Learning to Live with Robots in the Fourth Industrial Revolution

TO REDUCE INEQUALITY AND DEAL WITH TECHNOLOGICAL DISRUPTION IN THE LABOR MARKET, THERE SHOULD BE INVESTMENT IN RETRAINING AND WAGE INSURANCE, RATHER THAN BASIC INCOME OR ROBOT TAXATION

by Francesco Daveri, SDA Bocconi School of Management
Translated by Alex Foti


The Fourth Industrial Revolution is here. The applications of artificial intelligence and robotics are challenging the traditional physical and biological boundaries existing between man and machine. Thanks to digital technologies, everyday life has become easier. You can call a taxi, book a flight, buy a product, make a payment, listen to music remotely, and every time get customized service. But the windfall of all this seems concentrated in few hands: innovators, shareholders, investors. And the labor market seems to be divided into two segments, perhaps insulated from each other. On one side, there are the precarious: workers trapped in unskilled, low-wage, insecure jobs. On the other side, there are the privileged ones, benefiting from jobs requiring high skills and paying correspondingly high salaries.

According to Nobel Prize Michael Spence and Obama administration’s chief economist Laura Tyson, there is a real risk is that the Fourth Industrial Revolution coupled with globalization puts the turbo on what are already high levels of income and wealth inequality. With respect to the recent past, competition in digital markets gives more ample rewards to companies providing the best services, and this has translated into a sharp increase in market concentration in industry after industry. But the increase in inequality is fueled by globalization in a crucial way. Winning companies are those that have perfected ways of monitoring, coordinating, and offshoring production in various parts of the world, in order to reduce labor costs and overhead expenses, and warrant the cheap procurement of raw materials. So there is the risk that process of creative destruction typical of previous technological revolutions does not work this time, thus failing to create enough new jobs that replace those canceled, especially in countries that are in a disadvantaged position either from an institutional or demographic point of view.

In a study published in January 2017, the McKinsey Global Institute analyzed the effects of automation on employment, considering jobs in 46 countries covering 80 percent of the global workforce. The research used rigorous methods for estimating the potential effect of automation on existing jobs on the basis of already known technologies (therefore without making questionable conjectures on future technological trends). A first finding of the McKinsey study is that fully automated jobs are likely be only a fraction of the total: less than 5 percent. The study, however, also reports a second and much less reassuring result: according to the calculations made by the consultancy’s research unit, 60 percent of occupations consist of jobs that are likely to be at least partially automated (for 30 percent or more of their content). Specifically, it will be easier for machines to handle repetitive operations taking place in contexts characterized by limited uncertainty. Examples? Reception services, agricultural crops, manufacturing in general, but also back-office activities in the retail and wholesale commerce. Conversely, it will be more complex to automate activities that require human interaction such as health care, education, management, and other professions that involve sophisticated information processing, including politics.

It is therefore understandable that the discussion has started about what is to be done to mitigate the likely negative impact of automation on employment. Bill Gates has proposed to levy a tax on robots. That would be suicidal for countries like Italy that are chronic laggards in technological innovation. Basic income – a very costly measure for public finances – is also presented as a form of social insurance against the uncertain effects of automation. But we regard as more feasible measures that are preventive or compensatory, including lifelong continuous education, subsidized loans for retraining, and programs of wage insurance. In any case, rather than taxing innovation or transforming ourselves into individuals living off subsidies, it would be much better to help workers learn to live with robots.