Quartz, a digital news outlet for business people in an ever-changing globalized world, recently interviewed Microsoft founder Bill Gates.  Among any conversation with Bill Gates, he insightfully responded to an array of questions from the interviewer. Most controversially, Gates stated “If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.” Since Quartz published Gates’s statement businesses and other business journals have offered their insight. While many were quick to rebut his idea, claiming “it could generate some sort of neo-Luddite movement” and stating “both men and women, with a high-school education or less…..have become waiters and other service workers or, say security guards. That kind of employment has gone up.” However, Bill Gates argument was not as simple as others made it out to be. Taxation on automation needs to be a policy that is advocated for by others besides Bill Gates.  This tax offers the ability for funds to retrain displaced workers, create human capital in other sectors that need employment, and create an environment that will be open-minded to automation.

Automation creates an opportunity to increase output as humans are inherently going to make mistakes. Any firm that can insert automation into a given role will have an increase in efficiency for that given objective. However, it must be taken into account that while efficiency goes up via automation, so does unemployment. The displacement of workers for automation created Luddites in the 19th century and we would likely see the same movement in the 21st century. Bill Gates statement alludes to an opportunity for low-skilled routine based jobs to be displaced into different industries and sectors. This tax credit could be given back to the individuals who are displaced and allow them to retrain for a different job or return to school in order to further their education. This will allocate time and innovation into new research and development into more human based sectors that need an increase in human capital.

The Bureau of Labor Statistics published data on projected annual rates of growth of employment for different sectors. Table 1 below displays these rates for all sectors.

Table 1.

Industry Job openings rate Fill rate = hires/job openings Hires rate Separations rate Churn rate = hires rate + separations rate Projected annual rate of employment change 2012–22
Total nonfarm 3.2 1.1 3.5 3.3 6.9 1.1
Total private 3.4 1.1 3.9 3.7 7.6 1.2
Mining and logging 3.1 1.2 3.8 3.4 7.2 1.2
Construction 2.0 2.5 5.1 4.8 9.9 2.6
Durable goods manufacturing 2.3 0.9 2.0 1.8 3.8 -0.3
Nondurable goods manufacturing 2.4 1.0 2.4 2.3 4.7 -0.8
Wholesale trade 2.6 1.0 2.5 2.4 4.9 0.8
Retail trade 3.1 1.5 4.8 4.6 9.4 0.7
Transportation, warehousing, and utilities 3.1 1.1 3.5 3.2 6.7 0.5
Information 3.6 0.8 2.8 2.7 5.5 -0.2
Finance and insurance 3.7 0.6 2.2 2.1 4.2 0.8
Real estate and rental and leasing 2.9 1.1 3.2 3.0 6.2 1.2
Professional and business services 4.4 1.2 5.3 5.0 10.3 1.8
Educational services 2.3 1.0 2.5 2.3 4.7 1.9
Health care and social assistance 3.9 0.7 2.7 2.5 5.3 2.6
Arts, entertainment, and recreation 3.2 2.0 6.7 6.5 13.2 1.1
Accommodation and food services 4.5 1.2 5.8 5.5 11.3 0.9
Other services 2.6 1.3 3.4 3.2 6.6 1.0
Federal government 2.2 0.5 1.2 1.2 2.3 -1.6
State and local government 2.0 0.7 1.4 1.4 2.8 0.5

 

The coefficient on manufacturing jobs for durable and nondurable jobs are both negative. While one of the reasons that employment in this industry is shrinking is automation, if this tax were implemented then human capital could be used in industries such as health care and social assistance, food services, and construction. This tax would allow individuals to retrain while the government is still able to make money via Medicaid and social security.

The Luddite movement in the early 19th century destroyed machinery in cotton fields and mills. These individuals believed that machinery was taking away their jobs and felt the need to revolt instead of retrain. David Ricardo once said, “accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at.” Opportunity cost and globalization is something that should not require elimination of fear. Taxation on automation allows for individuals to change their mindset and to not be afraid of technology, but instead to embrace it. This taxation will help change the culture and lifestyles in the United States and across the world.

Technology will continue to advance as artificial intelligence use grows and humans continue to map neural networks for programing. Taxation on automation is the best option when it comes to jobs that are being phased out for low-skilled routine workers. This would allow the American work force to start forming a new, smarter identity. The United States would be able to reshape its labor market and create a more efficient economy.

Implementing Taxation on Automation