Universal Basic Income

Universal Basic Income is the idea that governments can reform and unify their complex, bureaucratic and frequently exploitation-prone social security nets with the introduction of a single benefit, paid uniformly to all citizens, to help everyone meet their basic needs.

My below thoughts come from my response to Tomaž Štih's decided criticism of this idea (which he calls a Universal Basic Holiday).

One form of a Universal Basic Income is part of the American FairTax reform proposal. FairTax proposes to replace all taxes in the gargantuan U.S. tax code with one simple sales tax (I have explained earlier why this is a good idea). Meanwhile, the progressiveness of the existing income tax would be compensated with a form of UBI. I have until now considered this to make sense.

Tomaž exposes the hypothesis, however, that UBI will remove people's will to work.

UBI will not necessarily influence people who already earn a lot, and whose motivation for work is intrinsic. I can imagine, however, that UBI may actually remove the will to work for people who already don't earn much more than minimal income. Many people value their free time much higher than goods that can be obtained with work, especially if they don't particularly enjoy their work, and their income is low. Lots of people like that might at least partially exit the job market, by working less or not at all because they already receive a Universal Basic Income. The size of the workforce for lower paid jobs will therefore decrease, which is a disturbance that the economy can counter in two ways:

1. by importing foreign workers to work low-wage jobs while not being entitled to UBI (implying unequal treatment of foreign and domestic workers, as well as the friction and conflict arising from immigration as such);

2. by companies competing for workers by increasing low-end wages, which in turn will cause varying increases in the prices of goods and services, which in turn will lower the buying power of UBI. Some goods and services will not be available any longer because the equation of the cost to provide them vs. the revenue they generate will not work out.

In any event, a new equilibrium will arise, but where will the new equilibrium be? This depends entirely on the extent to which people will, in fact, depart the workforce due to UBI. In order to avoid an economic catastrophe after introduction of a UBI, the answer to this question needs to be empirically ascertained beforehand.

Comments

Echo said…
UBI would inevitable lead in economic catastrophe, since the human nature is such, that permanent "exit of job market, i.e. stop of work" is not reversable for every individual.
Some would rather die or kill than start working. In case UBI real value diminished, they would demand more by all costs.
boris_kolar said…
No, conclusions that UBI would somehow make people stop working are wrong. Firstly, everyone gets money from somewhere, which is obvious considering that no one dies from hunger in our country. Setting UBI to anything higher than ensuring survival would not be optimal. Living on UBI alone would feel like shit to everyone, so little or no work motivation would be lost. Note that our current system is trivially exploitable as well: you can play sick, deliberately get fired for incompetence,... - all of that keeps you qualified for social support.
denis bider said…
boris: If everyone already gets money from somewhere, then how is the current situation different from a UBI?

It obviously is different, and the difference is that in the current situation, you are pressured to work. (Though some people steal; legally or illegally.)

I am not convinced that living on UBI would feel sufficiently like shit to make people want to work as much as they do.

If UBI is to equal 50% minimal wage, then people on minimal wage will only have to work 50% as much to get the same income.

If UBI is to equal 100% minimum wage, then people who are currently on minimum wage can stop working altogether and enjoy the same standard of living with way more free time.

If UBI is to equal what a student currently makes waiting tables, then students are, for the most part, not going to wait tables.

I think there's serious potential for exactly the sort of thing that I explained in the article. Less workforce in low-end jobs, and dramatic shifts in the economy. The question of whether these shifts are economically survivable is not hypothetical.
denis bider said…
Well, I'm all for economic experiments, and Slovenia is a small enough country for it. I'm cheering for them to try it, and see what happens. That should be fun. :)

At least it's a bold proposal. :) You don't see that a lot in Slovenia. (Besides the recent naming of streets.)

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