by Daniele Fabbri | Nov 23, 2018 | Research
Photo Credit: CC(Cindy Woods)
The last world development report from the World Bank is out. It investigates the changing nature of work and suggests what governments could and should do to address the phenomenon. Among the proposals there is the enhancement of social protection, to a degree disjoining it from formal wage employment, considering Universal Basic Income (UBI) as one of the options.
Digital transformation allows firm to grow rapidly, escaping the traditional patterns of production, and the rise of digital platforms make people more susceptible to the effects of technological change. The landscape of work is evolving and the skills required by employers around the world are changing: skills such as complex problem solving, adaptability and teamwork as central requisites. This in turn modifies how and at which terms people work, and short-term work is on the rise, bringing challenges to the existing welfare state, the report says. The World Development Report goes on suggesting three solutions governments should put into practice: investing in human capital, through the guidance provided by the Human Capital Project; enhancing social protection; and increasing revenue mobilization as a mean of financing the two aforementioned solutions.
The changing nature of work
Fears of technological based unemployment have their roots in history, spanning from the introduction of knitting machines in England in the XVI° century, to the Luddites distruction of textile machinery in the 19th century, but the overall effect of industrialization was to stimulate economic growth and to raise the living standards. This fear is also contemporary, supported by the trend of declining industrial employment in high-income economies in the last two decades. The Republic of Korea, Singapore, Spain, and the UK are among the countries in which it dropped by more than 10 percentage points but, on the other hand, millions of industrial jobs have been created in developing countries since the late 1980s.
Technology is disrupting, unevenly, the demand for skills, and its potential for the amelioration of living standards manifests heterogeneously: workers in elected sectors gains from technological progress, whilst others see themselves left facing displacement. The wealth created by the platform economy is huge, but its placed in the hands of a few, and A.I. raises concerns about the advent of a jobless economy following the rapid growth in the number of robots operating worldwide: if they are 1.2 millions in 2018, they will be 2.6 millions in 2019, an increase of 1.4 milion units in just one year. It should be noticed how, in the countries with higher robot density – Germany, Korea, Singapore – employment rates remain high, but in Germany the effect was a reduction in the hiring of new, young entrants; young workers, and economies anticipating larger numbers of entrants, may be more affected than others.
The extent to which robots replace workers remains unclear, with automation of routine work estimated to have also created 23 million jobs across Europe starting in 1999, and evidence suggesting that its overall effect is that of raising demand for labor, specifically in the technology sector, by providing the tools necessary for online work, or for taking part in the gig economy. It’s sure that jobs based upon repetition, which are “codifiable”, are those more endangered by automation, but estimates of the number of jobs at risk varies widely, for the US from 7% to 47%, the latter figure the result of automation probabilities developed by machine learning experts at the University of Oxford, a speculation which cannot account properly for the rates of technology absorption, which have been observed to vary greatly depending on the kind of technology, both internationally and intranationally.
The effect of automation on skills demand and on the production process is somehow more discernable. On the skills side, the demand for cognitive abilities which allow workers to be more adaptable, as critical thinking and socio-behavioural skills, is increasing; on the side of the production process there is the rise of global value chains, the changing nature of the boundaries of firms, and the fluid geography of jobs. The process has favored the more educated, and human capital seems the more effective protection against automation driven unemployment: “A big question is whether workers displaced by automation will have the required skills for new jobs created by innovation”. Innovation has the greatest impact on low and middle-skilled workers, either because they are more suceptible to automation, or because no complementarities with technology (human-machine cooperation) manifest.
The paper identifies how technology has disrupted the demand for skills: firstly, the demand for non-routine skills (i.e. cognitive and socio-behavioural) is increasing both in advanced and emerging economies; secondly, the demand for job specific-skills is declining; thirdly, payoffs to combination of different type of skills, allowing for greater adaptability and easier transfer among different jobs, appear to be increasing. The risk is growing inequality, as the report states:
“In advanced economies, employment has been growing fastest in high-skill cognitive occupations and low-skill occupations that require dexterity. By contrast, employment has shifted away from middle-skill occupations such as machine operators. This is one of the factors that may translate into rising inequality in advanced economies. Both middle- and low-skill workers could see falling wages ⎯ the former because of automation; the latter because of increased competition.”
Technology changes the way in which people works and the term under which they work. The gig-economy and jobs based on on-demand services, arising in an environment created by the advance of technology, don’t rely on long-term contracts but rather on extreme flexibility. There is a minimum productivity level at which firm find it optimal to employ workers formally before resorting to globalization, this means that informality is prefereable for everyone exept for the most productive workers.
If globalization and automation were to act simultaneusly, increasing the productivity of workers, the number of informal workers may decline, but if more requirements –minimum wage, required benefits – are imposed on firms, the positive “formal employment effect” may be reversed, and informality actually rise. The management of risk through employers doesn’t fit well with the new nature of jobs, and the use of payroll taxes to finance pensions and social insurance may no longer be sustainable, even for advanced economies, as the percentage of the workforce taking part into the formal economy decreases. Indeed, the changing nature of work stimulates informality, as taxation, ragulation, and social protection schemes don’t provide businesses with incentives to grow, particularly in developing economies. The issue is present in both emerging and advanced economies, and convergence is occurring among them, with increased informality in the advanced ones, leaving workers without access to benefits or protections and making the case for direct intervention of the government through benefit provision. “If automation pushes up the cost of distorting labor markets, and development improves the efficacy of the public sector, government should move away from regulation-based redistribution to direct social welfare support.”
Lifelong Learning
“Skill acquisition is a continuum, not a finite, unchangeable path”.
The advance of automation increases the demand for high-order cognitive skills, while simultaneously decreasing the demand for repetitive, job-specific skills. At the same time, the retooling of existing jobs make adaptability a fundamental requisite: the idea of a career for life seems no longer plausible, and shifts between jobs will be the norm. Thus, the profile of the ideal employee changes, as a single job may require the combination of skills from multiple disciplines: jacks of all trades will surclass the masters of one. How well countries respond to the changing demand for skills depends on how fast the supply of skills can shift, but the education system is traditionally adverse to change, and adjustment occurs predominantly out of compulsory education. Tertiary education, given its flexibility, allows for enrollment whilst participating in the workforce, and so will be the main provider of the cognitive skill-set required. Government should take action in enhancing instruction during youth, the period in which the learning capabilities are higher, and simultaneously helping to shape a better framework for adult learning as a complement to schooling, in order to “inoculate against job uncertainty.”
A new social contract
Old and new pressures calls for a renovation of the social contract, which the report defines as “a policy package that aims to contribute to a fairer society.” The changing nature of work is costly for workers and adjustments are needed: a global new deal is necessary. This new deal should be different from the one adopted in the US after the Great Depression, as the Depression was a transitory shock, whilst the advance and automation and informality are here to stay. Any social contract should be tailored to the specific country context, but some core elements remain: following the indications of Amartya Sen in “Development as Freedom”, the instruments for equality of opportunity are political freedoms, freedom of opportunity, and economic protection from abject poverty.
“The labor market is increasingly valuing advanced cognitive and socio-behavioral skills that complement technology and make workers more adaptable. This means that inequality will increase unless everyone has a fair shot at acquiring these skills.”
Strengthening social protection
Social protection should be enhanced through the improvement of its three main components: a guaranteed social minimum, social insurance and market regulation.
A guaranteed social minimum, with social assistance at its core, should be based on the concept of progressive universalism, with programs providing financial support to the largest possible share of the population, in order to account for the risks in the labour market. Social assistance needs to be reformed, as the Bismarckian model is no longer satisfying, and should be coupled with subsidized social sinsurance, not strictly based on participation in formal wage employment, financed through mandatory earning based contributions limited, at least initially, to the formal market. In order to provide equal opportunities, a social contract should also include means to provide education and upskilling, necessary for navigating the job market, starting from early childhood development, as knowledge is cumulative and pays more the earlier it starts.
“As social contracts are reimagined, subsidizing a basic level of social insurance — especially for the poor — could be considered. Such a reform could also equalize the costs borne by different factors of production, such as capital and labor, as the financing of the system is at least partly shifted away from labor taxes toward general taxation.”
Universal Basic Income
Universal Basic Income is being hotly debated as a mean to expand the guaranteed social minimum, the report says. It wouldn’t be a substitute for health, education, or other social services, but a supplement to existing social programs, and could end up replacing some programs with income support functions, increasing efficiency by reducing programs fragmentation. It’s monetary nature is an advantage: analysis of cash transfer programs showed advances in school enrollment rates, test scores, and cognitive development, food security and use of health care facilities, especially when combined with forms of intervention. The available evidence seems to disprove one of the main concerns related to UBI, that of work disincentives, as the Alaska dividend program shows no impact on employment (if not for the increase in part-time employment), and a study on the Iranian basic income program found that it did no harm to employment. The regular provision of welfare benefits granted by UBI would contrast with the arbitrarity of means-tested anti-poverty measures, which facing the dynamism of poverty ends up generating winners and losers.
The costs of UBI would depend on the level at which it is set, and its effects would depend on how it is financed. Simulations setting UBI at the level of existing cash transfer programs show that it would have significant fiscal impact, costing an additional 13.8 percent of GDP in Finland, 10.1 percent in France, 8.9 percent in the United Kingdom, and 3.3 percent in Italy. The taxation of UBI alongside regular income and the elimination of tax allowances were then used as sources of revenues for covering the additional costs: “in Finland and Italy, these measures were more than adequate to cover the additional costs of a UBI. In France, those revenues almost offset the cost of such a program. In the United Kingdom, taxing cash benefits and eliminating tax allowances were not enough to cover the UBI.” Simulations for developing countries found significant distributional effects: in Nepal most people would gain, in Indonesia 40% of the poor would be worse off and in South Africa most of the elderly and the poor would be worse off. This is due the structure and performance of the existing schemes, UBI being set at their level. A debate remains around whether some of the “cousins” of UBI, as a Job Guarantee or a Participation Income, conditional to the fulfillment of public jobs, or to volunteering, could be more beneficial, the report states.
Financing social inclusion
A basic social minimum package which uses UBI, set at the average poverty level, and aimed at adults would cost 9.6% GDP in low-income countries, 5.1% in medium-income countries and 3.5% in upper middle income countries. If the UBI was to be for everyone, the figures would be in the double digits in the poorest countries, 9% of GDP for middle income countries and 5.2% in upper-middle income countries. And the invesment for UBI should be coupled with investments in the creation of human capital, the report mantains. A significant mobilization of capital becomes necessary. Taxation patterns diverge from low income countries to high income ones; if the former rely mostly on indirect taxation –consumption and trade taxes – the latter rely on direct taxation. The paper analyzes sources of potential revenues to finance the global new deal, as excises taxes on tobacco and alcool, that even if considered regressive, have usually a long term positive impact on health. Value added tax could have a significant role in developing economies, whilst they are already diffused among advanced ones. A carbon tax may have strong impact, with a study finding that for the top 20 carbon emitting countries, optimal taxation could rise almost 2% of GDP, and be paired with the elimination of energy subsidies, which globally amouts to $333 billion. Personal and corporate income taxation may be aided by technology in avoiding tax avoidance.
“The virtual nature of digital businesses makes it even easier to locate activities in low-tax jurisdictions. The provision of goods and services from abroad without a physical presence in countries where consumers are located escapes the traditional corporate tax.”
Digitizing property registration systems will improve the collection of property taxes, and withholding taxes on payments of services will become more important in economies with strong digital presence and a prevalence of intangibles. Social protection should be enhanced keeping in mind financial costraints, and expanded as more resources are mobilized through improved taxation.
More information at:
World Bank. 2019. World Development Report 2019: The Changing Nature of Work. Washington, DC: World Bank.
Human Capital Project: https://www.worldbank.org/en/publication/human-capital
This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by the World Bank
by Faun Rice | Nov 13, 2018 | Research
Photo by Stefan Kühn, CC BY-SA 3.0
The CESifo Group of Munich is a European research group that seeks to employ both high-quality economic theory and the methods of an empirical institute. Operating since 1999, CESifo is a collaboration between the Center for Economic Studies (CES), the ifo Institute (“Information and Forschung” or research), and the CESifo GmbH (Munich Society for the Promotion of Economic Research).
CESifo publishes a quarterly journal, the latest issue of which is devoted to Unconditional Basic Income (UBI). Five of seven pieces within this 48-page publication present a variety of perspectives on UBI research and theory, predominantly addressing the European context.
- Straubhaar, Thomas, “Universal Basic Income – New Answer to New Questions for the German Welfare State in the 21st Century”, CESifo Forum 19 (3), 2018, 03–09 | Details| PDF Download
The focus: Transforming social support in Germany by replacing Bismarckian welfare state ideals
Straubhaar describes a series of proximate social and economic changes due to globalization, aging societies, income polarization, and dissolution of traditional economic safety nets. He comments that the contemporary version of the welfare state is founded upon 19th century Bismarckian principles that rely on a classic population pyramid (weighted by youth at the bottom), a male-breadwinner model, a fast-growing economy, and a labor-focused Protestant work ethic, none of which will continue to be relevant indefinitely. He proposes UBI as a welfare state model that would completely replace all other publicly financed social support and provide a 21st century solution to the aforementioned changes, particularly in Germany, but as a model for the rest of the world.
- Torry, Malcolm, “Some Lessons from the Recent UK Debate about Universal Basic Income”, CESifo Forum 19 (3), 2018, 10–14 | Details| PDF Download
The focus: Enhancing UBI data distribution and ensuring that discussions maintain a clear definition of the difference between UBI and other related economic policies
Torry highlights a number of key events and issues from the UK that have broader relevance for the global community interested in UBI. The first discusses the important use of microsimulation to predict the impact of economic policies on households of varying incomes (for example, to estimate the loss of disposable income to low-income families if means-tested benefits remain or are removed). The second relates a story in which a public organization cherry-picked UBI data, to which Torry simply says that high-quality research ought to be better distributed. The third and fourth call the reader’s attention to the importance of using specific definitions of UBI schemes and not allowing the term to be misused.
- De Wispelaere, Jurgen, Antti Halmetoja and Ville-Veikko Pulkka, “The Rise (and Fall) of the Basic Income Experiment in Finland”, CESifo Forum 19 (3), 2018, 15–19 | Details| PDF Download
The focus: Improving the international understanding of Finland’s basic income experiment, its origins, and its limitations
The Finnish basic income experiment began as a one-line commitment in the national Government Programme in 2015. Kela, the Finnish Social Insurance Institution, proposed several experiment design options, and a two-year control trial began in January 2017. Kela will evaluate the results and present them to Parliament in 2019.
Basic income stakeholders have become increasingly critical of the trial parameters, raising concerns about the limits of the sample and the pilot’s restricted scope and goals. The authors argue that proponents of UBI initially overstated the extent of the Finnish government’s commitment and capabilities, heralding the commitment as a “watershed” moment for European basic income, when in fact the Finnish experiment and others have been limited from the outset by policy inertia, existing budgetary and taxation systems, and other institutional limitations. The pilot program is designed to assess basic income as a means of activating the labour market, a politically safe goal, and was never likely to result in policy changes of the kind UBI advocates desire to see.
- Colombino, Ugo and Nizamul Islam, “Basic Income and Flat Tax: The Italian Scenario”, CESifo Forum 19 (3), 2018, 20–29 | Details| PDF Download
The focus: Evaluating proposed basic income-related policy packages in Italy and comparing their political origins
Like other European countries, Italy has seen several basic income proposals that have yet to be implemented. Several current potential models are rooted in different political ideologies and thus provide an interesting comparison. The first, “Reddito di Inclusione,” (RdI) is a basic income scheme that targets the most impoverished segment of the population in practice but is intended to be universal. The second, “Reddito di Cittadinanza” (RdC) is means-tested and only covers the population “below the relative poverty threshold” (20). Another model, proposed by Istituo Bruno Leoni (a think tank), involves both basic income and a flat tax.
The authors provide a basic overview of the differences between UBI, means-tested guaranteed income, and negative income tax. They then simulate and evaluate the various government-proposed combinations of policies, concluding that while it is possible to design a fiscally neutral policy package, current government proposals have not yet done so.
- Widerquist, Karl, “The Devil’s in the Caveats: A Brief Discussion of the Difficulties of Basic Income Experiments”, CESifo Forum 19 (3), 2018, 30–35 | Details| PDF Download
The focus: Making UBI research accessible and understandable, particularly with regard to its limitations
Widerquist’s basic thesis is that, contrary to popular representations of policy research, all UBI experiments contain a significant list of caveats. He argues that science journalism has not done an adequate job of communicating the limitations of UBI studies, or indeed any social sciences research, to the public. Furthermore, specialist researchers’ lists of caveats are inadequate for communicating a study’s limitations. Widerquist has an upcoming book that will address both best practices in UBI research given its inherent difficulties and best practices in communication the results of said research to the public and policymakers. In this article, he identifies four broad strategies: (1) iteratively designing studies with public feedback, so that research directly addresses the questions relevant to local stakeholders; (2) highlighting UBI’s impact in publications, rather than its side-effects (even though the latter might be more interesting to researchers); (3) attempting to define a “bottom line” or generalizable conclusion from research; and (4) addressing and discussing ethical controversies.
- Clauss, Michael and Stefan Remhof, “A Euro Area Finance Ministry – Recipe for Improved Governance?”, CESifo Forum 19 (3), 2018, 36–43 | Details| PDF Download
The authors discuss the possibility and potential function of a euro-area finance ministry. Such an organization could either martial Europe’s national fiscal policies to align them throughout the region, or it could be one more “layer” of fiscal authority in each European nation. This paper does not explicitly address UBI.
- Nam, Chang Woon and Peter Steinhoff, “The ‘Make in India’ Initiative”, CESifo Forum 19 (3), 2018, 44–45 | Details| PDF Download
The authors discuss a 2014 federal initiative to promote industrial manufacturing in India. This paper does not explicitly address UBI.
More information at:
“CESifo Forum 03/2018 (Autumn): Unconditional Basic Income”, 01-48, ifo Institute, Munich, 2018
by Hannah Trippier | Oct 16, 2018 | Research
A systematic review has been published that looks at the effects of cash transfers on social determinants of health and health inequalities in sub-Saharan Africa.
Researchers considered both quantitative (both experimental and quasi-experimental) and qualitative studies to be included in the review. To be eligible for inclusion quantitative studies needed: to be conducted in a population of people in sub-Saharan Africa; to investigate the effect of conditional or unconditional cash transfers when compared with other cash transfers, or no cash transfers; report at least one of the prespecified socio-economic outcomes. Qualitative studies that looked at barriers and facilitators to a successful cash transfer intervention were included. Further details of the review methods can be found in the review protocol.
Fifty-three studies were included: 3 randomised controlled trials (RCTs), 22 cluster-RCTs, 8 quasi-experimental studies and 20 qualitative studies. The studies were conducted in 14 countries across sub-Saharan Africa. Due to the diversity of populations and outcomes reported, the researchers did not conduct meta-analysis, instead opting for a narrative synthesis following the approach recommended by Popay et al. (2006). For the qualitative studies, thematic synthesis was carried out to combine the data, following the Thomas and Harden (2008) approach.
The review found that cash transfers can be effective in tackling structural determinants of health such as poverty, education, household resilience, child labour, social capital, civic participation, and birth registration. The review further reported an impact on intermediate determinants including material circumstances (e.g. nutrition, savings), psychosocial circumstances (e.g. self-esteem, reduced stress and anxiety), sexual risk behaviours among adolescents and adolescent empowerment. For this analysis the researchers lumped together unconditional and conditional cash transfer interventions when compared to a control group who did not receive any cash transfers.
Little evidence was reported in the review that compared unconditional and conditional cash transfers. Three studies found that conditional cash transfers were more effective than unconditional cash transfers in increasing school attendance (Baird et al 2011, Robertson et al 2012, Akresh et al 2013, 2016). On the other hand, one study in Malawi found significantly reduced psychological distress among adolescent schoolgirls who received unconditional cash transfers compared to conditional cash transfers (Baird et al. 2013).
More information at:
“The impact of cash transfers on social determinants of health and health inequalities in sub-Saharan Africa: a systematic review”, Health Policy and Planning, 2018
by Harry Curzon | Oct 4, 2018 | Research
A new research study carried out by Jeff Hemsley, Martha Garcia”Murillo and Ian P. MacInnes investigates how social media affects the discussion and spread of policy and ideas with a case study focus on the topic of Universal Basic Income (UBI).
The researchers argue that social media provides an important space for analysis, with Twitter, in particular, being dominated by policy advocates and policy issues. The study thus uses UBI discussion as a case study to determine how policy issues disseminate on social media, rather than focusing on the details of UBI. Social media (more on that below) has taken over across the globe, with many ways that individuals and businesses can connect to help with a myriad of issues. Because of this reliance, there is now adaptable technology used for these websites from Instagram automation to Twitter management so businesses are able to be in every place ‘at once’.
The researchers used keyword collection on Twitter’s application programming interfaces (API) to identify tweets containing any of 23 specific terms related to UBI, dating from July 25th to December 12th of 2016. Within the captured time frame, Twitter users posted a total of 157,000 tweets related to UBI, at an average of 1,127 messages per day. The authors conclude that because the data collection of tweets related to UBI did not break the Twitter rate limit API, it can be inferred that discussion of the topic at the given period was not significantly numerous.
The researchers then reviewed these tweets using content analysis methods to code UBI-related tweets as informative or emotionally resonant, and to examine whether this affected users’ perceptions of UBI. They conclude that, in the UBI discussion space, “interesting” tweets are more likely to be shared, but tweets that have a more emotionally resonant message are far more likely to draw a greater number of new users into the online discussion about UBI. This is often known as one’s “presence” or the ability for their Twitter messages to be seen and spread to other uses. To that end many Twitter users use growth services to increase their presence (see this Tweepi site review for more information on growth services) and that may also explain how UBI messages have been so widespread on Twitter. Social media platforms are all similar in the way that emotional posts, perhaps made on Instagram, are the most viewed and shared. They could also use an Instagram bot, or several bots, to help boost the posts exposure on the audience’s newsfeeds. Often, users of these platforms try to spread messages that help them to gain followers and viewers to their profiles so they can have more people looking at the important messages they want to put out into the world. If you’re looking to do the same with your posts, The Small Business Blog is just one of the websites social media influencers go to in order to find ways to turn their important messages into popular posts. The spread of this influence may warrant further study but for now, the researchers are focussing on how Twitter itself spreads messages.
Because tweets coded as “interesting” are often seen and posted by users already within a “UBI positive echo chamber,” whereas “emotionally resonant” tweets trigger emotional responses which can “activate existing users and can bring users into the discussion space who may participate again in the future.”
For policy issues like UBI to produce further discussion and influence greater numbers of users on social media, the academics conclude that “policy advocates likely need both emotional messages that resonate with people as well as informative messages that are resources for the community.”
For more information:
Jeff Hemsley, Martha Garcia”Murillo and Ian P. MacInnes, “Tweets That Resonate: Information Flows and the Growth of Twitter’s Universal Basic Income Discussion Space,” Policy & Internet, 15 July 2018.
Picture Credit: Financial services and Social media
by Andre Coelho | Oct 1, 2018 | Research
A Portuguese civic movement for the promotion of basic income, named RBI-TT, has been collecting answers to a simple questionnaire on basic income, having done so already in 2016 and 2014. This way, it is possible to measure how people’s opinions change over time, at least those that answer the questionnaire online.
The questionnaire sets forth the following questions:
- Where you already familiar with the basic income idea?
- Do you support it?
- Would you support it if it was paid for with European funds?
- Would you support it if it implied eliminating unemployment benefits and reducing the highest pensions?
- Would you support it if it implied an increase in taxes for everyone?
- Would you support it if it implied such taxes that your net income would be reduced?
Additional questions aim at characterizing the respondents, according to age, gender, degree of schooling, occupation/activity and income level. This year’s evaluation is still ongoing, but the previous two editions gathered 2677 valid answers in total, allowing for relevant analysis.
Over these questionnaires, the percentage of people already familiar with the concept rose from 67 to 74%, while those not familiar with it get to like it at first sight, in a 51 to 72% rise, from 2014 to 2016. Here, it also clearly shows that the financing mechanism is crucial. On average, 73% of respondents support a basic income financed by European funds, while only 23% support a version which would leave them with less net income than today. This low support level for the latter version is, however, much higher among low earners than in high earners. Other interesting results are such that there is a higher incidence of unemployed or retired people supporting a basic income eliminating unemployment benefits and reducing higher pensions, than from those studying or working. And that men are more informed about basic income than women, even though the latter are more supportive of the concept.
The RBI-TT movement (UBI-AA standing for Universal Basic Income – From All to All) rests on a basic income solidarity mechanism which can be understood in this article, which was presented at the BIEN Conference 2018 in Tampere, Finland.
by Hannah Trippier | Sep 13, 2018 | News, Research
The International Monetary Fund (IMF) has published a report suggesting that basic income would be better than their welfare system at supporting low income households in India. Similar evidence has been found for both Indonesia and Peru, where basic income was found to be beneficial compared to current welfare systems.
The report uses 2011-12 National Sample Survey data to analyse the Public Distribution System (PDS) in India, where subsidies for food (wheat, rice, sugar) and energy (kerosene) are provided at different levels according to a person’s position in relation to the poverty line. This welfare system was found to be both inefficient, with leakage in the procurement-transportation-distribution chain, and inequitable, in that around 20% of low income households do not receive any subsidy
The analysis compared PDS to a model of basic income. Their analysis found that a basic income outperforms PDS in terms of coverage, as basic income is universal. However, the analysis showed that the introduction of basic income would mean reduced targeting and generosity for lower income groups. At the lower end of the income scale, some households will gain in terms of relative benefits, whereas some will lose out. In the bottom decile the analysis found a greater share of losing households (58% losers compared to 42% gainers).
The authors noted that basic income would bring about a benefit in eliminating current operational inefficiencies in the PDS. They suggested that savings from this could be used to fund a more generous basic income that could mitigate the losses in lower income deciles. They ran another analysis with a higher basic income and found a greater share of gainers than losers in the bottom decile (60% gainers compared to 40% losers), suggesting a higher basic income would be more beneficial for this group. Alternatively, the authors also discuss the possibility of introducing additional programmes for households in this group, to supplement basic income and ensure they do not lose out.
More information at:
David Coady, Delphine Prady, “Universal Basic Income in Developing Countries: Options, and Illustration for India”, IMF Working Papers, July 31st2018
Rema Hanna, Benjamin A. Olken, “Universal Basic Incomes vs. Targeted Transfers: Anti-Poverty Programs in Developing Countries”, National Bureau of Economic Research Working Paper Nº24939, August 2018
“Debate over universal basic income steps up as IMF weighs impacts”, Development Pathways, August 14th2018
“Growing debate around universality” sees diverging estimates of basic income”, Development Pathways, September 3rd2018
