• The Invisible Hand

The Future of Work

In an age of technology and automation, the jobs of the future are increasingly uncertain. Will anybody in the future still have a job if robots are used more and more?



Humans seem to have always had a natural apprehension to technology. This is reflected in our media, such as the apocalyptic account of a subservient robotic earth in films like Terminator, and in our politics. Economists are no different. Since the Luddite rebellion in 1811-1816, humans have prophesised that the next technological revolution is around the corner along with the forfeiture of their jobs. The Luddites prove to be a particular valuable case to an economic historian, although, their prognostications did not come to be. Clearly there are no textile workers today instead the lesson of the Luddite movement is that instead of employment being eliminated it will merely transform, therefore a Universal Basic Income (UBI) or a similar policy is not necessary.


Like the Luddites, 80 years ago Keynes predicted that by 2030, technology would necessitate a 15-hour working week. 30 years later John F Kennedy called automation ‘a dark menace of industrial dislocation, increasing unemployment and deepening poverty’.

With 44-year record low unemployment (see figure 1) and a five-fold increase in real income since 1930 in the UK this presents the question, if it hasn’t happened yet, what makes this time different? The truth is nothing, which is why our economy will remain stable, but change. Yes, AI is a new, enigmatic form of technology, but it is just as radical as the spinning jenny was to 18thcentury workers. New technology is always foreboding, and this time is no different.


Automation does not solely replace labour, instead it can augment it. The idea in our logic that there is a fixed amount of work that needs to be done should be challenged. If technology does indeed increase production this can usually free up workers to complete tasks which previously a company could not afford to do. Technology is often more Harrod neutral than Solow neutral.

Furthermore, higher productivity also means lower prices. If a product has elastic demand, this means higher revenue so firms can afford to employ more workers.

Although ATMs have largerly taken over the job of handling cash, the number of bank tellers has grown because ATMs have brought lower costs. Bessen (2016) calculates that computer use is associated with an increase in employment of 1.06% per year. This shows it is important to challenge the classic economist’s production function models as they consider labour and capital separately, when actually they are intrinsically linked.


One solution would be a Universal Basic Income. A UBI would perhaps be the most significant welfare reform since the Beveridge Report. It operates like any other government transfer of income except it is universal, unconditional and uniform. All receive it; it is granted to all; and the level is the same for everybody, whether they be a millionaire or poor pensioner. This scheme pre-empts an elimination of work, because it aims to sustain consumption even if employment no longer exists. Supporters believe that by being universal it doesn’t create a disincentive to work because unlike conventional benefits, workers won’t stop receiving it as they enter employment. Painter and Thoung (2015) hope it will allow people to take more risks and be more entrepreneurial as they are protected against failure.


The key failing with such a policy is that the no-work scenario will not come about. Instead an economy would merely rebalance, and traditional industries would see their demise. 250 years ago the manufacturing sector first emerged, about 75 years ago the service sector began to dominate. Most likely in the future the three-sector model proposed by Fisher, Clark and Fourastié will no longer be applicable and instead the quaternary sector will make up a greater share of our economy. More labour will be dedicated towards research and engineering. To adapt to this the government would be better strengthening the skills and education in an economy, rather than adopting an untested hare-brained social project. A UBI does nothing to make an economy more productive and prepared for the challenges in the future. It does not create wealth and instead redistributes it from the few that do create wealth. Strengthening the skills in an economy increases the proportion of the workforce who can create significant value in the future.


A UBI would involve a massive transformation of any economy. Obviously, the key challenge to this is the cost. To be effective the income level of UBI must be high enough to lift people out of poverty. However, governments will be under almost constant pressure to cut it to a level so low it is no longer effective. With only 4% of people being unemployed and technology unlikely to increase this in the future, it is questionable whether such a big expense should go into such a small problem, even if it was possible to pay for it. Perhaps all that is needed is a few, much cheaper adjustments to the economy.


Technology does of course cause dislocation in the short-term as there is a period of transition. Schumpeter (1942) called this ‘creative destruction’. Like Marx, Schumpeter accepted that technology makes old industries obsolete, however, he believed it would strengthen capitalism rather than weaken it by introducing more productive practices. The key question is how we deal with this transition.


Since 1981, there has been a persistent decline in R&D spending, with only a slight improvement since 2013. Compared to South Korea (4.3%) and even Finland (3.2%) the UK is lagging behind in technology. This is a much bigger threat to labour than technology displacing jobs. If we do not invest in education and research, the UK will fall even further behind its international competitors. Education and training should increasingly focus on science, computing and technology, and to do this it is the education system, not the welfare system, which should be overhauled.


A more effective scheme to cushion people from the impacts of technology could be the innovative social wealth fund concept. Like a sovereign wealth fund, the government directly invests in financial assets, except the rewards are used for socially beneficially purposes and used to tackle inequality. Unlike sovereign wealth funds they are more accountable and transparent.

Technological change will inevitably increase inequality because low skilled workers are more replaceable, increasing inequality. Although income inequality dominates headlines, wealth inequality is just as important, because this cements the finances of the wealthy for generations. Piketty (2013) notes how wealth inequality creates a ‘fundamental force of divergence’ because wealth grows faster than income. Automation serves to only strengthen this relationship because it means that the importance of capital is increased while the relative share of wages narrows. Therefore, a method to tackle wealth inequality is vital to deal with the impact of automation.


A social wealth fund unlike a UBI does not reject innovation and the forces of capitalism, instead it collects the rewards and spreads them across society. However, it does not do it in such a way to hurt the rich and create perverse incentives. Economists have always acknowledged the immense power of capitalism but even Adam Smith recognized that markets can lead to an unequal distribution of power. A social wealth fund provides an economy with the funds to withstand any technological transition.


Unlike a UBI, most trials of such a scheme have been hugely successful. Alaska has had a wealth fund since 1976 and it is now worth $60.4bn. This means the average citizens can receive above $1000 in dividends and in exceptional years, sometimes double that. This is largely responsible for making Alaska one of the most equal of America’s states. The brilliance of such a scheme is that it can improve inequality without resulting in massive taxes. It should be acknowledged that such a scheme would require a high initial investment and may take many years to grow to a substantial size. However, the fund would generate much income and grow in size which should eventually dwarf the initial injection.


CONCLUSION


Technology will not wipe out all our jobs. It is true it will wipe out traditional industries, but in their place new, modern and more innovative industries will grow. It is understandable to be worried because what these industries will be is often unclear. We should, however, seek reassurance in the fact that computer technicians, website designers and app developers were beyond our imagination 25 years ago.

Instead, the focus should be on creating a more flexible, modern labour market. Improving the skills of the workforce is vital to be able to embrace new technology. This means when the structure of employment does change, the labour market will be able to make a smooth transition. A social wealth fund is vital in ensuring all the benefits of technology do not go to a wealthy few. Workers should be able to benefit as much from technology as managers.

Reform not revolution is necessary in our economy as the problem of technology could actually be a blessing if we embrace it correctly. Currently, the UK economy is ill suited for a technological revolution.





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