Technology and the future of work

One of the biggest challenges that society will face going forward is how to handle the impact of technology on society. The challenge has a new twist but not because technology is replacing human labor. That has been happening for centuries. Think luddites of yesteryear. But the luddites have been wrong over the last few centuries as economies have been able to weather technological change via a mix of economic growth, expanding education, labor-based institutions, and re-distributive policies.

The uniqueness of today's situation is rather the rate at which labor-saving technological progress is potentially occurring. If an industry replaces human capital with technology over the course of 100 years (as was the case with agriculture in the US), that provides society with plenty of time to soften the adjustment and re-deploy human capital. When it happens over 10 years, that is a significant challenge. 

Note: Globalization has exacerbated the effects of technological change but by itself is not as worrying because economic theory tells us that the effects of globalization cannot go on forever, whereas technological disruption can and likely will.  

Re-distributive policies must remain a component of the solution going forward (to preserve the pareto efficient nature of technological change). But the key trick will be to identify clever solutions beyond re-distribution. One framework is to think about ways of increasing the number of people who are owners of capital ("owners of robots"). This allows people to diversity their income so that even if robots replace their labor income, they can maintain their capital income. And if robots do not replace their jobs, they maintain their labor income.  The problem is that capital ownership is risky and poorer people often do not have the means to manage risk. So how to circle that square?

One thing I have been thinking about borrows from finance theory. Even if capital ownership is risky, if it is negatively correlated with labor risk, the overall portfolio of income becomes less risky. More thoughts to come on that idea. 

Another idea, put forth by Dani Rodrik here, is that the state can play a role in managing some of the risk.