The Software Society

How digital technology is changing our culture and economy

Over-automation tax

The Software Society discussed the danger of automation proceeding too far, “over-automation.” Every company is motivated to improve productivity through automation, with the most common way to replace humans with software or other technology solutions. After all, humans come with requirements for health insurance, payroll taxes, fair treatment, and sometimes unions. Isn’t it simpler to hire computer rather than people as the economy recovers?

That behavior might be rational for individual companies, but taken across the economy, it can lead to too few jobs for those seeking them. It can also lead to a drop in average income as individuals compete for the jobs that are available. This can lead to less disposable income for most consumers, less consumption, and lower company revenues in the long term. This over-automation won’t cure itself, since most companies would react to declining revenues by even more over-automation to retain profits.

The Software Society suggests an “automation tax” as a partial remedy for this tendency. An automation tax would be higher for companies that have a high ratio of revenues to employees. The automation tax would be lower (or even a tax credit) for companies with lower values of this ratio. The companies with the high ratio of revenue to employees should have the higher profits that allow them to pay the tax. Indirectly, it helps them if the economy is stronger and there are customers able to buy their products or services.

The automation tax revenues should be expended by government in ways that create jobs, e.g., investment in need infrastructure improvements. Whether the automation tax is the best solution or not, over-automation must be dealt with by some intervention. It won’t cure itself.

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