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Automation and job losses: Which way now?

Many observers of the American workplace are concerned about the malign impact that automation is having and will continue to have on the demand for labor.

Surprisingly, some, such as President Donald Trump, have placed little or no blame on automation but instead have blamed free trade with nations like China for the job losses that have occurred in the United States, particularly in the manufacturing sector. Others such as Martin Ford—author of the recent tome “The Rise of the Robots”—have painted a dystopian picture of the future in which robots dominate the workplace and humans do little or nothing.

Although both the above perspectives are misguided, clearly, there is some reason to be concerned about the seemingly ubiquitous nature of automation. However, to channel this concern in the right way, it is essential to first comprehend the nature of the underlying problem. In this regard, the MIT economist David Autor has rightly noted that “journalists and expert commentators overstate the extent of machine substitution for human labor and ignore strong complementarities that increase productivity, raise earnings, and augment demand for skilled labor.” 

What Professor Autor is referring to is the great challenge involved in applying machines to tasks that require flexibility, judgment and common sense. Therefore, he goes on to say that tasks “that cannot be substituted by computerization are generally complemented by it.”

Given this delineation, Babson College professor Thomas Davenport and Julia Kirby of the Harvard University Press are surely right when they point out that the concern about rising automation needs to be channeled in the direction of a search for the above mentioned complementarities. Such a search will need to focus on education, new jobs, the social safety net and redistribution.

When it comes to education, policy must enable workers to learn new skills. Having said this, it is important to not fall into the trap that new skills can only be learned by increasing college enrollment. College is not for everybody, and as a nation we need to greatly increase our investment in vocational training that will teach workers skills they can use to produce goods for which there is global demand. In addition, we need to teach technical skills to students beginning in elementary school. 

The creation of new jobs needs to be based on an understanding of the fact that future work is likely to be very different from the kind of work that automation is displacing. The New York Times’ Claire Cain Miller notes that, in part, this means paying attention to growing jobs in services such as health care, child care, elder care and food provision. Although lost manufacturing jobs are not coming back, we can certainly invest in advanced manufacturing jobs in, for instance, green energy.

To be successful in the new economy, workers will need to be flexible. To encourage worker flexibility, we need to set policy to strengthen the safety net for all. One obvious way to do this is to expand the earned income tax credit for low-income workers. In addition, it would be worth pursuing the “wage insurance” concept. The idea behind wage insurance is straightforward. Suppose an American worker loses her job. In this case, we do not want to only make sure that she can get unemployment insurance. We also want to ensure that she retrains for a business that has a position for her. If this new job does not pay as much as her old job, then a wage insurance policy guarantees that she can still pay her bills. 

Redistribution is an unpopular word in some circles. However, the simple fact is that although technology generates great wealth, only a small sliver of America benefits from the concentrated nature of this wealth. Therefore, it seems clear that some sort of redistribution is called for to ensure a more egalitarian distribution of technology-driven wealth. In this regard, a sensible policy would be to institute a cost of living conditioned minimum wage policy.

Jim Kessler, senior vice president for policy at the centrist think tank, The Third Way, is surely right when he says ascertaining how to make the forces of technology and globalization work for and not against middle-income Americans is the key contemporary public policy challenge in the United States. We need to confront this challenge head-on. Indeed, given the gravity of the task before us, one is inclined to ask, as Rabbi Hillel famously did, “If not now, when?” 

Batabyal is the Arthur J. Gosnell professor of economics at the Rochester Institute of Technology but these views are his own.

3/24/2017 (c) 2017 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net. 
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