On Technological Unemployment

This paper discusses possible solutions to the “third wave” of technological unemployment and its main drawbacks. The process has just started and will only be fully implemented in the future, but its main novelty is already well known and concerns robots (and artificial intelligence) entering the production process. Robots do not simply increase workers’ productivity by cooperating with humans, as it was in the past industrial revolutions, but can substitute for workers in the productive process, making it possible to produce commodities without the use of human capital. This in turn generates technological unemployment. Past “compensation” theories have argued that technological unemployment could be reabsorbed thanks to wage reduction and demand (and production) increase. However, these theories have ignored robots. If robots are more productive and less expensive than humans, a wage reduction may be insufficient due to the minimum wage subsistence boundary; and, in any case, an increase in demand would only determine an increase in the production of goods by robots alone, without any impact on human employment. Meanwhile, the resulting mass unemployment will require redistributive policies. This paper discusses the most relevant among these policies, emphasizing their drawbacks and unwanted implications and proposes an alternative policy mix rooted in Tietenberg’s tradable permits approach.