Working paper 2/2018

Problems, solutions and new problems with the third wave of technological unemployment

Fabio D’Orlando
Dipartimento di Economia e Giurisprudenza, Università degli Studi di Cassino e del Lazio Meridionale

July, 2018

Abstract: The aim of this paper is to discuss possible solutions to the “third wave” of technological unemployment and their main drawbacks. The process has just started and will only be fully realized in the future, but its main novelty is already well known and concerns robots (and artificial intelligence) entering the production process. Robots do not simply increase labor productivity, in cooperation with humans, but can totally substitute labor, making it possible to produce commodities without the use of human input. This in turn generates technological unemployment. Past “compensation” theories have argued that technological unemployment could be reabsorbed thanks to wage reduction and demand (and production) increase. But these theories have ignored robots. If robots are more productive and less expensive than humans, wage reduction may be insufficient due to the minimum wage subsistence boundary; and, in any case, an increase in demand would only determine an increase in the production of goods by robots alone, without any impact on human employment. Meanwhile, the resulting mass unemployment will require redistributive policies. The paper discusses the most relevant among these policies, emphasizing their drawbacks and their unwanted implications, and proposes an alternative rooted in Tietenberg’s tradable permits approach.

JEL codes: B12, D21, D30, E24, J64

Keywords: Technological unemployment, robots, artificial intelligence, unemployment, redistribution, compensation theory, tradable permits approach

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