As technology advances every day, the day is coming when artificial intelligence and robots will significantly disrupt the labor market. Autonomous vehicles will put about 3.5 million truck drivers at risk of losing their jobs and checkout machines will replace about 3.4 million retail cashiers. This is only the beginning of the long list of jobs that will be terminated by technological changes. The benefits of automation are lower production costs, which will increase job-creating consumer demands and real incomes. However, this will also cause workers hardship and frequent periods of unemployment. This technological shift will not happen all at once, which gives people who loses their jobs time to find a new job.
The creation of the Fed’s dual mandate showed concern in Congress that recurring declines in the demand of goods and services would lead to increased unemployment. The economic theory implies that low interest rates and an easy monetary policy can increase the demand for labor and output. Therefore, Congress changed the Fed with going after a monetary policy that would bring maximum employment. Job losses will not because by low demand, but by supply stocks, as artificial intelligence will allow machines to replace human labor. Technological unemployment has already happened in the past, when robotic looms in factories replaced hand looms. However, experts expect that artificial intelligence will bring upon a lot more widespread disruption. In this case, an easy monetary policy would be the wrong way to approach this problem. Policies that increase aggregate demand will not help to replace jobs that technology makes outdated. The technological changes that makes a truck driverless is equivalent to destroying the truck.
Monetary policies will still be the right tool for the Fed to use to respond to traditional repeating changes in demand. However, technological disruptions will make the unemployment rate become significant in the demand levels. Achieving the government’s goal of maximum employment will require a number of polices, like the removal of state licensing barriers and increased job trainings. In an economy where job losses are driven by technological disruption, the Fed should not only ignore employment but also focus solely on the rate of inflation.