Let’s end welfare and move over to universal basic income

A couple of recent articles discuss the idea of universal or unconditional basic income as a development of traditional disability, housing, unemployment and other state welfare payments.

The first is about the imminent launch of an experiment in Finland: over the next year, a group of between two and three thousand Finnish citizens will start receiving €560 a month to replace all other benefits, grants, or subsidies. The amount is equivalent to the guaranteed minimum level of social security. The pilot study, covering 2017 and 2018, seeks to establish whether basic income helps reduce poverty, social exclusion and bureaucracy, while reducing unemployment. The Finnish government’s approach to simplify the support system: instead of an intricate and complex system of aid requiring supervision, and that reduce incentives to generate additional income, the idea is to give people enough money to ensure they stay above the poverty level.

In the Netherlands, the city of Utrecht will start a similar experiment on a smaller scale in January 2017. In Ontario, Canada, similar initiatives are being tested, as they are, albeit on another level, in Kenya. In Oakland, California, the tests will be carried out through a private initiative funded by the Y Combinator incubator.

How can providing a basic income guarantee help increase employment? Intuitively, we tend to think that giving someone free money would diminish their incentive to work, in short, financing the lazy and indolent. But the evidence suggests otherwise, as another article, published yesterday in TechCrunch, called “The progressive case for replacing the welfare state with basic income”. At present, most recipients of state aid are not allowed other sources of income: if they get a job, no more help. That leads to either not seeking employment, or doing so only in the underground economy.

Here’s an example: if a recipient in Spain of the minimum welfare payment of approximately €4,500 a year were to instead find a job paying €7,200 euros a year, that person would only increase their income by €2,700. But since earning those €7,200 would mean losing state aid, in effect they would have been taxed at a net rate of 62.5%. Does it make sense to tax people in this way who are often at risk of falling below the poverty level? Is it any wonder that some people choose not to work while receiving state aid, or who choose to work in the hidden economy? What sense does it make to discourage someone from seeking a regular income in this way? Would it not make more sense to unconditionally guarantee that person an amount to keep them out of poverty and allow them to generate more income through working and paying their tax and social security contributions? The question we must ask is how we can create a sustainable future when increased machine productivity means less jobs, without driving large numbers of people into poverty?

Making aid conditional upon not working obviously reduces the incentive to seek work or to generate value. In another example from Spain, retired writers can now lose their pensions if their copyright or other earnings are above a certain amount: how can the state deny you a pension which you have contributed toward over decades and in the process reducing any incentive to continue working? Pensions should be completely unconditional and independent of the ability of their receivers to get other income.

The interesting thing about universal basic income is that it is not left or right, but forward. And in the face of a future in which technology is increasingly replacing jobs across a broad range of sectors, not just manual or blue collar, then universal basic income is surely the only viable option.


(En español, aquí)

  • Go to the profile of Enrique Dans

    Enrique Dans

    Professor of Innovation at IE Business School and blogger at enriquedans.com

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Responses

Let me link to an excellent article written by Nicolas Colin which effectively deconstructs the argument for and against basic income, and comes out ultimately against it as a theoretical solution.

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