Analysis | Automation, Universal Basic Income, and The Future of Work

Analysis | Automation, Universal Basic Income, and The Future of Work

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Cameron Vaské

- Founder & Editor-in-Chief
- Foreign Policy, Transatlantic & European Affairs, Macroeconomics, American Politics, Democracy, and Governance

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— ITS Long Reads | Commentary —

Washington D.C. — All across developed economies, we are witnessing the dawn of another industrial revolution. The age of automation is upon us. It has the potential to bring a great deal more productivity and remove many menial jobs for a significant portion of the population. There’s just one problem: in our present system, hundreds of thousands of people — and our economy itself — depend on these jobs.  For many, the age of automation will abolish their jobs, and it’s not likely that the new age of industrialization will bring them new ones. What does the future of work look like in a world without these jobs?

The Fourth Industrial Revolution: Automation and Artificial Intelligence
In the last three industrial revolutions, breakthroughs in technology and labor organization produced massive gains in productivity and output. In the process, they created millions of new jobs while simultaneously making other jobs obsolete. So if this is merely another cycle of industrialization, what’s different this time? Won’t old jobs give way to newer and better jobs in artificial intelligence, computer science, and engineering?

While automation will create many new jobs in the fields of computer science, engineering, and cybersecurity, the number of new jobs created won’t necessarily offset the number of jobs lost to automation and artificial intelligence. An excellent example of this unequal offset is Netflix.

Today, it takes a team of a few hundred or a few thousand employees to run a company like Netflix. In 2004, Netflix's “ancestor” company Blockbuster employed around 84 thousand people and was worth around $5 billion. Blockbuster and its traditional peer companies have become obsolete following the advent of online streaming services like Netflix and Hulu.

In 2017, Netflix employed around 5.5 thousand people and was worth $70 billion. Netflix can employ so few people and make so much more relative to Blockbuster because it makes excellent use of software engineering, the universality of the internet, and the automation of simple and repetitious tasks.

Netflix is only one small example. According to a 2013 study by the University of Oxford, an estimated 47 percent of U.S. jobs could be at risk of “computerization” over the next twenty years. Today, that figure has been revised upwards to 85 percent. Already automation and AI have replaced most accounting jobs, yet a large number of people working jobs that can be automated are still waking up and going to work on Mondays. However, as is true with so much in our technology-driven world, that could change almost overnight. The most widely cited innovation in automation primed for release is the driverless vehicle.

According to the American Trucking Association, there are around 3.5 million truck drivers in the United States. Add on to that approximately 300 thousand taxi drivers and the several million part-time Uber and Lyft drivers in the gig economy in the United States, and you can quickly see the massive impact wide-spread use of driverless vehicles on the economy. So what jobs will be created to replace those displaced by automation?

Principally, jobs in software engineering, mechanical engineering, cybersecurity, and customer support are likely to be created by the introduction of the driverless car. It is highly implausible that there will be several million new jobs in these sectors to replace the old jobs; to design the software, mechanics, manage cybersecurity systems, and provide customer support for massive fleets of driverless cars will not create new jobs in the millions, but more likely in the thousands.

The advent of driverless vehicles would leave a significant portion of the U.S. population out of work almost immediately, to say nothing of the barriers to entry for former drivers to take up work as engineers and computer scientists. And yet, this is but one industry of many that will undoubtedly be affected by automation. At a time when the United States, China, France, and Germany are spending billions of dollars on developing artificial intelligence and creating industrial hubs for computer science, it is essential to ask ourselves how this will change the way we do work.

The Future of Work and Universal Basic Income
If automation and artificial intelligence are going to remove something on the order of 50% of industrialized countries’ jobs without creating an equal number of jobs to replace them, what will those people do, and how will they earn a living? According to data collected by the U.S. Census Bureau in 2016, 40.6 million Americans (12.7% of the population) already live in poverty. Without any income, how will the more than 80 million Americans at risk of losing their jobs cope?

Our economy is based on consumption — supply and demand. We demand and consume products which are produced by companies that provide for the income of employees who consume and repeat the process. This structure is already under stress from rising income inequality and secular stagnation (topics I will address in future posts). The loss of even a fifth of U.S. jobs — and therefore consumers — would deal a crippling blow to our economy. 

The problem is threefold: 1) How do we as a society provide for those who have lost their jobs? 2) How can we sustain our economy without the employed consumer base we have today? 3) How can we provide meaning without work?

Let’s examine that last question for a moment. In the world we live in today, people work for a living; an individual provides their labor to the market to earn a living wage which allows them to consume products that they need and want. In turn, this enables them to take part in society. Not only does it provide them an income, but their work also helps define their place within society and in relation to others. For many people, work provides a sense of purpose and meaning.

Assuming one could survive without a job, what would it mean to have our time back? What would we do without a job, and what would bring us meaning? In an excellent 2017 episode of Foreign Policy’s The Editor’s Roundtable, David Rothkopf poses the question in a different light: “Could you possibly get your dignity from painting a picture, writing a poem, exploring your spiritual life, [or] being with your family?” 

Quite correctly, Rothkopf postulates that our economic model in the 21st century will necessarily look a great deal different from that of the 20th century. If we are to face the issues surrounding the loss of jobs to automation and artificial intelligence, we must adapt our economic model accordingly.

Perhaps one of the most innovative solutions to the challenge of automation and income inequality is the concept of Universal Basic Income (UBI). In a nutshell, a Universal Basic Income is provided by a government to all citizens, regardless of their employment status, tax-free. While there are many different arguments about what a UBI should provide, the most economically sound and feasible form a UBI could take would be a Minimum Basic Income (MBI) — just enough to keep people above the poverty line.

The most common fears about providing a UBI are that 1) It would incentivize people not to work, 2) It would cause inflation, 3) It wouldn’t be economically feasible. Let’s address these one at a time.

1) Providing a Universal Basic Income would incentivize people not to work.
This is a common misconception. It’s easy to understand; innately, most people regard others as lazy. We often grumble about having to work, so it makes sense that, if you did not have to work to survive, you wouldn’t. However, ask yourself: would you be satisfied with a standard of living just above the poverty line?

Experimental studies in many countries, including Canada, Sweden, and Finland, have turned up different results. Rather than giving up work, providing a minimum basic income helped relieve some of the economic pressure people felt and allowed them time to find the right job. In experiments in Canada, only 1% of people quit their job, primarily to care for their children. For the other 99%, they used the extra money to go back to school, find a better job, or to reduce the number of hours they put in to avoid overworking themselves.

2) Providing a Universal Basic Income would cause inflation.
Inflation is caused by the sudden introduction of a large quantity of new money into the economy. Typically this is caused when the government purchasing bonds or printing new money, or excessive consumption causes the economy to overheat. However, because the funds for a UBI would be taken out of taxes or other expenses, the money wouldn't be generated out of thin air, but rather redistributed. This means that instead of causing inflation, the introduction of UBI would more likely lead to a rise in consumption, which would create economic growth.

3) Providing a Universal Basic Income wouldn’t be economically feasible.
It is understandable that fears of creating “handouts” would cause some trepidation, especially in the United States. Welfare programs across the Western world are costly, and often the subject of considerable criticism and debate. 

The simplest way to make a UBI economically feasible would be to eliminate all other government welfare programs and replace it with a single UBI. Doing so would free up vast amounts of money that are poorly spent and subject to an enormous bureaucracy which would also, in turn, disappear and provide more funding. 

In the United States, providing a Minimum Basic Income would mean providing $1,000 a month to every citizen. If every American over the age of 18 received a UBI equivalent of $12,000 per year in the United States, that would be equivalent to roughly $232.6 billion per annum, or 0.00001% of GDP. According to the Federal Reserve Economic Database (FRED), in 2016, the U.S. spent roughly $141.6 billion on Welfare and Social Services. Restructuring the budget slightly to accommodate the difference by redirecting money from other expenditures would be relatively straightforward.

Okay, so if a Minimum Basic Income is feasible, what makes it better than the welfare system we already have in place? In other words, why create a Minimum Basic Income instead of extending welfare to those who have lost their jobs?

To start with Welfare programs are incredibly complex. They require massive amounts of documentation and paperwork on the side of the beneficiary citizen, require that a citizen applies to a certain number of jobs per month, and sometimes require that the recipient take the first job offered to them, regardless of the quality of the job or if it is a good fit. 

Furthermore, the moment you are employed, you lose your welfare, and your income is taxable. Assuming you received $1,000 in welfare and social services per month and then took a job with a salary of $1200 per month, you would likely take home less than your previous welfare after taxes and other expenses. In other words, welfare programs tend to promote passive behavior and leave people trapped in low-income jobs. 

A UBI of $1,000 would be tax-free and unconditional, allowing you to use your time to find the right job for you. Even better, you don’t lose your UBI once you get a job, but your new income gets added to what you already gain from your UBI. In other words, a UBI would promote active behavior; you stand only to gain from seeking to improve your income by taking a job.

In a consumer-based economy facing the loss of hundreds of thousands of jobs and stricken by income inequality, introducing a Universal Basic Income could significantly improve the standards of living for millions of people.

The effect on the U.S. economy could be just as positive. For every one dollar that working-class Americans make, their consumption adds about $1.21 to the economy by generating a demand for products that creates other jobs, investment, and so on. For wealthy Americans, this figure is closer to $0.39 for every extra dollar.

In simple terms, imagine handing an average working-class American and a high-income American each $1,000. The working-class American is likely to spend most of that $1,000, creating more demand for products and allowing him or her to purchase the goods and services that he or she needs. The wealthy American already has the money that he or she needs to survive, and so spends less of it, generating less value for the economy for each dollar that he or she receives. In economic terms, we call this the Marginal Propensity to Consume (MPC).

By making it possible for working-class Americans to consume more, we might not only reduce income inequality but significantly grow the economy. A study by the Roosevelt Institute predicts the impact of the introduction of a $1,000/month UBI on the U.S. economy would be an additional 12% growth in overall GDP over a span of eight years.

Given the fast pace of economic change in the United States and other developed economies, the advent of globalization, the significant rise in income inequality, secular stagnation, and the prospect of the loss of millions of jobs to automation and AI in the future, it’s time to start thinking seriously about the future of work. Thankfully, there are many think tanks and policy institutes analyzing ways to adapt to the 21st-century economy.

While there is no silver bullet to solve to all of these problems with one policy, there are a few ways we can begin to address them. In order to provide work for the future mass of people who have lost their jobs to automation and artificial intelligence, governments should offer large-scale programs to help people find and train for new jobs. Developing a Minimum Basic Income to compliment this program would not only allow citizens to afford the time to retrain themselves, but it would also allow people to continue to consume, and therefore contribute to economic growth in the meantime.

Societies and governments must also begin to reflect on the relationship between capital and taxation; while people are taxed, the machines and programs that will replace them will not be. What should the societal cost of operating a business worth billions of dollars and employs only a handful of people be? What should we do with that money? And how should people who have been permanently removed from the labor force by technological advancement spend their time and contribute to society?

These are huge questions of philosophical as much as economic repercussions and have no clear answers. It is up to us to answer them and to decide how the future of work should look.

All views expressed in this article are solely those of the author and do not represent the views of The International Scholar or any other organization.

Further Reading & References:

  1. Universal Basic Income Explained – Free Money for Everybody? UBI (YouTube)
    Kurzgesagt — In a Nutshel

  2. The Rise of the Machines – Why Automation is Different this Time (YouTube)
    Kurzgesagt — In a Nutshell

  3. The big debate about the future of work, explained (YouTube)

  4. Robots Have Been Taking American Jobs
    Andrew Soergel | US News & World Report

  5. Modeling the Macroeconomic Effects of a Universal Basic Income
    Michalis Nikiforos, Marshall Steinbaum, and Gennaro Zezza | The Roosevelt Institute

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