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Risk Management for Technological Unemployment

by internationaldirector

Written By: Darren Morris – Corporate Finance

There is no doubt of the complexity of the relationship between employment and technological advancement. The introduction of a particular technology may create new jobs on one hand and diminish others on the other. The impact of technology on employment depends on the number of people who gain or lose employment as a result of efficiency-boosting or cost-cutting innovations. In the recent past, the question of whether technology is a net creator or a net destroyer of jobs has been a topic of hot debate among economists. While there is no consensus on the effects of technology on employment, several studies show that rapid change in technology destroys jobs faster than it creates them.

Erik Brynjolfsson and Andrew McAfee, both professors at the MIT Sloan School of Management, believe that the rapid growth in technology is to blame for the sluggish employment growth in the US for the last 10 to 15 years. The two economists reached this conclusion after comparing data between employment and productivity for the 65 years leading up to 2012.


A rule of thumb: productivity and employment should move at the same pace; the higher the employment, the higher the productivity. However, with the advent of technology, this principle seems to have changed. As shown in the chart above, employment and productivity were moving at the same rate until 2000, the year in which technology began to pick up pace.

With the growth in technology, the gap between employment and productivity has continued to widen. As robot technology continues to grow, more and more people will find themselves losing their jobs. In a 2011 NBC interview, Barrack Obama, president of the United States, echoed this concern through the following statement: “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank, and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate”.

While the ATM example isn’t the best analogy, Obama’s concern is valid. Even when it is true that in the long run technology is creating more jobs, the rate of its growth is pushing a lot of Baby Boomers into early retirement and Millennials into temporary unemployment. Top economists and computer scientists in the US have warned that the rise of artificial intelligence and robots in the workplace could cause mass unemployment and dislocated economies.

As Moshe Vardi, a computer scientist at Rice University in Texas, puts it, “We are approaching the time when machines will be able to outperform humans at almost any task. Society needs to confront this question before it is upon us: if machines are capable of doing almost any work humans can do, what will humans do?”

It is no longer a question of whether the rapid growth of technology will lead to mass unemployment but how soon it will happen and how prepared we are to deal with the repercussions. The development of full artificial intelligence may mean that in the years to come, masses could find themselves unemployed. When the risk is predictable, it is only wise to start thinking about risk management. The unemployment of the masses is an economic threat that we can no longer ignore. Robert Shiller, a professor of economics at Yale University, suggests that “by coupling risk management with technology, society can much more thoroughly reduce the negative impact of future risks”.

It is time to start thinking of applying the elements of finance and insurance to cover the job loss associated with emerging technologies. Insurance companies today do not cover such risks primarily because they are not measurable, but with the advancement of database technology a way can be found. The problem with risk management for job loss is not in the difficulty of quantification but in the fact that most people are in denial that technology is making their careers obsolete.

While the growth of technology is arguably the best thing that has happened to our generation, we have to remember that it has the power to widen the gap of gratuitous inequality. Without any risk-management plans, it is possible that in the years to come, there will be just a few filthy rich at the expense of the majority of people, who will be destitute.


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