How to maintain a technologically progressive economy while preventing unemployment?

Abstract

The jobs of the world population are increasingly threatened in a world filled with constant technological improvements, and automation of tasks by machinery and artificial intelligence. Substitution of labour by machines is not only occurring in blue-collar jobs (usually uniformed workers working in eg. manufacturing) but increasingly also in white-collar jobs (usually ‘suit-and-tie’ workers working in offices). The more labour-saving technology is created and deployed, the more jobs are made obsolete, possibly leading to technological unemployment. This problem is likely to be aggravated by research and policies that are concerned with the so-called 'productivity paradox' or 'Solow-paradox', as well as the 'cost disease', and that seek to avoid or remedy both by increasing labour productivity across-the-board, that is, in 'personal services' such as education, health care, research, and the arts as well as in the goods-producing economy. If this were feasible, how could technological unemployment be avoided? Another option, explored in this thesis, is to take a fresh look at these phenomena, by asking whether they really are a 'disease' or 'paradox', or simply a consequence of a (harmless) natural structural change that is taking place in society, namely, the growth of 'personal services' relative to the physical (goods-producing) economy. Inspired by the writings of William Baumol (1993, 2012), this thesis explains that it will be possible to avoid dramatic increases in unemployment, if the productivity gains that are achieved in the technologically progressive sector (that implements labour-saving technologies) are used to fund the creation of new work in the technologically stagnant sector, the sector that tends to have a lower labour productivity growth compared to the technologically progressive sector. According to Baumol (1993, 2012), it is not possible or not desirable to increase labour productivity in the stagnant sector in the same way as this happens in the progressive sector by for example replacing human beings with software, machines, and AI. It may not be possible because of the nature of work in the stagnant sector compared to the progressive sector and it may not be desirable because the quality of services may decrease (Baumol & Wolff 1998). A case study involving the Netherlands and Germany, both of which are shown to suffer from the 'cost disease', was carried out to investigate whether the transfers of funds from the progressive to the stagnant sector is a realistic possibility. If resources are to be transferred from the progressive to the stagnant sector, the question arises how this could be realised. One possibility is investigated, namely, that governments implement profit taxation in the technologically progressive sector to collect the productivity gains in this sector and then use it to fund new work 7 in the technologically stagnant sector, including a public educational system. The conditions under which this solution is feasible was then investigated for the Netherlands and Germany, and concludes that Baumol’s (1993, 2012) solution to the cost disease could be realised if 50-70% of productivity gains in the progressive sector are used to fund work in the stagnant sector, and as long as the average wage rate in the stagnant sector is not consistently higher than the average wage rate in the progressive sector.