I have written a piece for the IEB report by the Barcelona Institute of Economics which focuses on the taxation of robots. The text not only discusses a robot tax, but also puts the impact of robots on the economy into perspective. You can read the full report here.

The report is timely, as a robot tax is making headlines. Democratic Presidential Candidate and Mayor of New York City, Bill de Blasio, just announced that he plans a tax on robots.

Bill de Blasio
Photo by Gage Skidmore [CC BY-SA 3.0], via Wikimedia Commons

De Blasio writes “Lastly, my proposal would institute a “robot tax” on large companies that eliminate jobs through increased automation and fail to provide adequate replacement jobs. They’d be required to pay five years of payroll taxes up front for each employee eliminated. That revenue would go right into a new generation of labor-intensive, high-employment infrastructure projects and new jobs in areas such as health care and green energy that would provide new employment. Displaced workers would be guaranteed new jobs created in these fields at comparable salaries.”

It is certainly a good thing that politicians start to think about the future of work, and wanting to invest in health care and green energy goes in the right direction. Still, de Blasio’s plan sounds half-baked and more geared towards preservation than progress. In particular, the focus on wanting to generate labor-intensive projects reminds me of an anecdote attributed to Milton Friedman:

Recalling traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built, Milton Friedman was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

Instead of trying to preserve the existing structure of the labor market, we should think harder about the role of work for individuals and society. Involving workers and companies in this process is crucial. Redistributive policies also have a role to play – but as I find in my research, a tax on robots will likely only lead to small welfare gains, and that is assuming that there are no administrative costs. Instead of taxing robots, adjusting income taxes as technological progress increases income inequality seems more promising. In addition, we need inclusive and creative solutions for the future of work that don’t throw out the baby with the bathwater.