Government, Not Automation, Destroys Jobs by Jairaj Devadiga

A few weeks ago, road and highways minister Nitin Gadkari said that driverless cars would be banned in India in order to “protect jobs.” This kind of fallacious argument is nothing new. For the past year or so, newspapers have frequently published articles arguing that automation is to blame for job losses. Even seemingly intelligent people like Bill Gates have made outlandish suggestions, such as taxing robots, to compensate workers who might lose their jobs as a result.

Bad government policies are the root cause for unemployment.

By doing a superficial analysis, one may indeed say that automation causes job losses. But by digging a bit deeper, one sees that bad government policies are the root cause for unemployment.

Circumventing Regulation

Take the case of driverless cars. Driving is not a job that requires specialized skills. Low skilled workers are abundant and also inexpensive to hire. Why, then, is Uber so interested in developing driverless cars? It is because governments around the world have imposed costly regulations, or outright banned Uber to protect the taxi cartels.

Never mind that this creates an immediate job loss for Uber drivers, it also gives Uber an incentive to invest billions in developing driverless cars to circumvent the burdensome regulations. This will ensure that all drivers will lose their jobs in the long run, including the taxi cartels governments are trying to protect.

Lant Pritchett, at the Centre for Global Development, wrote last month of a similar problem in the US. Workers from Central and Latin America could easily work low-wage jobs in the US.But minimum wage laws and immigration restrictions make labor artificially expensive.

Technological progress is distorted when government tries to protect certain industries.

That is precisely why Amazon is pouring billions into drones. In the absence of government intervention, it would be far cheaper to hire low skilled immigrants for delivering parcels. But since government won’t allow that, it is cheaper to use drones. Most delivery jobs in the US will be eliminated in the near future as a result of bad immigration policies. Policies which were, ironically, crafted to save those jobs.

Note the tremendous inefficiency this creates. The world’s scarcest resources, entrepreneurs and scientists, are working to economize the most abundant resources, namely low skilled labor. All of that entrepreneurial and scientific talent is being wasted due to bad government policies. Pritchett rightly laments that this makes it harder for poor people to escape poverty.

Pritchett’s observation is nothing new. In January, I wrote that even Karl Marx understood how technological progress is distorted when government tries to protect certain industries or occupations. A case in point is Indian manufacturing, which the government tried to protect from foreign competition.

Ill-conceived government policies are why low skilled jobs are dying an untimely death.

Countries at a similar level of development have labor intensive manufacturing which makes use of cheap labor. In India, the opposite has happened. Whatever little manufacturing takes place in the country is extremely capital intensive. Why did this happen?

Laws Are Expensive

Before 1991, government imposed extremely high tariffs on imports to encourage domestic manufacturing. Manufacturing grew, but it became more capital intensive over the years, even though cheap labor was abundantly available. The explanation for this lies in India’s complex labor laws.

India has nearly 250 labor laws between the centre and the states. The cost of complying with these labor laws is so high that companies found (and still find) it cheaper to use machines than to hire people, creating the phenomenon of jobless growth.

All of this evidence points to just one culprit, when it comes to unemployment. It is not greedy corporations and it is not automation. Ridiculously ill-conceived government policies are the sole reason that low skilled jobs are dying an untimely death.

Jairaj Devadiga

Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases. When he is not doing research, he enjoys reading about medicine, astronomy, computers, and law among other things. Readers may email him at jairajdevadiga@gmail.com with questions, suggestions, feedback etc.

---