In many of the scenarios about the future, there are many dystopian predictions of robots replacing workers on a whole scale basis. I have even written about some of those predictions. (See here and here.) It is not a sure thing that workers will be totally replaced by machines. Some will, but others may not be. It all depends on whether companies and institutions decide to use replacement technology or enabling technology.
What is the difference?
In a piece written by James Pethokoukis for AEIdeas, Pethokoukis interviewed economist Daron Acemoglu, who is a professor of economics at MIT, a frequent contributor to Foreign Policy Magazine, and co-author of the book Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Pethokoukis asked Acemoglu if the standard Econ 101 premise of automation leading to higher productivity and thus higher average incomes and employment still held. Acemoglu’s answer was interesting. He said that while it is comforting to think that productivity to better wages and jobs doesn’t hold true. If anything the last 90 years has shown that technology has shown a reduction in the need for labor, which in turn has resulted in technological unemployment, or at least shorter working hours for people. He said, “…the conceptual point that new technologies could reduce the demand for labor, rather than increase the demand for labor, is a possibility and it’s not a crazy idea.”
What we are seeing is two different types of technology. The first is what Acemoglu calls “enabling technology” which does make people more productive. It may result in some employment displacement, but for the most part, people stay employed and become more productive. The nature of their work may change to adapt to the technology but they are not out of work. The second type of technology is what he calls “replacing technologies” which removes workers from their jobs or job opportunities completely.
Subsidizing technology that removes jobs
Acemoglu says that the way regulations and taxes work we are subsidizing technologies that remove workers. He said:
We implicitly subsidize production with machines relative to production with labor. If you buy a machine, you don’t have to pay payroll taxes, you can debt finance it, and that’s going to get a subsidy from the government. And the capital income that is generated is going to be taxed at a lower rate. If you hire a worker, you have to pay payroll taxes, they are going to be taxed at a much higher rate, you have to put up with lots of other costs coming from regulations, and other things you have to do when you’re employing workers. So that creates a very non-level playing field, so we’re essentially subsidizing firms implicitly for using machines rather than labor.
We are subsidizing capital and not subsidizing labor. He feels we need to level the playing field.
Unfortunately enabling technology is harder to recognize. Acemoglu says: “It’s just that US society does not have the institutions to prepare either the workers currently in this occupation, or even worse, the youth that will be graduating from high school or college in the next few years. We’re just not providing them with the human capital and training opportunities and vision to prepare for them so that they can work with the machines rather than try to do what the machines are doing.”
We certainly don’t want to slow down technological advances, because that is where productivity advances come from. What we need to do is try to put in systems and technologies that teach people to work with technologies as opposed to being replaced by technologies. There needs to be someway to subsidize education and training that will enable people to work and be productive and not just subsidize the equipment that is being used. And this needs to be on par with the tax breaks and depreciation that companies receive from purchasing capital equipment.