Home > Economic policy, Politics (general) > How feasible is a guaranteed minimum income (crosspost from CT)

How feasible is a guaranteed minimum income (crosspost from CT)

August 8th, 2012

We were talking at CT not long ago about universal basic income policy, and there were a variety of opinions about the desirability, political sustainability and implications of such a policy. But, before arguing about those issues, it’s useful to consider whether a basic income is feasible at all and, if so, what kinds of tax policies, and adjustments to other welfare policies, would be required to support it. I’ve considered the relatively easy case of a guaranteed minimum income, rather than a universal basic income paid to everyone, as advocated by Philippe von Parijs and others.

I’m going to work through it with a more or less realistic numerical example, with numbers chosen to simplify the calculations. The first simplification will be to consider only adults (I’ll try to explain my reasoning for children if I get time). I’ll assume that, initially 60 per cent of the population is employed and also that 60 per cent of income (before taxes and transfers) goes to labor, while 40 per cent goes to owners of capital and land. Initially, taxes are 30 per cent of total income, borne proportionally by labor and capital. For the moment, I’m going to ignore wage inequality, and write as if all workers get the same wage.

The simplest way to get to a universal basic income would be to pay it to everyone, then recoup the cost, through the tax system, from everyone above the basic level. While conceptually simple, this way of doing things would be almost impossible to implement except as a ‘big bang’, and is also too hard for me to evaluate. Instead, I’m going to look at a program that first raises existing basic incomes above the poverty line, then makes access to the basic income unconditional for those with no other source of income.

Initially, I assume that 20 per cent of the population is receiving a tax-funded basic income (old age pension, unemployment benefits and so on). Of the remaining 20 per cent, I assume that 10 per cent are retired and living on the income from savings (part of the capital share) while the other 10 per cent are dependents of workers, including non-employed spouses, students and so on, or else are getting by somehow in the informal economy. To keep things simple, I’ll treat them all as dependents of workers.

The set up so far means that the average worker earns income equal to average total income per (adult) person, and after tax income equal to 70 per cent of average total income. Allowing for dependents, each person in an employed household gets an average income equal to 60 per cent of average total income. (For the US, these figures are about $60k, $40k and $35k respectively).

Suppose to start with that the benefit is equal to 20 per cent of average earnings. That implies a cost equal to 4 per cent of total income. I’ll assume that a benefit equal to 30 per cent of average earnings is enough to put a person above the poverty line, which would raise the cost to 6 per cent of total income (the implied numbers are way above the official US poverty line – 12k and 18k per individual). Obviously, that’s not a big deal in itself – plenty of countries have conditional benefits that put nearly everyone above this (relatively tightly defined) poverty line.

So, what matters is making the benefit unconditional for those with no other income of their own. As a first step, that would mean paying the basic income to the 10 per cent of the population I’ve classed as workers dependents, raising the total cost to 9 per cent of income. That requires an increase in the total tax share from 30 to 35 per cent, which is significant, but still well within the range of ordinary variations. Assuming the tax increase is borne equally by labor and capital, the result is to reduce average post-tax earnings to 65 per cent of total income. However, because most of the benefits flow to workers’ dependents, there’s actually a small increase in the average income of worker households, net of taxes and transfers.

The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income. But if the shift is too large, the tax burden will become unsustainable.

How large is too large? Suppose the employment rate falls from 60 per cent to 50 per cent, and that capital income falls in line with labor income, so that a larger benefit cost is being supported by a smaller income. The cost of benefits is now equal to about 15 per cent of total income, an increase of 10 percentage points from the initial position. Again assuming the cost is shared equally between capital and labour, the average tax rate would now be about 40 per cent. Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.

Summing up the exercise, I’d say that a universal basic income of the type I’ve sketched out here is economically feasible, but not, in the current environment, politically sustainable. However, while economic feasibility is largely a matter of arithmetic, and therefore resistant to change, political sustainability is more mutable, and depends critically on the distributional questions I’ve elided so far. A shift of 10 per cent of national income away from working households might seem inconceivable, but of course that’s precisely what’s happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.

More generally, political feasibility depends on both the path by which a policy goal is approached and the political and social framing of the issues. I plan to come back to this later, but I’ll be interested to read people’s thoughts now. Feel free to comment both on the validity of my estimates and on the political and social aspects – both will be valuable to me.

Note I’m not sure that this is the right framework in which to analyse a Universal Basic Income, in which everyone, regardless of means, would receive the payment, financed by taxation on those receiving more than the UBI, but I’ll have a go. I’ll look at a UBI that would yield final incomes, net of taxes and transfers, similar to those of the guaranteed minimum I’ve considered. In the framework of the example, the gross cost would be equal to 30 per cent of total income. Deducting the costs of existing welfare payments that would be replaced would bring this down to 26 per cent, but taking account of people shifting from employment to the basic income would raise it again, to a bit above 30 per cent. That would imply average tax rates above 60 per cent, and with modest progressivity, marginal rates of 80 per cent for workers on above-average incomes. That’s not inconceivable (existing systems of means-tested benefits cab have effective marginal rates of taxation above 80 per cent), but it seems a lot less feasible than the roughly equivalent GMI, which would be hard enough it itself.

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  1. Ikonoclast
    August 8th, 2012 at 10:20 | #1

    The basic premise of the approach outlined by John Quiggin is that a minimum income is to be guaranteed by transfer payments. If that is the requirement to ensure a minimum income for any and all able adults then it is an indicator of antecedent failure. An individual lacking a minimum income lacks it because he or she has no paying job and/or no capital to generate a minimum acceptable income.

    Fundamentally, there can be three reasons for an able adult to have less than a benchmark minimum income in a system where the majority of able adults can garner at least that income. These reasons are contingent failure, personal failure or systemic failure.

    Contingent failure (inopportune events and mishaps) can be put aside for analytical purposes. If an event or events lead to enduring or permanent contingent failure for an individual then it is highly probable that that person is disabled in some way. Temporary contingent failure – anything from a temporary injury to a bankruptcy – can be recovered from by definition.

    If one is rigorous and fair minded, personal failure can be difficult to define and assign. The spectrum of alleged personal failure will contain grey areas which for some observers and judges transition into contingent failure or systemic failure. Provisionally, we can assume that some personal failure exists but these numbers are not as high as commonly alleged by those judging due to their imperfect knowledge, prejudice and over-moralising.

    Systemic failure is the final possibility. Either the system fails to deliver the equitable outcome required or the system was not designed to do so. It is better to go to the root cause rather than treat the problem with palliatives. Guaranteeing a minimum income by transfer payments is a palliative. Since the root cause is lack of employment and/or lack of capital to earn income, the system needs an employment guarantee or job guarantee with the government providing the capacity for this employment reserve.

    In addition, we need to move our economy from private ownership to worker cooperative ownership. Thus the workers will possess both jobs and capital. Worker cooperatives can still compete in a regulated financial and free market system with workers from failed cooperatives recycling to the employment reserve pool.

  2. Catching up
    August 8th, 2012 at 11:10 | #2

    What is the difference in GMI and UBI.

    I have like the idea of GMI, or something similar for decades. To me, it seems a efficient method on ensuring that all are looked after.

    It gives all the chance to gather the skills to aspire to more.

    My son is working on contract, unreliable work. To go to TAFE for another ticket, which would take about three weeks, would increased his job stability. There is no way he can do this under the present system.

    I believe thatmost of the monies spent, would be clawed back under the taxation system.

  3. Tom
    August 8th, 2012 at 11:36 | #3

    @Ikonoclast

    Professor’s post is an assessment of UBI in the debate between the CT members and the Bleeding Heart Liberals. In BHL’s argument UBI is enacted as a protection for workers so even when workplace is free from regulation, workers will have a choice to leave employment when coercion happens without facing absolute poverty.

    However some of the flaws involving market behaviour to UBI to be provided as a universal income was not answered or dodged by P.M.L. So far, as far as my understanding of the market behaviour, if UBI is to be provided as a universal basis, it would be treated as part of income. Using the US as an example, the shift to more dependance to government assistance (e.g. food stamps) in consumption means the dependnace to income from paid work declined; in other words, when the market lack regulation, wage can fall even when they are not sufficient to meet the demand of basic household consumptions due to the availability of government assistance when they are provided to paid work as well. Note here I’m not saying the government shouldn’t provide any assistance to the poor, but how the market can exploit on that over time. As well as the elasticity of taxation in order to fund UBI can cause political problems suggested by Professor Quiggin.

    http://www.relief-works.org/rise-in-full-time-workers-receiving-food-stamps-courier-journal-com/

    Not only so, simply providing a UBI does mean the workers are free to quit their job when they don’t want to comply to workplace coercion.

  4. August 8th, 2012 at 12:15 | #4

    I have thought that one way we could go about getting a minimum income. And before I go into it I’ll point out that I’m not very bright, so don’t be surprised if it’s not brilliant. Anyway, what I thought was that the government could start giving everyone some money, maybe just a small payment to begin with, but instead of going directly to people it goes into an index share fund or where ever an actual economist would think is an intelligent place to put it. You don’t get your hands on this money unless you actually need it, say you’re unemployed, a student, or whatever. And then you only get the actual return on the fund, so you never go backwards. But if you have income you can put as much money as you like into it and there would be an incentive to encourage people to put money in it, or into other people’s. Once the accumulated money reaches enough to provide a reasonable income, the government stops contributing. This system can start out small and could slowly replace other benefits. And as a nation because richer or more generous it could increase the amount it contributes or start giving lump sums at birth or whatever.

  5. James Haughton
    August 8th, 2012 at 12:58 | #5

    Thanks for the analysis Professor Quiggin,
    On the social aspects, for some reason downward envy seems easier to mobilise than upward envy these days.
    How would the alternative put forward by Bill Mitchell, et al, of a guaranteed job at a government-paid minimum wage for everyone currently unemployed and able to work stack up in this framework – that is, if about half your state pensioners and half the worker dependents, or 15% of the population, got the minumum wage instead of a pension or GMI? (Eliding the various MMT arguments about the ontology of state finance and assuming the wages of the public employees are paid out of taxation for the moment).

  6. Bruce Bradbury
    August 8th, 2012 at 14:09 | #6

    The political arguments in favour of a GMI start with concepts of freedom – the ability to choose not to work. The arguments against a GMI essentially start from the same point – but go in the opposite direction.

    Over the last three decades, the latter arguments have been winning. That is, welfare policy has steadily become more paternalist, with increasing use of non-income targeting (eg tighter disability tests) and behavioural requirements on recipients (eg job search, income management).

    Views on these issues don’t follow a simple left/right divide. Many on the left support at least some forms of paternalism, either because they think this is in fact in the best interests the recipients, this permits a better targeting of resources to those most in need, or because it helps maintain political support among taxpayers.

  7. Justin Kerr
    August 8th, 2012 at 14:40 | #7

    The main thing to remember about the political argument is that talk about individual rights is very unpersuasive – it conjures feelings of fragmentation and unreturned obligations. Focus instead on how this contributes to a common idea of what the common good is: how does it strengthen a society, promote community etc. (This is distinct too from every individual benefitting somehow.) A good device is also appeals to patriotism – call it nation building. Out of hatred of nationalism / jingoism the left has forgone the positive aspects and potential of national feeling.

    Judith Brett said somewhere in her history of the Liberal Party that Australians have never really changed from the Deakinite Liberal ideal. Early Labor succeeded in that environment too (and in recent history Labor has held govt more as they have taken on more Liberal ideas). Look to the rhetoric of the federation era.

  8. Ernestine Gross
    August 8th, 2012 at 22:25 | #8

    JQ, you asked for comments on the validity of your estimates.

    My comment is restricted to one point regarding economic feasibility. It concerns the financial aspect of ‘the economy’, specifically debt. Debt introduces a potential discontinuity problem in ‘the economy’ which becomes effective in a state we call bankruptcy. The latest empirical support for the validity of this point is the GFC. I believe this should be considered even in a comparative static approach.

  9. August 8th, 2012 at 23:31 | #9

    Tom :
    @Ikonoclast
    Professor’s post is an assessment of UBI in the debate between the CT members and the Bleeding Heart Liberals. In BHL’s argument UBI is enacted as a protection for workers so even when workplace is free from regulation, workers will have a choice to leave employment when coercion happens without facing absolute poverty.
    However some of the flaws involving market behaviour to UBI to be provided as a universal income was not answered or dodged by P.M.L.

    Eh? If you’re referring to the discussion a while back when I was describing a Negative Payroll Tax, part of the reasons I gave for that alternative was precisely “some of the flaws involving market behaviour to UBI to be provided as a universal income”, e.g. the problem of sustainability if it were set high enough for many to opt out of work (the historical behaviour under the Speenhamland System) and the problem of transitional insufficiency if it were set lower (since some people wouldn’t be able to last until wages had adjusted to the point where they could all get work at top up levels). So I thought I had addressed these issues. Could you bring out anything where I might have overlooked your query?

    So far, as far as my understanding of the market behaviour, if UBI is to be provided as a universal basis, it would be treated as part of income. Using the US as an example, the shift to more dependance to government assistance (e.g. food stamps) in consumption means the dependnace to income from paid work declined; in other words, when the market lack regulation, wage can fall even when they are not sufficient to meet the demand of basic household consumptions due to the availability of government assistance when they are provided to paid work as well. Note here I’m not saying the government shouldn’t provide any assistance to the poor, but how the market can exploit on that over time.

    I hope you aren’t considering this a flaw. It’s actually a large part of the point. With the NPT approach, wages paid wouldn’t fall and benefits received by workers would stay up; wages falling over time in response to a UBI is the long term equivalent of this, but the fact that wages paid would fall isn’t a flaw or indicative of exploitation, it just means that benefits are reaching people through other channels – the UBI itself. If you track back the funds being transferred to people via a UBI or similar, you find they ultimately get sourced from the very same productive sectors as pay the direct wages. So employers don’t get the opportunity to generate a gain by exploiting workers at lower wages, since the notional gain gets taken from them and channelled to the workers through a UBI (apart from net gains from increases in GDP that come from offsetting the externality I described in that other thread; but those also get shared, according to the numbers used in the particular UBI implementation). But the appearance of making labour cheaper through paying lower direct wages is a political problem, which would be avoided by using the NPT approach instead.

    As well as the elasticity of taxation in order to fund UBI can cause political problems suggested by Professor Quiggin.
    http://www.relief-works.org/rise-in-full-time-workers-receiving-food-stamps-courier-journal-com/
    Not only so, simply providing a UBI does mean the workers are free to quit their job when they don’t want to comply to workplace coercion.

    That’s a bad thing, if it includes a completely subsidised existence, since it creates a net burden that gets thrown elsewhere. But you would get the same desirable effect at lower UBI levels, if people chose self employment to generate the top up they would need to bring their UBI up to adequacy.

    One thing I would add is that the numbers chosen here for capital wouldn’t be giving a true accounting under a UBI; the income stream from that should be treated as coming from a dedicated pool of capital, just as for any rentier, so the numbers and book keeping should create entries for that notional capital too.

  10. BilB
    August 8th, 2012 at 23:56 | #10

    The evaluation above suggests that a universal basic income is feasible. The question is how to make this work.

    Good policies require good mechanisms to make them work. To that end I suggest as before and with extentions

    a workers bill of rights. This sets out the principles for employment and maps conditions, regimes, and processes. Such a bill significantly reduces the scope for worker exploitation and reduces the role of unions.

    a regionally derived minimum standard of living. this coupled with the workers bill of rights fully defines a stable unexploitable basic employment standard. It also reduces the scope for people on benefits to take a city derived minimum income standard into the country where living costs are much lower and living of the state.

    a fair individual contracts environment, butressed by the workers bill of rights and the regional living standard index, but not specifically excluding union advisory access.

    The money to fund a universal basic income has to come from somewhere, so I propose a set of revenue gathering devices that automatically react to the level of unemployment in a process that variably funds the unemployment level while stimulating the re-employment process.

    One of these devices is a variable but globally to all imported goods and services at the same rate import duty. As unemployment rises, ie local employment falls, the duty serves apply drag to imported labour and make local labour more affordable relatively.

    another device is an unemployment linked variabe upper level tax rate. The big end of town argued into life the “rich people trickle down income” zombie, so let them live by their belief that they are the creators of employment. As full employment is approached the upper tax rate reduces. As unemployment level increases the upper level tax load increases giving these income earners the incentive (and this is what they thrive on we are told) to promote stronger businesses to re-employ. It also provides a balancing incentive for businesses extensively utilising automation to maintain a modest level of employment.

    I don’t think that it would be too hard to find a parcel of policies that can be engineered to promote a high employment level while adequately funding those who cannot be accomodated at any point in time, and….most importantly….. be free from political tampering of requiring continual regulatory changes to achieve fairness.
    _________________________________________________________________________

    Beyond that there are many other ways to provide security and dignity for the underemployed. And here I am thinking of the younger end of the workforce. A project that I am working on aims to provide an entirely new housing formula that allows people to obtain their own soil to sun property in the $80,000 to $120,000 price range. With a little bit of government cooperation this could be $50,000 to $100,000 dollars. this formula will mean that even a couple on the dole would be able to afford to achieve their first real estate purchase an realistically expect to be able to maintain the payments while still living in reasonable comfort. this housing system coupled with a customised GenIIPV system means that the notion of a universal basic income is definitely not a bridge too far.
    _________________________________________________________________________
    Provisos. Climate Change very definitely has the potential to cause a refugee influx into Australia in the high hundreds of thousands of people per year. A universal basic income would need to be able to differentiate between reguler economic cycling, and crisis economic management.

  11. Ikonoclast
    August 9th, 2012 at 05:44 | #11

    In all my simplicity, I would say of a UBI (Universal Basic Income) for work capable adults;

    “Okay, you are paying them to not work. Why not pay them to work?”

    All it takes is a make-up payment from basic unemployment benefit rate to basic wage rate. Where the recipient or recipient’s spouse has other benefits (spouse’s benefit, child benefit etc.) then assessment rules would see these reduced somewhat when the minimum wage was paid. The minimum wage recipient would also start paying some tax. Add in reductions in costs to cover crime, drug taking and other anti-social activities and the effect on national finances could well be positive.

    All the administrative effort which currently goes into unemployment and job search compliance can go into administering the new Job Guarantee (as per the CofFEE – Centre of Full Employment and Equity) plan.

    A combination program of training (at full pay) and then placement into nation building, environment saving and social programs would see these guarantee workers gainfully employed to some considerable degree. It would not be perfect, especially initially, but it would be far better than the idleness of unemployment plus the futility of endless job attempts in a labour market of systemic failure where the unemployed vastly outnumber vacancies.

  12. Chris Warren
    August 10th, 2012 at 03:52 | #12

    I think I prefer guaranteed minimum work.

    There are so many tasks that need to staffed all through society, particularly community services, that cannot be arranged under present commercial arrangements.

  13. Tom
    August 10th, 2012 at 09:18 | #13

    @PML

    http://johnquiggin.com/2012/07/14/equality-freedom-and-wage-labor/comment-page-2/#comments

    Tom: “2. If such condition applies where UBI will also be paid to employed workforce, is there a means test for receiving UBI? If so how can the scheme avoid being exploited by the market? E.g. setting the industry wage level artificially low while relying on UBI to provide the income necessary to satisfy the household materially needs.”

    PML: “Not restricting it and having the labour market respond to it is the object of the exercise. It would be a false economy to divert this response, like pressing the accelerator and the brake at the same time.”

    Tom: “3. If UBI also applied to employed workforce, is taxation associated with UBI elastic to meet obligation of UBI?”

    PML: “This is a separate issue we need not go into in detail. Suffice it to say that personal taxes should not take the income source into account, just as benefit recipients with other income still pay tax in general.”

    If this type of answer is considered as answers to the issues raised, then you have not considered the UBI deep enough on how it works in the economy, nor should these answer be considered as “answers”.

  14. Tom
    August 10th, 2012 at 09:43 | #14

    @P.M.Lawrence

    “I hope you aren’t considering this a flaw. It’s actually a large part of the point. With the NPT approach, wages paid wouldn’t fall and benefits received by workers would stay up; wages falling over time in response to a UBI is the long term equivalent of this, but the fact that wages paid would fall isn’t a flaw or indicative of exploitation, it just means that benefits are reaching people through other channels – the UBI itself. If you track back the funds being transferred to people via a UBI or similar, you find they ultimately get sourced from the very same productive sectors as pay the direct wages. So employers don’t get the opportunity to generate a gain by exploiting workers at lower wages, since the notional gain gets taken from them and channelled to the workers through a UBI (apart from net gains from increases in GDP that come from offsetting the externality I described in that other thread; but those also get shared, according to the numbers used in the particular UBI implementation). But the appearance of making labour cheaper through paying lower direct wages is a political problem, which would be avoided by using the NPT approach instead.”

    If a “proportion” of the gain on profit through the reduction in labour expense is taxed, how do you channel them to the worker via UBI?

    1. If the UBI is set as a % of average income, when paid wage reduces, UBI would also reduce.

    2. If UBI stays the same or increases even if paid wage reduces, the % of total income workers received from UBI will increase while paid wage will fall. Assume price level is fixed, using libertarian arguments, this will generate less tendency for workers to work unless UBI is insufficient by itself to meet the basic food and shelter. So even if you don’t set UBI initially “high enough for many to opt out of work”; if you take the basis that paid wage will fall but the income will be channel from UBI, then eventually, the % of total income from UBI will rise to the extend that it will be “high enough for many to opt out of work”.

  15. may
    August 10th, 2012 at 13:40 | #15

    an academic discussion that to me,while interesting in itself,doesn’t have much to do with the real world.

    having enough to have a safe abode,enough to keep healthy and interested in life,is not,except where lifes contingencies are not covered,a function of a universal,minimum cash availability.

    if your income is 5x and you have to have 4x to pay rent and mortgage and need 2x to cover food,utilities and sundries like clothes etc, it doesn’t matter how much you get,it’s not going to be enough.

    if you have 5x and your costs are 3x,you can have less actual money than the above case and still be better off.

    just upping the amount in a market regime that sees more money available as an opportunity to increase base line profits is just chasing your tail.
    you will never get ahead.

    instance.(sort of)

    not long ago the newsbroadcasters were wailing of the paucity of housing in this country,then the cry came that there were not to few housing units,there were plenty,if not too many.

    how can both be right?

    easily if there are housing units in existence that are worth more to the owners when empty than they are being rented.
    i would not be the only person who personally know of “investors” who have one or two or three or four or more housing units and find tax write-off a lucrative strategy.

    heaps of empty dwellings in a country with tens if not hundreds thousands of people unable to afford the market prices going in a situation of induced scarcity.

  16. August 12th, 2012 at 18:50 | #16

    Tom :
    @P.M.Lawrence
    “I hope you aren’t considering this a flaw. It’s actually a large part of the point. With the NPT approach, wages paid wouldn’t fall and benefits received by workers would stay up; wages falling over time in response to a UBI is the long term equivalent of this, but the fact that wages paid would fall isn’t a flaw or indicative of exploitation, it just means that benefits are reaching people through other channels – the UBI itself. If you track back the funds being transferred to people via a UBI or similar, you find they ultimately get sourced from the very same productive sectors as pay the direct wages. So employers don’t get the opportunity to generate a gain by exploiting workers at lower wages, since the notional gain gets taken from them and channelled to the workers through a UBI (apart from net gains from increases in GDP that come from offsetting the externality I described in that other thread; but those also get shared, according to the numbers used in the particular UBI implementation). But the appearance of making labour cheaper through paying lower direct wages is a political problem, which would be avoided by using the NPT approach instead.”
    If a “proportion” of the gain on profit through the reduction in labour expense is taxed, how do you channel them to the worker via UBI?

    No, that’s not what I told you at all.

    I told you that the UBI would have to be funded, and that if you tracked those funds back to their source you would find that they came from the productive sectors – which means the employers. Not nowhere, not nohow, did I ever concede the point at issue, which is your idea that there would be a “gain on profit through the reduction in labour expense”. For one thing, profit is net; after the increase in taxes, there wouldn’t be any increase in profit unless and until employers took on the new workers who could then be justified – but then the profits would go up from their addition to production, not from reductions in the expense of labour; those reductions would merely match the increases in taxes to fund the UBI. The funding taxes would be GST or whatever, which are not linked to decreases in wages paid directly at all.

    1. If the UBI is set as a % of average income, when paid wage reduces, UBI would also reduce.

    That’s why that formula for setting it would be a stupid one. The important point to make it all hang together is that it should be at a level that is not enough to live on without taking on work that could pay an adequate top up, yet high enough that everybody could price themselves into work at wages that did pay that much.

    2. If UBI stays the same or increases even if paid wage reduces, the % of total income workers received from UBI will increase while paid wage will fall. Assume price level is fixed, using libertarian arguments, this will generate less tendency for workers to work unless UBI is insufficient by itself to meet the basic food and shelter.

    Yes, of course. I already told you that a workable UBI would have to be “insufficient by itself to meet the basic food and shelter”. Only, it would still allow a top up to provide sufficiency, from paid work – which (in the long run) would be available to all once wages dropped (short of a Malthusian crisis). Don’t get the idea that there is anything wrong with a UBI not being enough to live off; the idea is not to do that but to bring adequacy to poorly paid work that would also be too little on its own, so the work and the UBI together would be enough to live off.

    The transition to that long run could well be a killer, which is why I don’t recommend a UBI at all but rather an NPT (Negative Payroll Tax) that bypasses the transitional problems. But JQ wanted a UBI considered.

    So even if you don’t set UBI initially “high enough for many to opt out of work”; if you take the basis that paid wage will fall but the income will be channel from UBI, then eventually, the % of total income from UBI will rise to the extend that it will be “high enough for many to opt out of work”.

    Only if it is implemented according to a stupid formula that allows that. But sustainable levels mean there shouldn’t be an implementation that ever gives people a UBI that is linked in any way to wages but only to providing a top up for work that paid too little to survive on but which everybody could get.

    Your difficulty seems to come from adding in features that not only weren’t stipulated, they were fairly explicitly ruled out.

  17. August 12th, 2012 at 19:05 | #17

    Tom :
    @PML
    http://johnquiggin.com/2012/07/14/equality-freedom-and-wage-labor/comment-page-2/#comments
    Tom: “2. If such condition applies where UBI will also be paid to employed workforce, is there a means test for receiving UBI? If so how can the scheme avoid being exploited by the market? E.g. setting the industry wage level artificially low while relying on UBI to provide the income necessary to satisfy the household materially needs.”
    PML: “Not restricting it and having the labour market respond to it is the object of the exercise. It would be a false economy to divert this response, like pressing the accelerator and the brake at the same time.”
    Tom: “3. If UBI also applied to employed workforce, is taxation associated with UBI elastic to meet obligation of UBI?”
    PML: “This is a separate issue we need not go into in detail. Suffice it to say that personal taxes should not take the income source into account, just as benefit recipients with other income still pay tax in general.”
    If this type of answer is considered as answers to the issues raised, then you have not considered the UBI deep enough on how it works in the economy, nor should these answer be considered as “answers”.

    What is wrong with any of that? If you look back at the other material that contains that, I’m just telling you that your “issues” are non-problems – and I also told you why. There is no gain for employers from lower direct wages bills, not once they are also paying for a UBI. There is no exploitation of workers who receive lower direct wages, since they don’t end up worse off – their income comes from a UBI as well as wages. And so on.

    If you are so concerned about the budgetary heading “wages” under which people would get less even though their whole income would hold up from getting a UBI as well, you should consider the option I actually prefer, which I covered in an earlier thread: NPT (Negative Payroll Tax).

  18. Tom
    August 13th, 2012 at 17:05 | #18

    @P.M.Lawrence

    I have not yet commented on NPT nor will I engage in doing such at the moment because I have not looked into it, however the topic of discussion was originally on UBI, I made several criticisms of UBI and you engaged in discussion about UBI not NPT.

    First it seems that you like to look and reply on other people’s comment sentence by sentence? If you have noticed, point 1 and 2 I made on #14 are if statement which can only go one way or the other. There is completely no reason why you have answer to those points separately unless they comment before finish reading other people’s comment.

    You can have UBI that is set as a % of average wage, or you can have it set using a formular which means the UBI can increase, stays the same or decrease when wage level changes and this will affect the income received from UBI as a % of total income. As such, this will then affect the tendency for people to choose to work or not to work since UBI is to be provided on a universal basis. Like yourself admitted, point 1 is flawed because you accept:

    “That’s why that formula for setting it would be a stupid one. The important point to make it all hang together is that it should be at a level that is not enough to live on without taking on work that could pay an adequate top up, yet high enough that everybody could price themselves into work at wages that did pay that much.”

    So then point 2 will be applied because it can only go one way or the other. Since this will make the situation similar to food stamps in the US, e.g. the benefit is not set as a definite % of income, but it is allowed to increase, decrease or stay the same when income changes. Then the market can and will exploit on a benefit that will also be provided to the employed population who receives monetary payment.

    “Yes, of course. I already told you that a workable UBI would have to be “insufficient by itself to meet the basic food and shelter”. Only, it would still allow a top up to provide sufficiency, from paid work – which (in the long run) would be available to all once wages dropped (short of a Malthusian crisis). Don’t get the idea that there is anything wrong with a UBI not being enough to live off; the idea is not to do that but to bring adequacy to poorly paid work that would also be too little on its own, so the work and the UBI together would be enough to live off.

    The transition to that long run could well be a killer, which is why I don’t recommend a UBI at all but rather an NPT (Negative Payroll Tax) that bypasses the transitional problems. But JQ wanted a UBI considered.”

    It seems you have not followed the debate between the BHLs and CT members because the BHLs suggested UBI mainly because people will have an alternative and will not enter absolute poverty if they choose not to obey workplace coercion when businesses faces no workplace regulation, such an alternative should mean a UBI which would at least be enough for food and shelter otherwise it would not be considered as an alternative. The reason why Professor Quiggin considers the poverty line.

  19. August 20th, 2012 at 09:14 | #19

    An article on robotics from the New York Times:

    http://www.nytimes.com/2012/08/19/business/new-wave-of-adept-robots-is-changing-global-industry.html?_r=2&hp&pagewanted=all

    It makes a guaranteed minimum income sound like a very good idea.

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