Economic Growth and the Future of the Labour Market

By Conor McGlynn, member of the St. Gallen Symposium's global Leaders of Tomorrow Community

Reducing unemployment has traditionally been essential to economic growth. More people working produce more goods, in turn adding value to the economy. High unemployment is linked to low or negative growth and a stagnant economy. The solution to unemployment and low growth is for governments to target job creation in order to get people back to work. This is done through increased government spending on employment programmes, or tax cuts to encourage businesses to hire. Targeting job creation to tackle joblessness has intuitive appeal, and historically has been the panacea to large-scale unemployment.

The close relationship between employment and growth may be challenged by the effects of technological change on the labour market. New technologies are replacing human workers in all sectors of the economy, which leads to higher unemployment. Fewer jobs in the economy (assuming the population is growing) will result in a higher rate of unemployment even when the economy is operating at potential, which cannot be reduced through traditional methods of job creation.

Opponents to this view say that as technological change occurs jobs are created as well as destroyed. Online shopping, for example, may result in fewer jobs for human workers in retail outlets, but it creates jobs in shipping and packaging goods. Technological change doesn't destroy jobs; it just shifts them from one sector of the economy to another. This happened, for example, after the Industrial Revolution, when manual jobs in factories replaced others such as handcrafting.

This view of economic history is too simplistic however. The technological change that happened during the Industrial Revolution did fundamentally alter the structure of the labour market. Mass unemployment, as we know it today, was a direct result of the technological change of the 19th century. In pre-industrial agrarian society peasants produced goods for themselves and their landlords. The move to cities prompted by industrialisation made widespread the system of private employment, and hence unemployment became characteristic of labour markets. History shows us that technological change can bring about huge shifts in labour markets.

Further, there is reason to believe that the structural change resulting from current changes in technology could be far greater than those seen after the Industrial Revolution. In the 19th century, machines replaced human physical labour in certain activities. However, these machines still required a massive amount of human input in terms of their operation, as they were not autonomous. Current advances in technology such as AI are not just replacing physical effort; they are also replacing the decision-making and higher cognitive activities of humans.

An implication of these advances is that we will have to come to terms with high rates of unemployment, as we are seeing in Europe, becoming the norm rather than being the result of a temporary economic downturn. Fewer and fewer people will be doing increasingly specialised jobs as the role for human labour in reduced in production processes. The response to a rising permanent rate of unemployment as a result of technological change can perhaps be postponed but cannot be offset by traditional job creation programmes. It will require a more significant change in policy.

One alternative that is increasingly gaining attention is a universal basic income. This would be wage paid to all citizens on which they could support themselves. This idea is being tested in parts of Finland and the Netherlands, and a referendum will take on introducing a national scheme in Switzerland later this year. How exactly such a scheme should work and be financed is not clear, but finding an answer will become increasingly pressing in the face of rising unemployment.

Perhaps even more significant than the economic change would be the social change this brings about. In Marx's communist utopia, each person would be free to be a fisherman in the morning, a farmer in the afternoon and a philosopher in the evening. The technological revolution promises to bring this ideal closer to reality than it ever has been in human history. This holds the promise for widespread human fulfilment, but the societal shift involved would be immense.

The concept of economic growth with limited labour input is a radical departure from anything we are familiar with. The concept of a universal wage and the end of jobs, employment and human activity as we know it is even more so. The AI revolution is upon us, according to most experts, and its effects will become increasingly noticeable in the coming decades. A universal basic income is a controversial idea, and putting it into practice would challenge many of our fundamental assumptions about the economy and the world work. As humanity moves into the age of AI, however, such radical policy innovations will be essential. We need our political leaders to take up the challenge this poses in order to realise the rewards promised by technology.

"Growth - The good, the bad, and the ugly" was debated in the light of the 46th St. Gallen Symposium (11-13 May 2016).