiring and productivity is muted. Meanwhile, AI CEOs like Nvidia's Jensen Huang, worried that the blame game is contributing to global AI opposition, are calling CEOs who cite it 'lazy.' But the larger issue is that with Silicon Valley vehemently opposing any regulation and without enough data, intelligent policy prescriptions are difficult to make. JL

Joe Wallace reports in the Wall Street Journal and Emma Ockerman reports in Yahoo Finance:

Standard Charter CEO Bill Winters' comment that the bank would replace “lower-value human capital” with AI backfired. Three hours later, he posted an apology. AI continues to be blamed for a spate of job cuts, but the New York Federal Reserve found “the slowdown in postings is not concentrated in entry-level highly exposed jobs,” countering a narrative that AI is largely responsible for young people’s difficulties in getting hired. (And) “the divergence between high- and low-exposure occupations began before 2022 at odds with AI displacing exposed occupations. While AI may be contributing, it is not the main driver of the slowdown in hiring.” As AI adoption has become mainstream in some sectors, “usage still appears relatively low, explaining the mostly muted impacts on productivity and the labor market so far.”

Standard Charter CEO Bill Winters struggled to draw a line under comments that the bank would replace “lower-value human capital” with AI. His attempt to contextualize his comments in a post Friday backfired. Three hours later, he posted an apology for his blunder. It is an example of the difficulties CEOs face in describing what they perceive to be the benefits and the downsides of AI in the workplace.  

AI continues to be blamed for a spate of job cuts, with Cisco (CSCO) the latest tech firm to jump on the trend this week. And with this trend coming alongside an overall slowdown in hiring in the US, AI’s role in the labor story has become primarily seen as negative.

Squaring this trend with the available data on how companies have — and haven’t — changed their workforces in the aggregate, however, paints a more complicated picture of both the US labor market and AI’s role in reshaping it. 

Job openings may be lower in certain sectors deemed vulnerable to AI, but a new analysis from researchers at the New York Fed suggests that may not be due to the technology itself.

The New York Fed’s paper scrutinized vacancies in fields considered vulnerable to automation, based on a measure developed by economists at Anthropic that broke down occupations where many tasks are both doable by AI and already done by AI in a work setting, utilizing usage data.

The most AI-exposed occupations, by that metric, are computer programmers, customer service representatives, and data entry keyers. The New York Fed researchers examined whether occupations with high or low AI exposure saw a significant difference in hiring pre- and post-ChatGPT in late 2022.

If AI had a noticeable impact, the researchers wrote, hiring patterns would have moved similarly across fields with high and low AI exposure before ChatGPT’s release and diverged — and kept diverging — after. What they found was that while there had been “a relative decline in postings for occupations with higher AI exposure,” the trend had pre-dated ChatGPT. 

“The divergence between high- and low-exposure occupations began before 2022 and does not show a clear additional break in trajectory after 2022,” the researchers wrote. “Besides, the gap in labor demand between high- and low-exposure jobs stabilizes after 2023, at odds with AI gradually displacing exposed occupations.”

The AI narrative is similarly messy when looking at official government data: Hiring rates began to head lower in early 2022, but picked up in March to reach their best level in two years. And while layoff rates have ticked up more recently, all while tech companies cite AI as a rationale for job cuts, they remain relatively low and have been hovering between 0.9% and 1.2% since 2021.

Drilling deeper to compare the difference in senior and junior-level job postings in occupations with high AI exposure post-ChatGPT, the New York Fed researchers also found “the slowdown in postings is not concentrated specifically in entry-level highly exposed jobs,” countering another narrative that says AI shocks are largely responsible for young people’s difficulties in getting hired.

New York Fed researchers' data countered the narrative that AI shocks are largely responsible for young people’s difficulties in getting hired. · Scott Olson via Getty Images

“Overall hiring has slowed since 2022, and unemployment has increased among young workers and recent college graduates,” the New York Fed researchers said. “The evidence from job postings suggests that while AI may be contributing to recent labor market developments, it is not the main driver of the slowdown in hiring.” 

Meanwhile, a separate analysis published this week by Michael Pearce, chief US economist at Oxford Economics, showed that while AI adoption has become mainstream in leading sectors, “usage still appears relatively low, explaining the mostly muted impacts on aggregate productivity and the labor market so far.”

The unemployment rate for AI-exposed occupations has actually dropped, along with the overall unemployment rate, since December, “consistent with signs that broader labor-market conditions have improved,” Pearce wrote.

One possible bellwether for AI’s eventual impact on labor, however, might be the information sector, where AI adoption is high and there’s been a jump in hires and fires as the “net change in jobs — hires minus layoffs — remains little changed.” Labor churn in that corner of the job market has surged.

If that trend were to bleed into multiple sectors all at once, it could drive unemployment higher as more displaced workers face a market that demands a different set of skills. But “the baseline forecast assumes that AI proves more labor-augmenting than labor-displacing.” 

Goldman Sachs Research economist Elsie Peng argued  in a report this week that even though jobs with high exposure to AI substitution have seen openings slip below pre-pandemic levels — as those with less exposure have fallen more gradually — labor market mismatch has actually declined, perhaps quelling some concerns “that the type of workers the economy needs is changing faster than workers.” Several occupations clocking high exposure levels started out with big labor shortages, they noted, which helps.

“While the first stage of AI deployment has been fortuitously timed because it coincided with a labor shortage in the most AI-exposed occupations, the next stage of deployment will likely require more adaptation by the workforce,” Peng wrote. Winters tried to douse the furor with an initial post on Friday that said Standard Chartered “will continue to speak honestly about the impact of technological change.” He suggested he had been misunderstood, saying his point had been that employers have a responsibility to move workers from jobs that are more vulnerable to automation into “higher-value roles.”

Soon he was back with an apology. “I have received a lot of support for the messages in my previous post but still get questions about my choice of words, which I know has caused upset to some colleagues. For that I am sorry,” Winters said, appending a partial transcript of the meeting in which he made the ill-fated comment.

The public-relations kerfuffle began on Tuesday, when Winters was in Hong Kong to announce new financial targets, which included a plan to reduce by 15% the lender’s workforce of back-office jobs by 2030.

Speaking to a group of journalists, he used the example of a tech upgrade in Hong Kong that killed some jobs, and said the aim of automation wasn’t to cut costs.

Winters, who is more outspoken than many executives who are trained not to say much in front of reporters, went on: “It is replacing in some cases lower-value human capital with the financial capital and the investment capital we’re putting in.”

Some social-media users described Winters’s language in the media meeting as insensitive, as did a former president of Singapore, one of Standard Chartered’s biggest markets.

London-based Standard Chartered specializes in emerging-markets lending, with a heavy focus on Asia and the Middle East.

Winters tried to walk back the comments on Wednesday with a memo to bank employees in which he said that “where roles do fall away, it reflects changes in the work, not the value of our people.”

He didn’t, however, apologize, and the PR snafu kept rumbling.

On Thursday, JPMorgan Chase boss Jamie Dimon attempted to defend Winters, a former protégé. “Bill’s a friend of mine and all of us say something incorrectly,” he said in a Bloomberg interview. “But I also think it will be all jobs. I don’t think it will be higher level, lower level. I think it will be more than you think.”

Winters was on a trip to Hong Kong with Georges Elhedery, chief executive of rival bank HSBC. Speaking to his own bank’s investors after Winters, Elhedery was more cautious.

“We all know generative AI will destroy certain jobs and will create new jobs,” he said. “But my initial mission is I need 200,000 colleagues with us on this journey.” Elhedery said the challenge was to make all of the bank’s employees feel empowered by AI so they don’t resist it.

Most banks are showcasing AI initiatives as a way to save money. Few Europe-based lenders, however, have given quantifiable targets or specified how many jobs could go, according to a recent note by Citigroup analysts. Asked about AI and job numbers at a conference in March, the chief operating officer of ING said the Dutch bank had cut about 1,000 jobs last year and would shed 1,250 more in 2026. 

In the long battle between capital and labor, there was a winner this week in London. Standard Chartered’s stock was on track to rise almost 3% and close just shy of its record high from December 2007.