The Second Machine Age

Erik Brynjolfsson and Andrew McAfee

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While income taxes are not meant to discourage work and employment, they can still have this effect. Payroll taxes can lead to similar shifts, and by design mainly affect people with low and middle incomes.20 They can cause organizations to move away from hiring additional domestic employees, and instead outsource work or make use of part-time contractors. As digital technologies keep acquiring new skills and capabilities, these same organizations will increasingly have another option: they’ll be able to make use of digital laborers rather than humans. The more expensive human labor is, the more readily employers will switch over to machines. And since payroll taxes make human labor more expensive, they’ll very likely have the effect of hastening this switch. Mandates like employer-provided health care coverage have the same effect; they too appear as a tax on human labor and so discourages it, all other things being equal.21