Kiva robots transport palettes of fast moving merchandise at the Amazon Fulfillment Center in Schertz. Credit: Scott Ball / San Antonio Report

Are people in danger of being replaced by robots? Concerns regarding automation and worker displacement, which have been around for centuries, have experienced a recent uptick. Most of these concerns are misplaced, particularly if effective policies are in place.

The real wealth of a country consists of the output of goods and services that its countrymen and women have access to. The fear that automation will destroy jobs rests on the assumption that there is a fixed amount of goods that buyers want, so machines that increase the output of goods per worker leads to fewer workers employed. But as 20th-century economist Frank Knight pointed out, “The chief thing which the common-sense individual actually wants is not satisfaction for the wants which he has, but more, and better wants.”

Farming is a commonly cited but nonetheless relevant example: In the 1870s agricultural workers comprised half of the work force. Today that figure is closer to 1.5%, according to the St. Louis Federal Reserve and the U.S. Bureau of Labor Statistics. That means fewer people working in agriculture (but greater output) and more people producing other things (like semiconductors, software, turbine engines, etc). And, we are wealthier, meaning there a greater abundance of all the goods and services. To a certain extent, the same thing is happening in manufacturing.

This pattern has been constant for thousands of years: axes replaced people digging/chopping with rocks; nets succeeded catching fish by hand; traffic lights now substitute for traffic cops; and smartphones took over for AAA travel route services. These are all “robots,” argues another economist, Deirdre McCloskey – They are designed to abridge labor.

“Any contrivance [that] substitutes for labor, [is] equivalent to a robot,” she stated in a 2014 seminar.

She argues that if such substitutions resulted in permanent unemployment, then the unemployment rate would be 95% and climbing, rather than below 5% and dropping.

Of course none of this helps the person being replaced by innovation. That’s the trade-off: Higher standards of living come with change and advance, but often at the expense of continually displaced workers. In fact, it is helpful to think of automation or technical advance in terms of three groups of workers affected: (1) the group making new products, like televisions and computers (replacing radios and typewriters), who gain because their skills and knowledge are in high demand; (2) workers who are unrelated to the industry and unaffected in their employment, but who gain because of the newer/lower cost/better performing product or innovation; (3) those in the displaced sector (e.g. radio/typewriter workers). The focus, therefore, should be on helping displaced workers, which shouldn’t be rocket science.

One suggestion is a universal minimum or basic income (UI), formerly referred to as a “negative income tax” or NIT, which was recently resurrected in a 2014 paper by the Federal Reserve Bank of St. Louis. That solution is conceptually easy to administer but ignores the familiar economic problem of how to provide assistance without creating dependency. That’s why economists have favored some form of unemployment insurance, though it is hard to monitor, subject to fraud and abuse, and not really insurance.

There are probably 1001 ways to structure it, but I am partial to proposals that are more akin to whole life polices, i.e. that contain an insurance component and a cash value or investment component. For example, workers could pay into such a plan at the beginning of their careers and basically be covered by the insurance component, which might include three to six months of unemployment benefits.

Over time, as their pay-in increases and if they’ve stayed employed, used savings in tough times, or otherwise avoided making a claim, they start to build a cash value component that can be used any time – to change jobs, retrain, or even take a work sabbatical. The idea is to create better incentives by invoking some form of true ownership of benefits.

Jim Kee

Jim Kee, Ph.D. joined South Texas Money Management at the beginning of 2009 and serves as president and chief economist. His expertise lies in combining top-down, macroeconomic insights with bottom-up...