Labor Shortage

“The only thing on your to-do list is ‘Take down outdoor Christmas lights.’” So said my wife, Alice, as I settled into my favorite chair on New Year’s Day to write this letter. “The only thing on my list…” I thought to myself. “What about writing the quarterly investment commentary? Does that not make the list?” I didn’t share those thoughts with Alice; I am well aware of the burden she and many other women bear around the holidays. As they say, behind every magical Christmas is an exhausted woman. My apologies if that sounds out-of-step with today’s norms, but that is the reality in our household when my three grown children return home to reunite with their younger brother, Charlie (age 18). They become a foursome again and they take over the house. A foursome with high expectations regarding food, lodging, and of course, the aforementioned magical Christmas. Alice warmly welcomes them and then toils away for the next week to create a resort-like experience they certainly don’t deserve. When the older three finally roll out of town, she is completely out of gas. Over the years, I’ve learned to quietly complete my few seasonal tasks and otherwise keep my mouth shut.

Back to my to-do list: the outdoor Christmas lights. Risking marital harmony, here I will respectfully submit that taking them down is no small task. While it certainly pales in comparison to putting them up, I’m estimating it takes half of a Saturday to take them down.

Let me back up five or six years. At some point back then, one of my sons suggested that we create a winter wonderland by hanging long, single strands of white lights from the tops of the many tall trees surrounding our home. Great idea, but how would we get them up there? We settled on using a fishing rod with a 4-oz. weight secured to the end of 20-lb. test fishing line. The Bragg boys, being well-practiced at fishing (not so much at catching, but that is a story for another letter), grew fairly adept at launching the 4-oz. weight 75 to 100 feet into the air to clear the highest branches of the trees. In a well-executed sequence, the cast is accurate, the weight clears the targeted branch and plummets harmlessly to the ground, the weight is removed, the strand of lights is tied to the end of the line, the strand is slowly reeled up to the top of the tree, the line is cut at the reel and tied to the base of the tree, securing the strand in position. Proceed to the next tree.

That sounds straightforward, but you can imagine the complications and the accompanying banter, laughter and verbal abuse among the boys. Casts go awry, the weight gets tangled in the top of the tree, the line breaks, branches break and fall to the ground, strands get tangled in the lower branches, the lights fail to remain illuminated, etc. We’ve honed our technique over the years, especially as Charlie has aged and proven to be quite the angler.

This year we ended up with a record-setting twelve 50-foot strands. Yes, 50 feet high! Add the icicles hanging from the porches across the front of the house, the tree wraps around the maples and the magnolias, and the illuminated wreath on the arbor and it truly was beautiful! The hanging of the lights has become an annual ritual for our family; we’ve enjoyed sharing our creation with visiting friends and extended family during the month of December. Visitors love the display, and based on their comments, they’ve come to expect us to continue expanding it each year. So far, so good. We aim to please and all that. But it has become quite an undertaking.

Thus it was that I had a moment of sadness which was quickly displaced by a sense of foreboding last month, as Charlie and I wrestled with a knotted, 100-foot extension cord. It was then that I realized that I would soon be facing a labor shortage. Charlie leaves the farm next fall and I’ll be doing this by myself! And feeding the farm animals, and retrieving the eggs from the chickens, and walking Charlie’s beloved dog, Mac! Whew! I’ll let you know how it goes.

Speaking of labor, as we kick off a new year, I want to focus on two powerful forces and their impact on employment. These forces are first, the demise of unfettered globalization, and second, the rapid adoption of artificial intelligence. Both have enormous implications for labor, for corporate earnings and therefore, for investors.

Charlie and Benton Bragg create a winter wonderland

The Great Reversal: When Globalization Runs Backwards

For thirty years, the story of American business was simple: send production to wherever labor was cheapest. China, Vietnam, Mexico, Bangladesh—it didn’t matter where, as long as costs stayed low. This wasn’t just sound business strategy; it was economic orthodoxy, straight from the writings of Adam Smith and Milton Friedman. Free trade lifted billions out of poverty in developing nations while delivering a windfall to American consumers. The cost of manufactured goods fell year after year. A microwave that might have cost $300 in 1995 could be had for $80 by 2015, and it worked better, too.

But we’re watching that era end in real time. China under Xi Jinping has turned increasingly away from Deng Xiaoping’s “Reform and Opening Up” policy of 1978, and has become more authoritarian and inward-looking, weaponizing trade relationships and making clear its ambitions toward Taiwan. The pandemic exposed the fragility of supply chains stretched across oceans—when factories in Shenzhen shut down, American shelves quickly emptied. Russia’s invasion of Ukraine drove home the message that authoritarian regimes make unreliable trading partners. The Trump and Biden administrations, despite their many differences, agreed on one thing: unfettered globalization had to give way to something more strategic. Tariffs imposed during the first Trump presidency, sustained under Biden, and dramatically expanded under Trump 2.0 have rapidly accelerated this shift.

Many companies have reconsidered their supply chains and are planning to bring production back to the United States (“reshoring”) or shift it to countries who are considered trusted allies (“friendshoring”). According to the non-profit Reshoring Initiative, companies announced plans to return over 350,000 jobs to the US in 2023, up from fewer than 10,000 a decade prior. Signed by President Biden in 2022, the CHIPS Act alone has triggered hundreds of billions in domestic semiconductor investment. Battery plants, solar panel factories, and advanced manufacturing facilities are sprouting across the American heartland.

This should be cause for celebration. And in many ways it is. But there’s a problem, and it’s a big one: we don’t have enough workers. Indeed, while many new manufacturing jobs have been announced, the actual number of jobs in the manufacturing sector has barely budged. According to the Bureau of Labor Statistics, the year 2024 saw a slight decline in manufacturing jobs. 2025 may show an increase once tabulated but headwinds remain. With unemployment hovering at 4.6% in late 2025, competition for employees is fierce. Firms like Intel and TSMC, who are building new chip fabrication plants in Arizona and Ohio under the CHIPS Act, report hiring challenges and are offering signing bonuses and relocation packages. The US labor force participation rate—the share of working-age adults either employed or looking for work—stands at 62.5% as of late 2025. Compare that to 67.3% in 2000 or even 66.5% in 2005. Yes, baby boomers are retiring in droves, which accounts for some of this decline. But demographics alone don’t explain the full picture.

Among younger workers, the trends are particularly worrying. The youth unemployment rate for ages 16 to 24 hit 10.8% in July 2025, up from 9.8% a year earlier. The employment-to-population ratio for this age group fell to 53.1%, down from 54.5% the prior year. At a time when we desperately need more workers to staff factories, construction sites, and skilled trades, fewer young people are participating in the labor force. Some are staying in school, but many have simply checked out, especially young men, absorbed in video games, TikTok, and increasingly, online sports-betting platforms like DraftKings or FanDuel, or prediction-market betting platforms like Polymarket and Kalshi that have proliferated since state-level legalization began in earnest a few years ago.

This presents a serious constraint. Bringing manufacturing back to America means paying American wages. A factory worker in China earns $4 to $5 per hour; that same worker in Ohio or Texas might earn $25 to $30 per hour plus benefits. Those costs will flow through to consumers as higher prices. The disinflationary tailwind that cheap foreign labor provided for three decades is reversing into an inflationary headwind. We are learning that economic sovereignty comes with a high price tag.

There’s also a profound skills mismatch. The manufacturing jobs returning to US shores aren’t the assembly-line positions of the 1950s. They require technical competencies: programming CNC machines, maintaining robotic equipment, troubleshooting complex systems. Yet for decades, our education system pushed every student toward four-year degrees while stigmatizing vocational training. After years of decline, the US manufacturing sector employs only about 12.9 million workers—roughly 8.5% of the workforce—down from 17 million in 2000. Germany maintained robust apprenticeship programs that funnel young people into skilled trades even as we dismantled ours. Now we’re paying the price. Community colleges and trade schools are scrambling to fill the gap, but rebuilding these pathways takes time. Economists refer to these problems as “friction” and friction is very expensive.

Some have referred to our labor market as K-shaped, where highly skilled workers in high-skill sectors like technology, engineering, and healthcare thrive, while those in low-skill roles in retail and hospitality struggle with automation and wage pressures. Low-skill workers will find themselves competing for a shrinking pool of opportunities or will be pushed into the gig economy where uncertainty reigns supreme. This isn’t just an economic challenge; it’s also a source of the social and political polarization roiling American society.

For investors, we think it is important to take the long view on what will be a decades-long process. Much ink will be spilled on these issues in the months and years ahead; some will be encouraging but more will be alarming.

The AI Tsunami: Faster Than Any Previous Disruption

If the demise of globalization is a significant challenge, artificial intelligence represents something potentially more transformative and certainly more rapid. AI isn’t on the horizon—it’s here, and it’s moving faster than any technological shift in history. ChatGPT reached 100 million users in just two months. For context, Facebook took 54 months to hit that milestone; Twitter took 60 months. Every company across every industry is racing to adopt AI, terrified that competitors will gain an insurmountable advantage.

The scope is breathtaking. Hospitals are using AI for diagnostic imaging. Law firms deploy it for contract review and legal research. Retailers optimize inventory with AI-driven forecasting. Banks use it for fraud detection and credit decisioning. Microsoft embeds it in productivity software. Google integrates it into search. The technology has moved from science fiction to a staple of doing business in what feels like the blink of an eye.

So the question everyone wants answered: are we headed for mass unemployment? Will AI leave millions of workers obsolete and economically stranded?

History suggests caution before embracing such pessimism. Every major technological advance—steam power, electricity, automobiles, telephones, computers—triggered fears of widespread job destruction. In 19th-century England, Luddites smashed textile machinery, convinced mechanization would eliminate their livelihoods. They were wrong about the long-term trajectory, even if individual weavers suffered. The economy expanded, and with it, employment.

When the automobile arrived, blacksmiths and buggy makers faced genuine displacement. By 1950, though, the auto industry employed roughly 2 million Americans in jobs that hadn’t existed fifty years earlier—mechanics, parts manufacturers, road builders, traffic engineers, automotive designers. The telephone killed the telegraph industry but by the late 1940s employed over 350,000 telephone operators, and today’s broader telecom sector employs roughly 1.4 million people. Medical advances like penicillin and MRI technology created entirely new fields—radiology, laboratory science, biotechnology—and healthcare now employs over 20 million Americans. The internet killed the travel agent but gave birth to web developers, digital marketers, data scientists, and cybersecurity analysts—roles that were inconceivable in 1995.

The pattern holds across technological revolutions: specific jobs disappear while new industries and roles emerge, typically generating more employment than was displaced. The 2025 Future of Jobs Report from the World Economic Forum projects 170 million new jobs globally by 2030, with 92 million roles displaced, for a net gain of 78 million positions. AI will likely follow this historical pattern—automating routine tasks while creating demand for jobs we can’t yet imagine. Goldman Sachs projects AI could add $7 trillion to global GDP by 2035, potentially doubling US productivity growth to 3% annually. Venture capital is pouring $80 billion into AI startups, reflecting widespread conviction that this technology will transform industries as profoundly as the internet did in the 1990s.

But—and this matters enormously—the pace of disruption is unprecedented. Previous technological shifts unfolded over decades. Electrification took thirty years to transform industry. Personal computers took twenty years to become ubiquitous. AI is moving in months, not decades. Every company, from hospitals to logistics firms to accounting practices, is pushing to implement AI tools immediately, driven by competitive fear. This compressed timeline means workers have less time to adapt and policymakers have less time to cushion the transition. Again, for the foreseeable future, we think the alarming headlines on this subject will greatly outweigh the encouraging headlines.

For investors, the AI narrative is compelling but not without risk. Markets have surged on AI optimism, with gains concentrated in the Magnificent 7—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla. These companies are making massive AI investments and have captured early gains. But concentration risk is real. The S&P 500’s forward price-to-earnings ratio of 22 sits above its 20-year average of 18, with the multiples of the Mag 7 far higher, reflecting elevated expectations. If AI’s promise outruns near-term earnings growth, a correction becomes likely. We’ve seen this before: the dot-com bubble of 1999 to 2000 destroyed trillions in paper wealth, even though the internet ultimately revolutionized commerce and communication.

History teaches patience. While AI is moving fast, major technological advances take time to permeate entire economies. The internet didn’t transform every industry overnight; e-commerce, cloud computing, and social media took a decade or more to mature. AI will follow a similar path. Benefits will eventually reach every company and every human on earth, but the transition will be uneven, messy, and at times painful. Many jobs will disappear, but many new jobs will emerge. The net result, if history guides us, will be positive, but getting there will require discipline and a long-term perspective.

What This Means for Investors

Labor markets stand at a genuine inflection point. Dealing with the friction of the retreat of globalization in a tight labor market while simultaneously adapting to AI’s displacement of both blue-collar and white-collar work represents a formidable dual challenge. Add in the disengagement of younger workers, skills mismatches, and the inflationary pressures from reshoring manufacturing, and the complexity becomes intimidating. We expect markets to remain volatile in the coming year as investors try to make sense of the news, which will flow faster than ever.

We’ve navigated comparable challenges before. Market forces driven by human ingenuity solve problems. Today I’ve covered a long list of problems just waiting to be solved. For investors, the message remains consistent: take care of liquidity first, and then invest long-term wealth in a diversified portfolio of stocks. Own pieces of great companies. Rebalance regularly and remain disciplined when the market gets choppy. It will!

I hope this has been helpful. Speaking for the whole team at Bragg Financial, we wish you the best in the new year and we thank you for your trust in our firm.

Note: If you have a child, grandchild or friend who is tempted by the proliferation of betting markets or crypto-trading, consider sending them this insightful article by Bragg’s Director of Portfolio Management, Ben Rose: The House Always Wins—Unless You’re Investing. As Ben aptly notes, “Gambling thrives on the thrill of the unknown, but the odds are stacked against you—the house edge ensures long-term losses.” He warns, “Speculation masquerades as strategy, but without fundamentals, it’s a loser’s game.”

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.