Racing with or Against the Machine? Evidence on the Role of Trade in Europe

Digital technologies displace labor from routine tasks, raising concerns that labor is racing against the machine. We develop an empirically tractable task-based framework to estimate the aggregate employment effects of routine-replacing technological change (RRTC), along with the labor and product demand channels through which this aggregate effect comes about, focusing on the role of inter-regional trade. While RRTC has indeed had strong displacement effects in Europe between 1999 and 2010, it has simultaneously created new jobs through increased product demand, resulting in net employment growth. However, the distribution of gains from technological progress matters for its job-creating potential.

Unilateral Phase-Out of Coal to Power in an Emissions Trading Scheme

We investigate the displacement effects of unilateral phase-out-of-coal policies in a stylized two-country model with coal- and gas-fired electricity generation in an international emissions trading scheme. In the basic policy scenario, electricity markets are national and one country bans coal while the emissions cap remains unchanged. The allocative displacement effects are strongly asymmetric: the coal-banning country suffers a welfare loss, the other country is better off, and aggregate welfare declines. Furthermore, the permit price decreases, while the electricity price rises in the unilaterally acting country and declines in the other country. If all countries would phase out coal, the effects would be symmetric and all countries would lose. We then extend the analysis to the cases (i) when the unilateral coal ban is combined with a moderate cut of the emissions cap (as recently suggested in an EU Directive) and (ii) when we allow for international trade in electricity. Compared to the basic unilateral policy, in these cases, the total welfare costs tend to be smaller and some tend to be shifted from the unilaterally acting country to the other one.

The Adjustment of Labor Markets to Robots

We use detailed administrative data to study the adjustment of local labor markets to industrial robots in Germany. Robot exposure, as predicted by a shift-share variable, is associated with displacement effects in manufacturing, but those are fully offset by new jobs in services. The incidence mostly falls on young workers just entering the labor force. Automation is related to more stable employment within firms for incumbents, and this is driven by workers taking over new tasks in their original plants. Several measures indicate that those new jobs are of higher quality than the previous ones. Young workers also adapt their educational choices, and substitute away from vocational training towards colleges and universities. Finally, industrial robots have benefited workers in occupations with complementary tasks, such as managers or technical scientists.

A Human Blueprint for AI Coexistence

The positive coexistence of humans and AI is possible and needs to be designed as a system that provides for all members of society, but one that also uses the wealth generated by AI to build a society that is more compassionate, loving, and ultimately human. It is incumbent on us to use the economic abundance of the AI age to foster the values of volunteers who devote their time and energy toward making their communities more caring. As a practical measure, to protect against AI/robotics’ labor saving and job displacement effects, a “social investment stipend” should be explored. The stipend would be given to those who invest their time and energy in those activities that promote a kind, compassionate, and creative society, i.e., care work, community service, and education. It would put the economic bounty generated by AI to work in building a better society, rather than just numbing the pain of AI-induced job losses.