UNIVERSAL BASIC INCOME AS A TOOL OF

LABOR MARKET TRANSFORMATION DUE

TO TECHNOLOGICAL ADVANCEMENT

EKAPUTRA SANANTO
MANAGEMENT 2013

RUTH ARTIA HELDIFANNY

ACCOUNTING 2013

UNIVERSITY OF INDONESIA
INDONESIA

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 Statement of Authorship

We who undersigned in the following confirm that the work presented in this
paper,

Title : Universal Basic Income as a Tool of Labor Market Transformation due to

Technological Advancement
Event : 14th Economix : Global Economic Challenges
have been composed by ourselves, and describes our own work, unless otherwise
acknowledge in the text. There is no other party work which has been used
without disclosing its sources.

This work has not been submitted and/or presented for any other event uunless
otherwise stated. All sentences or passages quoted in this paper from other
peoples work have been specifically acknowledged by clear-cross
clear cross referencing to
author, work, and page(s).

We perfectly acknowledge that our work is available to be replicate

replicated or
communicated for the purpose of detecting plagiarism.

Jakarta, 11 September 2016,

EKAPUTRA SANANTO RUTH ARTIA HELDIFANNY

2
 Abstract
Automation articulates the ever-expanding horizon of technological
change. Industrial relations emerge out of the employments generated through this
change. Both automation and employment have an organic relationship; each
influences the other. The technological advancements have changed the existing
methods of production, structures of organizations, and pattern of relationship,
which create a better, faster, and more efficient way of producing goods and
services. However, some argue that the production of more goods and service
with fewer inputs will produce long-term unemployment which will later be
discussed further in this paper. This paper consists of five parts. The first part
outlines the automation and its advantages and limitations. The second paragraph
outlines the effect from the technological advancement to employment. The third
paragraph further analyses the true relationship between technological
advancement in the unemployment rate. The fourth and the fifth paragraph give
both conclusion and some solutions to face the problems from human-machine
tradeoff; by using Universal Basic Income.

I. INTRODUCTION

In the early 1970s, the world started running out of new ideas in how to
produce, and this lead to the age of slower technological process in economy. But,
in the middle of 1990s, economic growth took off, mostly in the English-speaking
countries such as United States, Canada, and the United Kingdom, because of
advances in computer information and technology including the Internet. And
today, technological advancement is one of the most beneficial on movements of
the 21st century. Technological advancement means some change allowing the
production of more goods and services. Any better, faster, or more efficient way
of producing is a technological advancement. Technology advancement allowed
for the growth and economic expansion of many individuals. However, there is a
renewed concern that technological advancement may displace much of the
manufacturing (or any other) workforce, and this will lead to the widespread
unemployment, social disruption, and human hardship. Such a fear is the natural

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reflex of the man who sees a machine replacing him in his work. Conservative
economic thinkers tend to describe persons who fear the rapid advances of
technology as a Luddites; although this term may seem inaccurate. The terms
Luddites actually refers to uneducated workers who destroyed textile machinery
and other symbols of advancing technology in early 1800s. But nowadays, those
who concerned about technological advancement are quite well educated people
and therefore they are not Luddites. Some of them just expressed what they saw as
technological advancements undesirable distributional effect across income
groups.

The effect of automation on individual was both dramatic and traumatic.

All stages of industrial development have had profound impact on the role of
individual, his/her skill level, and his/her productivity. During the craft period
each craftsmans skill was relatively unique and the value of his product was
closely related to his level of skill. However, during the beginning of the industrial
revolution, production per employee began to rise rapidly, with labor content
decreasing as productivity increased. As automation become more important, the
relationship between production and employment become more complex. The
hours of labor per unit of production diminished while the level of required skills
and the responsibilities per employee increased. This leads to the argument that
technological change may produce short-run unemployment because of their
inability to find jobs elsewhere. However, this argument often failed to mention
that short-run unemployment that occurs is primarily the result of artificial
imperfections a lack of competitive advantages in certain labor and product
market. Also the workers harmed by technological advancement maybe seek to
regain their former employment or seek employment in another industry that pays
excessive wages. In itself technology is fundamental neutral, even passive as it
opens the door but does compel man to enter. The impact of human-machine
tradeoff as the impact of rationalization, mechanization or automation, in
whatever name it might be called, on human mind is understandable.

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II. THOERITICAL FRAMEWORK

The technological developments are going to change radically the existing

methods of production, structures of organizations, and pattern of relationship.
There will be a better, faster, and more efficient way of producing goods and
services. It also implies an increase in standards of living, which may result from
either greater output or more leisure while maintaining the same level of
output. Therefore, technological advancement may be defined as any change in a
production process leading to higher standards of living through increased output
from the same amounts of resources or through the use of fewer resources to
produce the same level of output.

Overall Impact

Technological advancement also related with the depreciation of human

capital, which can be viewed as the natural obsolescence of job skills over time.
Theworkforce will be of a different type, have different priorities, operate in a
different wavelength, and interest in different environment. The nature of
operators job will become from semi-skilled and skilled to highly skilled.
Workers will not have to use much of their manual efforts but of their knowledge
or intellectual efforts. If one is unable to meet the skill required, company isnt
willing to use them, and leads to the increasing rate of unemployment.
Unemployment is the macroeconomic problem that affects people most directly
and severely. The Labor Department defined unemployment as those persons
without jobs who are seeking employment, even though the jobs they seek do not
exist and other jobs do. The type of unemployment resulted from technological
advancement is structural unemployment.

Structural unemployment is defined as the unemployment resulting from

wage rigidity and job rationing. Workers are unemployed not because they are
actively searching for the jobs that best suit their individual skill but because there
is a fundamental mismatch between the number of people who want to work and
number of jobs that are available. Many occupations that require little training are
being replace by automation and robotics. Jobs, such as assembly line workers,

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bank tellers, and telephone operators, are replacing human with robots that
perform the required tasks at a cheaper and more efficient rate.

More than 10,000 front office jobs have been cut across the top ten banks
since 2011. The job cuts are resulted from the replacement of human by
computers, and this trend looks set to continue. This could lead us to eventually no
longer need humans for manual labor and add more focus to more complex or
creative occupations, such as engineer, programmers, doctors, or architects. By
removing workers and decreasing required salaries, this creates more profit for the
company while the unskilled workers are left without a job.

III. DISCUSSION AND ANALYSIS

Despite the apparent paradox between the obvious historical benefits of

technological advancement and its effect on workforce, long-run economic goal in
any society is the advancement of its standard of living. This improvement could
bethe increased output from the same amounts of resources or through the use of
fewer resources to produce the same level of output, or both. If productivity
continues to be enhanced through technology, both men and women will choose
more goods and services as well as earlier retirement, prolonged education, and
more leisure time. It is a dream of most people to be able to have the same or
greater consumption ability while working only 20 hours per week or not working
at all. Technological advancement is the essential element in reducing the burden
of scarce resources.

One of the basic principle of economic is that wants are unlimited. This
given facts assures that people in the future will still be fully employed to the
extent they choose to be, even if there is a headlong rush to automate and
mechanize industry in this decade and beyond. For example, the Detroit
manufacturing that was severely impacted by the financial crisis. There was about
160.000 unemployed in Detroit that was believed to never go back to making
automobiles partly because automation has taken their jobs. Interestingly,
300.000 new jobs was created instead. These are the proof that any potential

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unemployment problem, then, is not inherent in technological advancement,
which is beneficial in the long run. They may be short-run problems when
resource markets are less than perfectly competitive, but markets will eventually
adjust to eliminate any involuntary unemployment resulting from technological
advancement.

Therefore, all we need is the right policy to spread the benefits of increased
production efficiency to the society, instead hold back the innovation. The
Japanese cases have shown that if we hold back technology, cunsomers will have
to pay the price through unecessary artificial trade barriers fall or labor restrictions
are reduced.

IV. CONCLUSION

Each country around the globe have experienced their own history of
transition from one main economic main sources to another. United States has
seen long history of transition from agriculture in their early independence,
manufacturing era that started from industrial revolution, and finally reaching
their peak of service economy that supported by their vast innovation and
entrepreneurial human resources. China has their own history, but with a bit
different detail from United States due to their Communism background that still
prevailing until today.

While, Indonesia has unique economic history since their independence,

when thay still much dependent on agriculture. Indonesia has tried to shift to get
manufacture as biggest contributor, but faced challenges from slow political
bureucracy. And in early 21st century, before even completely shift its economy
to manufacture, has seen huge shift into service era. Indicated by their flourishing
banking, entretainment, transportation, and many other service-based businesses.
While most of the world population currently live in the service dominated era,
many of the countries are facing quite similar problems. Their human resources,
especially that are in the clerical and lower jobs, are facing threat from the
machines and computers.

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 This phenomenon is very quickly impacted lives in Indonesia, even only
ten years in the start of 21st century. The development of research organization
and education make the development of technology is getting faster than ever
before. With this pace of development, we are facing jobs and human resources
problem in a very quick tempo and intensity. The real example, especially in
Indonesia is the disappearance of the highway payment officer that gradually
getting replaced by machine, through e-toll card. Although currently they only
existed in small part of the gateway, it is only matter of time and resources that all
of this kind of jobs will be extinc. The other example is bank teller, and other
clerical functions that we usually seen in bank branches. Simple jobs like taxi
drivers also facing an apparent threat by the development of driver-less car, that is
just a matter of regulation, will be appear in a large scale on our streets. And there
are abundant jobs that are also threaten by machines, such as secretaries, farm
workers, typist, etc. Machines are getting better in a quicker time. And what
humans seem more helpless againts machine, is that they are self-learning. This
means that highly intellectual jobs also threatened by this phenomenon.

Many parts of the population are scared by human-machine tradeoff, but

there also many optimist intellectuals that argue this can be benefiting human
race, depends on how they reform the system. They argue that we shouldnt think
technological progress would reduce employment. If technology increased
productivity allowing companies and their workers to make more stuff in less
time people would have more money to spend on more things that would have
to be made, thus benefiting for economy as a whole. Therefore, the big questions
on how humans facing technological advances is how to provide a living wage for
hundreds of millions of people. It also important to think on how will the
economy spread money around, so people can afford to pay the rent.

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V. SOLUTIONS

The best solution is the Universal Basic Income. It is simply the

guaranteed income that given to all population in a country without any work
requirement. A full basic income would set the guaranteed income above the
poverty line and would replace all other forms of public assistance. A partial basic
income scheme is one in which the level is set below poverty level and in which
some form of public assistance is provided to increase of those who still have
inadequate income. The main key to the feasibility of Basic Income is the raised
and progressive tax, especially corporate tax.

There are many goals and accomplishment that can be reached by

implementation of Basic Income. Although its main goal in its early days of
establishment, Basic Income was mainly purposed provide universal coverage to
the population so that no individual would fall through the cracks of the social
safety net that currently implemented in United States and many other Western
European countries. Its other main goal is to increase the income of the working
poor. Basic Income is a very helping tool to save people from poverty trap that
are common features of many welfare systems. Basic Income has been
experimented in many parts of the world, and many of it shows positive indication
that this idea is really can help the poors. For example, is the experiment of Basic
Income given to poor and homeless people in the subway area of London. Many
hypothesize that if they are given free money, many of them will spend it on
unproductive or even destructive consumption such as alcohol, cigarette, etc. But,
after months of observations, it is proven that majority of them spend the money
on productive and self-developing consumptions such as cooking courses,
gardening courses, and language courses.

A final objective of a Basic Income plan is to improve labor market

flexibility, that in the context of its function of facing machine appearance in the
labor markets. Basic Income is believed can remove human resources burden of
get a jobs as a means of getting a living, because their basic staples has been
fulfilled by this system. This is in line with the phenomenon of clerical and low-
paying jobs replacement by robots. With Basic Income, human resources will be

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more willing to quit jobs, take several courses and shift to other jobs in a short
term period. The Basic Income system also believed to increase entrepreneurial
skills and innovation between human resources, because they are not pressured
anymore to get a living. Innovation and creativity is vital in the future jobs market
that relying on services and entertainment. These features is one thing that
currently not owned by robots, nor being developed quickly in the coming years.

Just like any other ideas, this idea also have counter-arguments. Many
people believe that Basic Income will make people more lazy and decrease their
willingness to enter the jobs market. This is also shown by several experiments
around the world that this initiative is preventing people from doing jobs. As a
result, the price of very low-end goods and services will raise. Human laziness
also related to other implication that feared by the conservatives, such as
immigration and population boom. Immigration would increased if this initiative
only implimented by several countries. While population boom would occured if
Basic Income also given to childen, which give incentives to people to have more
children. The other arguments is about the financing. It is believed that Basic
Income is a very expensive to finance and many doubt that even rich countries
economic system will actually afford to absorb such progressive taxes.

Beside the unconditional Basic Income, that helps labor force to cope with
technological transition in the short run. There are several supporting policies to
make the increased production efficiency can be enjoyed by all parts of society.
First, to support Basic Income main goal, to allow labor forces to quit jobs and
improve their competence and skills, governments have to improve and provide
better courses and non-formal education. The non-formal education has to be
designated to people that previously doing clerical jobs such as driver, cashier, or
bank tellers. They have to be improved in a short time, so they have managerial,
entrepreneurial, and other non-clerical skills. Second, a country must have
adequate infrastructure, particularly internet. Because internet is the main
infrastructure that can make new jobs in the future that rely mainly on
entretainment. Such jobs already appear in large scale today in the form of
vloggers, internet entrepreneurs, video editors, and software developer. Last,
countries must strive to improve their bureaucracy to make establishing businesses

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easier. Because, since basic income can improve innovation and
entrepreneurialism, it would be nothing if not supported by fast bureaucracy.

Basic Income have many advantages to the economy, and unavoidably

also have many disadvantages. Nevertheless, this initaitive so far is to most
feasible solution to make a better system to the changing labor market that we are
currently facing. The countries that are preparing to do large scale experiment or
even implement it fully are the Western European countries and the
Scandinavians. It is very feasible for them due to their already solid
manufacturing and industries that can support production of basic needs such as
foods, clothes, and house appliances. Their relatively small and educated
population also support the possibility of implementation, compared to the Asian
countries. Last, but also a very important factors is the already high corporate
taxes that implemented in their countries. This means that their economy wouldnt
be facing a huge shock if progressive tax is needed to finance the Basic Income. In
Indonesia, this idea would be still far from feasible due to its large population, still
not mature manufacturing industries, and huge gap of taxes that still need to be
raised.

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VI. BIBLIOGRAPHY

Mabry, R.H. and Sharplin, A.D. (1986). Does More Technology Create
Unemployment? . Cato Institute Policy. No. 68

Lewis, M. Pressman, S. and Widerquist, K. (2005). The Basic Income Guarantee

and Social Economics. Review of Social Economy. Vol. 63, No. 4.
Taylor & Francis, Ltd.

Groot, L. (2004). Basic Income, Unemployment and Job Scarcity. Recherches

conomiques de Louvain / Louvain Economic Review, Vol. 70, No.
2. Departement of Economics, Universite Catholique de
Louvain

Van Parijs, Philippe. (1992). Basic Income Capitalism. Ethics, Vol. 102, No. 3.
The University of Chicago Press.

Lucarelli, S. and Fumagalli, A. (2008). Basic Income and Productivity in

Cognitive Capitalism. Review of Socia Economy, Vol. 66, No. 1.
Taylor & Francis, Ltd.

Howard, M. W. (2005). Basic Income, Liberal Neutrality, Socialism, and Work.

Review of Social Economy, Vol. 63, No. 4. Taylor & Francis, Ltd.

Mankiw, Gregory N. (2010). Macroeconomics, 7th Edition. Worth Publishers.

Walter Buckingham, Automation--Its Impact on Business and People (New York:

Harper and Row, 1961), p. 17

Snyder is quoted by Garth L. Mangum in The Manpower Revolution: Its Policy

Consequences (New York: Doubleday, 1965), p. 56.

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http://www.jstor.org/stable/40724409

http://www.jstor.org/stable/29770450

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