Income security could protect us from robots

Embrace job insecurity and enjoy higher wages. That’s the message from the Productivity Commission, which last week published the second of five major reports on technological change and the future of work.

It’s no secret that the robots are coming and they’ve set their eyes on our jobs.

The good news is that replacing some jobs with robots makes those that still exist more productive. Remaining workers create more value, assisted by machines. All going well, that extra value gets shared with the employees who have earned it.

The bad news is fairly obvious: people lose their jobs.

Opinion seems fairly split on the advantages of technology in the workplace. Historically, technology has been at the forefront of the immense gains in productivity seen over the course of the 19th and 20th centuries, creating enormous amounts of wealth which, eventually, gets returned to workers.

In 1760, England’s GDP per capita was just £2100 (NZ$4225) in today’s money; it’s now more like £30,000 (NZ$60,355).

The new technological wave will unleash further wealth creation. If it’s done properly, people will work the same amount (or less) and be paid more, thanks to technological advances. But that will require no small measure of job losses.

The Productivity Commission says that as disruption starts to take hold, there is a risk that this country, like others, could look to compensate for some of this disruption by considering policies that promote job security.

While, on the face of it, it’s difficult to argue against job security, the commission says it would be far better instead to look at policies that promote income security.

Emphasising job security is a drag on the economy as it encourages firms to hold on to staff when their jobs could be taken by machines.

Policies that promote income security instead make both employees and employers more open to change. Employers don’t have to make enormous redundancy payouts, and employees have a safety net while they look for the next opportunity.

The end goal is a highly mobile workforce, where widespread uptake of technology leads to higher wages and better outcomes and where the people who lose out are able to get back swiftly into the job market.

This is where the idea of a mandatory income insurance has real merit. It would mean people who lost their jobs would be compensated, and at-risk employees would be able to stay on top of their mortgages and continue to look after their families.

It has other benefits too. One of the most devastating effects of being unemployed is known as ‘‘income-scarring’’. This is when unemployed people feel forced to re-enter the job market on lower hours or lower pay. Aside from having long-term impacts on that person’s wellbeing, it also knocks back their earning potential. Income protection removes some of this pressure to re-enter the job market.

Two models of income security are talked about. One is an individualised unemployment account, a bit like a Kiwisaver account, that employees and employers pay into and which grows over time. A scheme like this has existed in Austria since 2003.

The other model is an Acc-style insurance scheme, paid for again by employees and employers. The benefit of this is that the risk of unemployment is shared across all the workforce – there’s always the chance with a Kiwisaver-style scheme that there simply won’t be enough money there when an employee really needs it.

The great unsaid here is that both schemes cost money and would be seen as yet another charge on employees and employers, who are already groaning under the weight of ACC, Kiwisaver, student loan payments and general taxation.

This is less of a problem now when unemployment is low and labour force participation is high, but the conventional wisdom is that the state should place as few disincentives as possible on firms looking to hire people – especially if the state is, at the same time, making it easier to fire people.

While it’s true that systems of income security work well in northern European countries, it’s also true they pay much higher rates of tax than we do. If this is the high-productivity direction New Zealand wants to move in, we’ve got to work out who pays.

One voice largely missing from the paper is that of unions, although the Council of Trade Unions did say that it supported moves to increase income replacement for lost work. Unions must ensure that income earned from productivity gains is shared fairly between employees and employers.

Increasing the mobility of the labour force may encourage employers to invest in productivityenhancing machinery, but it will also weaken ties that bind individual employees. Without those connections, employees will be at a disadvantage when it comes to bargaining for higher wages that come as the reward of better productivity.

Policies that promote income security instead make both employees and employers more open to change.