Tech unemployment: Policies for Adaptation
It is well-known today that the unemployment in Yugoslavia (and other socialist failed experiments) was artificially kept on relatively low levels with the help of so-called “political hiring”. According to some studies, these employees amounted to around unbelievable 20% of the workforce. These were mostly people who were employed in the administration, but also in the factories, while there was no real need for their labor (in Macedonia the same is happening with the public administration).
However, the system changed and thousands of people were left on the streets (400,000 out of 2mill citizens in Macedonia were unemployed in 1992 even before the privatization begun!). The people were unprepared for any other work, without any marketable skills, with low education and already in advanced years. Ironically, the socialist system that was deemed “stable” and humane destroyed the lives and potential of all these people.
The big question today: besides the structural unemployment and the political interference in the labor markets — is the effect of technology over the jobs. Some estimations are forecasting automation of amazing 50% of the current jobs until 2030. According to the renowned MIT professor, Erik Brynjolfsson the automation/digitization is related to income inequality as well:
Well there are a lot of forces affecting inequality. There’s globalization, there are institutional changes, cultural changes, but I think most economists would agree that the biggest chunk of it is due to technology. And that’s because of what economists call skill-biased technical change — favoring skilled workers versus less-skilled workers.
Also we talk in the book about capital-biased technical change — you bring capital over labor like when you replace humans with robots. And the third category that maybe is the most important one, we call it superstar-biased technical change, maybe we should come up with a better name. But it’s the fact that technologies can leverage and amplify the special talents, skill, or luck of the 1% or maybe even the 100th of 1% and replicate them across millions or billions of people. In those kinds of markets, you tend to have winner-take-all outcomes and a few people reap enormous benefits and all of us as consumers reap benefits as well, but there’s a lot less need for people of just average or above-average skills.
I would add that, on the other side, this seems like merit based results — the more educated, more skilled workers are much better paid then the others. Ironically, for long period this was one of the many critiques against the capitalism — it did not reward the best and the brightest. And now finally we have the best and the brightest on the top (the hi-tech nerds), and everybody are complaining why they have huge salaries.
What prof. Erik B. is recommending as long-term policies that the governments may embrace to ensure widespread diffusion of the benefits of the new technology? You would be glad to hear that he is not a statist:
…the technology is racing ahead and it’s great what the technologies are doing in the sense that it’s making the pie a lot bigger. But policymakers are stagnating and people aren’t keeping up with their skills. We could do a lot more in reinventing education. We could do a lot moor in boosting entrepreneurship. We could do a lot more in changing our tax policy to favor people creating more jobs.
To touch on each of those a little bit more in depth, on education we need to cultivate those kind of creative skills that are more in more in demand. The word “job” really only existed for about 300 years and it really boiled down to making people almost cogs in a machine. Those kinds of routine instruction-following jobs are being automated away. What’s more important are creative skills and our schools aren’t structured to teach those.
When you think about it, for the 20th century they were focused on getting people to sit quietly in rows of desks and just follow instructions as best they could. That’s not the kind of education we need going forward. I think digitization can help with that.
On entrepreneurship, we’re seeing more and more entrepreneurs because the jobs are disappearing, but the real reason to try and boost entrepreneurship is not because everyone’s going to become an entrepreneur or should become an entrepreneur, it’s because ultimately those are the people in charge of inventing the new industries we need to create new jobs [my remark — bold].
Just as Henry Ford helped create a new industry that employed millions of people who were previously working on farms and Steve Jobs, Bill Gates, others helped invent new industries, we need to invent the next new industries of the second machine age if we’re going to find work for all the people whose jobs can now be done by machines quite well.
The third category is tax policy and in that category, one of the basic laws of economics is that if you want less of something you tax it and if you want more of something you subsidize it. Right now, we tax labor for about 80% of our revenues one way or another in the United States. We put a wedge between what an employer has to pay and what an employee actually receives. And then we saddle them with a lot of required benefits. Each of these policies essentially discourages an entrepreneur from using labor to get the job done. Maybe that didn’t matter so much in the 19th and 20th century, but going forward, I think we need to flip that around. Remove the extra burdens we put on hiring labor and instead look at ways to at least make it neutral or better yet even subsidize it.
