Government, Not Automation, Destroys Jobs The world’s scarcest resources, entrep
ID: 1115181 • Letter: G
Question
Government, Not Automation, Destroys Jobs
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.
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.
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 Center 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.
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.
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 center 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.
INSTRUCTION
a) Make sure you use a graph and explain you graph with a minimum of 4 sentences (why did you do your shift or shifts and what happens to price and quantity as a result) for the last question.
Questions:
1.Why is Uber so interested in developing driverless cars?
2.When it comes to unemployment, what are the sole reason that low skilled jobs are dying an untimely death?
3.Use supply and demand to illustrate the impact of costly regulations on the market for taxis.
Price S1 P1--E1 D1 Q1 QuantityExplanation / Answer
The diagram of Taxi Market.
As shown there is demand and supply of taxi. The demand curve of Taxi depends upon the price that the taxi supplier offers. The Taxi suppliers supply taxi depending upon the demand by the customers. Higher the price of the taxi, there is less demand. Lower the price of the taxi, there is more demand of the taxi.
Contrary to this, the supplier wants to supply more taxis if the price of taxi demanded rises. Again, at lower price of taxi, the taxi owner would supply less number of taxis.
This demand and supply curve of taxis would intersect at some point which would be called the equilibrium price. At this price, the demand price equals the supply price.
In case income of customers rise, the demand curve would shift from left to right, thereby raising the equilibrium price. If the cost of taxi is lowered, the supply curve of taxi would shift downward. If the cost of taxi rises, then the supplier would shift his supply curve upward.
Thus, the equilibrium price shifts due to variety of factors as mentioned above.
In view of the normal demand and supply curve of taxis, we can answer why government's wrong actions lead to more unemployment and poverty. Abundance of cheap labor and low skill may prove to be a boon for entrepreneurs in cost cutting. But, the government's legislation of providing a minimum wages sometimes prove to be disastrous to entrepreneurs as raising of wages lead to derailment of production process. It takes time to switch over to higher technology which is cost efficient.
The government must understand the cost which the entrereneurs undertake for production. Any arbitrary imposition of regulation with regard to minimum fixation of price of commodities and of wages has deeper impact on the production process.
In fact, the new technology is invented for more production which ultimately leads to more welfare of people. The objective of government is to strike a balance between the technological development and welfare of the nation.
In view of the above discussions we can answer the questions that follow.
Answer 1
Uber has been providing taxi services at cheaper prices as it has econimized the cheap and abundant labor supply to train them as drivers. But the government's tough regulation of protecting the taxi labors union for treating the drivers as regular employees would escalate the cost of Uber. Naturally, there would be overhead cost of rise in salary and welare measures of drivers. Since, the cost has risen exponentially, there is proposal of investing in driverless technology which would give relief to the company.
Answer 2
The low skiled jobs are dying untimely death because of government's intervention of regulating the enterpreneurs. Arbitrary measures of wage fixation that has deeper impact on industrialists in cost escalation leads the industrialist to go for higher technology which would be cost efficient and this would bypass the low skilled labors. If things would have gone without government's intervention, most of low skilled labors would get jobs. This could check the poverty as well. Thus the low skilled workers are dying untimely death because of governments' arbitrary intervention without understanding the long term implication.
Answer 3
Costly regulation on the market for taxi would escalate the cost of taxi as the supplier would entail more cost. Since, the demand curve does not change in the short run, the prive of taxi services will rise. There would be less employment now. Naturally, unemplyment would grow.
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