Universal Basic Income

Universal basic income is the idea that all individuals in a society should be guaranteed a minimum income.  The logic behind this approach is one of equity.  Many members of society feel that all individuals are entitled to some basic level of financial well-being regardless of their skills, ability or willingness to work.

Current government approaches often aim to subsidize certain groups based on their family situation (e.g., single mothers), health (e.g., disabled) or current income (e.g., earned income tax credit).  Administering these programs can be costly.  Universal basic income is simple to administer, provides the maximum fairness, and may have fewer work disincentives than current programs.  For instance, an individual may wish to take a job with higher pay but if doing so means they would lose their Medicaid benefit, they may decide not to do so.  In effect, their marginal income tax rate would be very high, even potentially more than 100% once one incorporates the value of non-cash benefits.

Universal basic income does suffer from at least two problems.  The first is that it may be more succeptible to corruption.  Whereas current government programs may require (onorous) paperwork to verify program elibility, part of universal basic income’s cost savings could come from a lower administrative need, which could result in additional corruption.  For instance, people may stop informing the government that their elderly loved ones have died because they may want to continue getting their loved ones basic income check.  Also, raising a community’s basic income could reduce the number of people interested in participating in the labor market.

One particular study by Calnitsky and Latner (2017) looks at exactly this question based on data from the Mincome initiative, where the province of Manitoba instituted a basic income program for a certain town. They authors found:

Would people work less if their basic needs were guaranteed outside the market? Never before or since the Dauphin experiment has a rich country tested a guaranteed annual income at the level of an entire town. A community-level experiment accounts for the fact that people make decisions in a social context, not in isolation. Using hitherto unanalyzed data we find an 11.3 percentage point reduction in labor market participation, and nearly 30 percent of that fall can be attributed to “community context” effects. Additionally, we show that withdrawals were driven disproportionately by young and single-headed households. Participants who provide qualitative explanations for work withdrawals typically cite care work, disability and illness, uneven employment opportunities, or educational investment.

 

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