The Software Society

How digital technology is changing our culture and economy

Redistributing income won’t solve the jobs problem

Technology is eliminating many jobs through automation at a rate too fast for society to adjust. This core economic problem won’t be solved by changes in the tax structure that simply change where the government gets its money. Tax reform can correct imbalances in income distribution to some degree, but it doesn’t create jobs.

And mandating higher wages by mechanisms such as increasing the minimum wage, as some politicians have suggested, doesn’t address the core economic problem, and can even make it worse. Even in China, rising wages and benefits are motivating the replacement of workers on assembly lines with robots.

Productivity enhancements that once created more wealth overall—an increase in GDP that could be shared by all—are no longer having the same effect. Most productivity improvements are simply increasing profits at companies by reducing employee costs.

Even more fundamentally, people with jobs are consumers. As jobs decline in number or average income declines, those consumers buy less. While productivity improvements have historically helped economies, there is no theoretical reason automation can’t go too far and create economic decline by reducing overall consumer income and thus spending. Companies facing declining revenue or profit will attempt to automate even more, accelerating a disastrous downward spiral.

Effectively and efficiently addressing the current economic problem requires a government to create mechanisms that encourage companies to create jobs. I suggested one such mechanism in my 2013 book, The Software Society—an “automation tax.” An automation tax made part of the taxes paid by a company dependent on the ratio of employees to company revenue. Companies with high revenue relative to the number of employees would pay relatively more tax than companies that used more people to generate the same revenue. The automation tax can, for example, encourage productivity solutions that make employees more efficient instead of automation that replaces them entirely when there is are competitive options.

I’m suggesting that part of corporate taxes be an automation tax; the rates on other taxes (such as profits) could be lowered to generate the same total tax revenue to the government. Companies that employed more people relative to revenue than others would be assessed lower taxes. Unprofitable companies and small companies could be excluded from an automation tax.

Companies that would face higher taxes with an automation tax may be tempted to fight any such legislation. I would argue that they could come out ahead as many of their enterprise and consumer customers do better. Even more fundamentally, the option of paying a larger share of taxes is preferable to an economic collapse!

An automation tax is unlikely to fully solve the core economic issue. But it is an example of an approach that addresses the real long-term problem in the economy in a way that encourages behavior that helps the economy without dictating specifics through complex regulations. And it addresses the disease rather than the symptoms.

Politicians must be courageous enough to admit our current economic doldrums are not just a cycle that will correct itself. The recent downturn may have been launched by subprime mortgages, but full recovery requires recognizing the more fundamental issue of over-automation. The acceleration of technology innovation and the resulting automation is occurring faster than workers and our institutions can adapt. We must avoid the downward spiral of fewer and worse jobs, followed by less consumption, followed by dropping revenues, followed by fewer jobs… Hopefully, getting elected is not the only goal of our future leaders.

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