Policy not programs (part 4/4)
Automation doesn’t come without concerns, the biggest of which are that it causes capital-biased technological change (which is the argument that automation unequally favours the wealthy) and the likelihood that it disproportionately negatively effects middle-income, mid-skilled jobs.
As highlighted in the trends between hourly compensation[21] and productivity, and income share of the top 1 percent[22], there is nothing inevitable about capital-based technological change.
Likewise, there is emerging evidence that in recent decades there has been a significant decline in job growth and increase in wage stagnation for middle-class occupations across western economies[23].
Why then, knowing that for large parts of our history we’ve seen the concurrent growth of living standards for the average worker along with automation would we only now expect to see negative distributional outcomes being caused by automation? The case must be made that deliberate policy shifts in recent decades have facilitated such unequal distributional effects. As put by Dean Baker[7]:
“Gains from improving technology have been concentrated at the top, damaging the middle class, while politicians blame immigrants and robots for the misery that is due to their own failures. Eroded policies need to be revived, and new ones enacted”.
At a high level we can focus on three topics in an attempt to address the impact of automation on its losers: policy, social security, and education.
First, we should recognise that while pure market forces have their place in the blame, inequality is a matter of choice. If we’re serious about reducing inequality (and the effects of automation) then we need to target structural policies which disproportionately favour high skilled/income jobs at the expense of low-middle skilled/low-middle income jobs. As variously covered by the likes of Baker[7, 16], Stiglitz[26], and Denayer[27], we should be examining policies such as:
- Those that permit dead weight loss through high economic rents. For example, patent and copyright monopolies that greatly skew the cost of living by sending prices for otherwise affordable goods far beyond free market prices.
- Those that permit gross renumeration for individuals (read executives) well beyond the marginal productivity theory of income distribution, which links pay to productive output.
- Trade and immigration policies which protect and drive high wages for skilled workers while failing to protect low and middle income jobs are a massive inefficiency and similarly cause a distributional distortion.
- The erosion of trade unions and along with them workers rights and security.
- Economic governance which over-guards for inflation at the expense of unemployment is suggestive of a system which is disproportionally weighted in favour of the financial class instead of the average worker.
- Those that allow for tax avoidance by large companies (which is in effect the granting of limited liability privilege for individuals who then ignore the provisions upon which their privileged status exists) to the detriment of public services.
In addition to addressing wide ranging policy, we should be providing social programmes to pre-empt and better ease the likely impact of automation. For instance, safety nets which better support the complex dynamics governing relations between employers and workers have proven effective. As exemplified by the ‘flexicurity’[24] policy of EU countries like Denmark, it is possible to develop an adaptable job market on the basis of employment security over job security. Such a system provides high social security and training to workers while also promoting innovation. In Germany too, the effects of a strong social policy can be seen in the automotive industry, where despite a high level of automation, redundancy in the sector is minimal[25].
References
[1] A future that works: automation, employment, and productivity, McKinsey Global Institute, 2017
[2] OECD Social, Employment and Migration Working Papers, 2018
[3] Technical Change, Job Tasks, and Rising Educational Demands, Journal of Labor Economics, A. Spitz-Oener, 2006
[4] From Brawn to Brains: The impact of technology on jobs in the UK, Deloitte, 2015
[5] The Future of Jobs, Reports, World Economic Forum, 2016
[6] Comments on Frey and Osborne’s “The Future of Employment”, Frank Levy
[7] Badly Confused Economics: The Debate on Automation, Dean Baker, 2017
[8] Productivity in the UK, Briefing Paper, House of Commons Library, 2017
[9] The Productivity Puzzle: A closer look at the united states, McKinsey, Discussion Paper, 2017
[10] Labour productivity, UK: January to March 2018, Office for National Statistics
[11] The past decade’s productivity growth in historical context, John Lewis, Bank Underground, 2018
[12] The End of Poverty: How We Can Make it Happen in Our Lifetime, Jeffery Sachs, 2005
[13] Asian Development Outlook (ADO) 2018: How Technology Affects Jobs, Asian Development Bank, 2018
[14] Statistical Interactive Database — official Bank Rate history, Bank of England, https://www.bankofengland.co.uk/boeapps/iadb/Repo.asp
[15] Historical Treasury Rates, U.S. Department of the Treasury
[16] Weak Labor Market: President Obama Hides Behind Automation, Center for Economic and Policy Research, Dean Baker, 2017
[17] Bank of England warns of larger rises in interest rates, FT, 2018, https://www.ft.com/content/e3a6608e-0cc7-11e8-839d-41ca06376bf2
[18] The OECD Jobs Study: Facts, Analysis, Strategies, OECD, 1994
[19] How Information Technology Is Reshaping the Economy MIT Press, Erik Brynjolfsson, 2009
[20] The Skills Revolution: Digitization and why skills and talent matter, Manpower Group, 2018
[21] The Productivity–Pay Gap, Economic Policy Institute, 2017
[22] Income inequality in the UK, Briefing Paper, House of Commons, 2018
[23] Explaining Job Polarization: Routine-Biased Technological Change and Offshoring, M. Goos, A. Manning, A. Salomons, 2014
[24] The concept of ‘flexicurity’: a new approach to regulating employment and labour markets, T. Wilthagen, F. Tros, Transfer: European Review of Labour and Research, 2004
[25] The rise of robots in the German labour market, Institute for Employment Research, W. Dauth, S. Findeisen, J. Südekum, N. Woessner, 2017
[26] Inequality and Economic Growth, Stiglitz
[27] How inequality is evolving and why, Will Denayer, 2018
[28] 23 Things They Don’t Tell You About Capitalism, Chapter 4, Ha Joon Chang, 2010
