Our Free Lunch series on automation has examined the presence and effects of robots and other technology on the economy. Today we come to the question: which policies can help those who face reduced demand for the labour they are used to providing when robots, automation and other technology come in? Free Lunch is highly sceptical that the protectionist responses in vogue today will do any good, in part because while trade may have speeded automation along in rich countries, productivity-enhancing technological progress would not be stopped by raising trade barriers. The best responses, rather, involve domestic policies.

Those will have to be policies that harness the benefits of automation, not ones that try to stop it (such as a robot tax). As Brad DeLong writes: “Historically, there are relatively few cases in which technological progress, occurring within the context of a market economy, has directly impoverished unskilled workers. In these instances, machines caused the value of a good that was produced in a labor-intensive sector to fall sharply, by increasing the production of that good so much as to satisfy all potential consumers . . . The lesson from history is not that the robots should be stopped; it is that we will need to confront the social-engineering and political problem of maintaining a fair balance of relative incomes across society.”

In the area of radical reform to achieve this, there are two rivals currently receiving a lot of attention. One is universal basic income (UBI) — an unconditional income from the state to all, regardless of job or other status and intended to replace much of the welfare state’s existing income support — which Free Lunch readers will know I have much sympathy for. The other goes by the name of a “job guarantee” and is often brought up in the same breath as scepticism of UBI.

The job guarantee is usually described loosely as a policy to provide public sector jobs to those who cannot otherwise find decent employment. Diane Coyle has one of the more thoughtful critiques of UBI as well as an appealing defence of the job guarantee. Her main point is that the ills of poverty and unemployment do not consist only of material deprivation but of a loss of the social world that decent work provides. For the same reason, she persuasively argues, it is important to maintain a public responsibility for universal public services.

These insights are correct and important. But it is not clear that they favour a job guarantee policy, as I suggested to my colleague Cardiff Garcia in a recent Alphachat podcast on radical reform proposals. I argued that the specifics of the job guarantee matters hugely. First, does it just mean a public jobs programme or is something more meant by the term “guarantee”? If it is a guarantee in the sense of a legal right to a job, is it also an obligation to take whatever public jobs are on offer? In that case it is hard to see that the guarantee does anything to address the disempowerment created by unemployment and poverty: it remains a situation of choosing between what a government official offers you and nothing. If it is truly voluntary, meanwhile, it is unclear that it will in fact keep people in hard-hit sectors or areas connected to work any more than the current benefit systems are able to do.

Alphachat Newly conceivable ideas in economics Cardiff Garcia and Martin Sandbu discuss universal basic income

If, more modestly, what is called for is simpy a public works programme (which will create a certain number of jobs that are seen as useful, which the unemployed can apply for but are not “guaranteed” to get) that is no bad idea. But proponents have to answer why it is better to spend public money on employing people rather than spending money on creating demand in the economy to spur (private) employers to employ people — in other words, standard countercyclical fiscal stimulus policy. It may be better because in a downturn, more jobs can be quickly created through direct employment than by stimulating private demand. But it may be worse over time as the public jobs created for the express purpose of quickly hiring the newly unemployed are less likely to target the most productive use of their labour than private jobs would be (even if it is of course more productive than leaving them unemployed).

So a public jobs programme has much more going for it as a very short-term stabilisation policy than as a long-term solution to structural change that displaces jobs in whole sectors or communities. The opposite is true for UBI. In the standard version, it is not such a good stabiliser — it is constant through the cycle — but of course the existence of a UBI does create a very easily accessible lever for governments to quickly get more spending out to the economy by temporarily increasing UBI rates in a recession.

Over the long term, however, the fact that UBI leaves job creation to the private sector means it can meet the goals of the job guarantee proponents better than the job guarantee itself. It is important to recognise that one function of UBI is to create demand for jobs that serve the UBI recipients themselves — because that’s what they will be spending their money on. A typical industrial town hit by structural change with UBI would have a greater chance of developing a local service sector, for instance, as incomes would be sufficiently sustained so as to allow residents to enter service jobs that their peers are willing to pay for. And if a community sees a particular need for local public sector jobs (for local public services), there is no reason not to give local governments the power to tax local incomes — including UBI income — in order to create them. UBI makes local social autonomy more possible than a national jobs creation programme can do.

There is a worry that the demand sustained by UBI need not create good jobs — with appropriate stability and security. Of course it is not obvious why a government that allows instability and insecurity in private sector jobs would “guarantee” public jobs that were any better. But in any case the immediate solution is to tighten the rules on what conditions are permitted in any job, whether private or public. In the meantime, another function of UBI is to give jobtakers the bargaining power to demand it themselves through the ability to say no to a bad job.

Other readables

A video is now available of my conversation with Sebastian Mallaby at the Jewish Book Week about his book on Alan Greenspan.

Numbers news

Scotland’s economy is left behind by the UK’s continued economic growth.



The UK’s Office for National Statistics is trying to improve its data to give earlier warning of recessions.

To receive Martin Sandbu’s Free Lunch by email every workday, sign up here

Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.