The Basics of Universal Income: Beyond the Divide

By Matthew Findlay 
Correspondent, Mathematics Undergraduate Student 

The idea of a universal basic income (UBI) recently entered the mainstream discussion in several countries.  Finland is currently trialling the policy, and it is being lauded and criticized by commentators from across the political spectrum. So what is UBI, anyway?

According to the basic income website, a UBI consists in paying every citizen a regular income, regardless of whether they are unemployed or in work, high or low earners, sick or healthy.  Such a payment must be made to every individual, unconditionally and without a means test.

This is a controversial policy, one which raises complicated questions about the very nature of work itself, but it is slowly but surely entering the political discourse.

What is interesting about UBI is that it is an issue that can appeal to both right and left, for different reasons.  The former advocates it as a way to slash government bureaucracy and as a gateway to true individual freedom, whilst the latter views it as a way to lift the population out of financial poverty.

Advocates claim UBI is the natural solution to a world in which work is increasingly automatized.  As technology advances, and robots are able to complete tasks faster, more precisely and more efficiently than any human could ever hope, there is a fear that large swathes of the population will find themselves unable to find work.  This may sound Orwellian, but a 2013 Oxford study estimated that 47% of American jobs are at risk of automation in the coming decades, including fairly high skilled professions.

But the jobs at most risk are relatively low skill, meaning this automatization, were it to take place, would have its biggest impact on the least well off, taking a severe toll on social inequalities.

In order to prepare for this upcoming scenario, some argue that it is time for countries to begin providing a lump monthly payment to its citizens.  This would boost wages, provide compensation to those who contribute to society, through charitable endeavours for instance, as well as enable people to work fewer hours whilst keeping their purchasing power constant. These advocates argue that working fewer hours will allow companies to hire extra staff, thus reducing unemployment whilst preventing companies’ payrolls from swelling.

Freeing up people’s time would also allow them to pursue other activities which, while not contributing to the financial side of the economy, enrichen the nation through other means, be it through art, literature or sport.  This would, for instance, guarantee that volunteers and those who care for sick family members receive sufficient support and recognition for the contribution they are making to society.

Proponents argue that the unemployed would also have a renewed incentive to find work.  The fear of losing access to certain types of benefits when one finds a job, such as unemployment insurance, would be removed.  Employers may also expand their workforce, since workers would be prepared to accept comparatively lower wages, these being boosted by the extra income. Those who would primarily benefit from a UBI would thus be low wage earners and young people who have just entered the labour force.

However, it is not hard to see the scheme may well inspire some to stop working altogether, and live off the free money. Many would be tempted to free-ride on the earnings and tax receipts of others.  Workers who are just indifferent between working and not working might choose to drop out of the labour force altogether if they were guaranteed a monthly income, thereby reducing the tax base and the ability to fund the UBI in the first place.

Indeed, the first problem that springs to mind when one thinks about UBI is how to fund such a scheme.  Benoit Hamon, the Socialist candidate for the French presidential elections in May, has put forward proposals for a basic income.  The cost over five years would amount to 450 billion euros.  That is equivalent to 22% of French GDP.  Some of the costs would be covered by scrapping administrative fees associated with benefits claims, but the remaining bill would still be colossal.  The huge sums of money involved are definitely a huge headache for anyone considering such a scheme.

A basic income would possibly help to boost consumer confidence, as the fear of being unable to provide for one’s family is removed.  The VAT receipts recuperated from the boost in confidence would go some way towards financing the scheme.  Especially given that the poorest citizens would spend a greater fraction of the monthly payment on consumer products.  However, this may then lead to inflationary pressure, since the overall demand for goods will increase, thus leading to an increase in prices.  Any purchasing power gained from the UBI may subsequently be eroded as inflation increases.  But the risk of inflationary pressure would largely depend on how the UBI was implemented: if firms were expected to contribute, then they would simply increase prices to compensate for the extra costs, thereby offsetting the positive effects of the boost in earnings.

Another bone of contention, particularly on the left, is in the very nature of its universality.  The definition of UBI is that it would be provided to everybody, regardless of whether they are unemployed or CEO.  Some consider this to be an inefficient redistribution of resources, when there might be scope to increase payments to the poorest citizens instead of making the payment to everybody. They also fear that the scheme could be a wolf in sheep’s clothing, and further entrench inequality. The state should not throw money at citizens and expect problems to be solved: there are better ways to tackle the crucial issues facing society.

Another fear is that, in practice, if a UBI was given to the citizens of a country, then the tiresome and underpaid jobs would no longer be as attractive, and would therefore only be filled by those most likely to accept a low wage for tiresome work: poorer immigrants. This would widen inequalities between established and immigrant populations.  If, on the contrary, immigrants were also to benefit from the UBI, this would be almost politically impossible to implement.

Ultimately, all the above starts to force us to question what our fundamental approach to work should be.  Some argue that a UBI would emancipate workers, allow them to spend time finding the right job for them and return to university to gain more skills without losing financial support.  Others claim this will foster a newfound dependency on the state, as well as surgically remove vast swathes of the population from the fulfilment one may find in a job, and the sense of pride and independence when it comes to providing for one’s family.

A UBI might also have the dangerous consequence of diverting public funds from essential services, away from those who need them most. Indeed, libertarians who advocate UBI seek to fund it by cutting other forms of aid.  This would then reduce the flow of income to those who are most in need.

Although some decry making the payment to rich citizens, a UBI could be included in someone’s taxable income. The poorer citizens would not pay back any of the income, whereas those who are already high-earners would in practice pay most of it back in tax. By not requiring any background checks or formal applications to receive it, any stigma that may be associated with applying for housing or unemployment benefits would not apply to a UBI.  By its very nature, a UBI would be allocated to everybody, no matter their financial or social status.

Whatever one’s stance on UBI, current unemployment and poverty levels, widening inequality and disillusionment with globalisation all call for imaginative solutions.  One way or another, nations will need to tackle these issues head on.  While it may not be wise to implement a UBI at this moment in time, further research into the topic should be encouraged, in order to assess both its feasibility and its desirability.

Featured image by byronv2

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