Extract E (lines 14–16) states that ‘The market economy is not going to create the jobs by itself for those workers who are most affected by the change.’
Extract F (lines 4–5) states that ‘taxing productivity-enhancing tools like robots or machines makes no economic sense.’
Use the extracts and your own knowledge of economics to evaluate whether governments should allow markets to respond freely to the opportunities and challenges presented by technological progress, without any state intervention. (June 2018)
Plan
- Intro - market failure, government intervention, government failure, price mechanism
- P1 - gov should intervene
- robots have negative externalities in production?
- indirect tax (robot tax)
- Evaluation - government failure (information + robots have a benefit to society as well)
- P2 - leave it to market forces
- price mechanism
- excess supply of retail workers
- incentives to learn new skills
- Evaluation - time lag, inequality, relative poverty
- Conclusion
In progress
Market failure is when there is a misallocation of resources. If there is a market failure with technology, the government could intervene to solve this. Government intervention could also be damaging as there is a risk of government failure, and the free market may do a better job at allocating goods and services in the technology market.
The free market could be able to solve the problems that technological progress creates. There would be an excess supply of low skill workers who firms could replace with robots.
Diagram
The diagram on the left shows that, at w1, there is an excess supply of labour. This is because there are more people who are willing and able to work at the current wage, compared to the number of workers who firms are willing and able to hire. Therefore, firms will continue to reduce the wage rate on offer until they see that there is no more excess supply. Eventually, the market reaches a new equilibrium wage w2 and quantity q2. This is known as the ration function of the price mechanism. Also, the new equilibrium wage is lower. This signals that this job is not very highly demanded and is not a rewarding career. This should incentivise people to look for substitute jobs with better pay, or learn new skills.
- the price mechanism may take time in real life
- excess supply of labour at first!
- unemployment!!!
- lower wages!!
- only benefits those who are willing and able
- DOWNSIDE