Policy Responses to Labour-Saving Technologies: Basic Income, Job Guarantee, and Working Time Reduction

Several studies argue that the latest advancements in technology could result in a continuous decrease in the employment level, the labour share of income and higher inequalities. This paper investigates policy responses to the rise of labour-saving technologies and their potential negative effects on employment and inequality. Using EUROGREEN (an Input-Output-Stock-Flow model), we assess how three different policy measures – basic income (BI), job guarantee (JG), and working time reduction without loss of payment (WTR) – could affect the economy in the wake of a technological shock. We build different scenarios in which the effects of these policies are implemented against a reference setting of high labour productivity growth. We evaluate the impact of these policies on per capita GDP, the Gini coefficient, the labour share, the unemployment rate, and the deficit-to-GDP ratio. We find that these policies could be effective in counterbalancing some of the negative effects of labour-saving technologies. JG reduces the level of unemployment significantly and permanently, whereas BI and WTR only temporarily affect the unemployment rate. WTR effectively increases the wage share and generates the lowest deficit-to-GDP ratio in the long run. The introduction of a wealth tax further reduces inequality and helps to offset the increase in public spending associated with JG and BI. A mix of these policies delivers the highest per capita GDP, lowest unemployment rate, and best distributive outcomes.