by Benjamin Sadlek | Apr 7, 2019 | News, Research
Picture credit to: Biodiversity & Community Health.
Measuring income in developing countries
A study published in the National Bureau of Economic Research in the Fall examines cash transfer programs across a range of developing countries and uses household data from Indonesia and Peru to examine the effectiveness of targeted transfer programs in those countries. The study explores the costs and benefits of targeted and universal cash transfer programs, and the different circumstances that developing countries face that affect the performance of different transfer schemes.
One of the key challenges identified for developing countries that affect the viability of a universal basic income (UBI) are the sizes of the informal sector (1) and the resulting revenue sources. Developed countries largely get their revenue from income taxes (2), but given the size of the informal sector in many developing countries, the bulk of government revenue comes from sources like consumption taxes and official development assistance (ODA), with the latter in some low-income countries accounting for more than half of that country’s operating budget.
Effectively targeting the poor for cash transfer means that you must have a way to reliably measure income and means, and therein lies the problem for many developing countries. In Indonesia and Peru, 88% and 79% of the employed populations are reported as below the tax exclusion threshold, and therefore do not pay income taxes. This is not necessarily to say that upwards of 80% of true income is below the income tax threshold, but it shows the problems associated with informality and lack of information. In any case, it complicates the means-testing portion of targeted transfer programs like those in the US.
In lieu of directly measuring income for means-testing, developing country governments can use what’s called a “proxy-means test” by measuring indirect things like assets and consumption. Another complication is that people can easily misrepresent their economic situation, depending on what indicator the proxy-test uses to measure poverty. Therefore, the mechanism for determining who qualifies for the transfers are often a mystery kept by the designers of the proxy-tests, and the data collection method must in some way provide incentives for telling the truth.
Findings from the data
To measure the success of the targeted programs in Indonesia and Peru, the authors used consumption data from 2010-2011 period from the Indonesian National Socioeconomic Survey (SUSENAS) and the Peruvian National Household Survey (ENAHO) to measure the size of the program’s “inclusion errors” and the “exclusion errors”, meaning the amount of people who do receive transfers who shouldn’t and the amount of people who don’t receive transfers who should. They are able to do this because the datasets used provide information on predicted consumption used by the proxy-means tests of each country, and the actual consumption for that period in each country.
In the 2010 period, in both Indonesia and Peru, transfers reached around 80% of intended beneficiaries, meaning those whose economic situation actually qualified them to receive benefits got them 80% of the time, and 20% did not (meaning a 20% exclusion error). There was also a cost of transferring the benefit to 22% and 31% of those whose economic situation did not actually qualify them for the benefits, judging by the actual consumption data (meaning the inclusion error).
The authors then employ a social welfare function, which measures the utility of a dollar between a low-income person and a high-income person, to measure the effectiveness of more narrowly targeted programs in relation to a universal program (UBI). Using this function, they were able to identify a socially optimal targeted transfer amount, which was 19% and 18% of the population for Indonesia and Peru respectively. While utility is lowest at the point of no transfer, the graph shows utility and overall social welfare both decline steadily after the socially optimal point. A UBI, then, has the lowest utility of almost any ratio, and even with the administrative cost savings included, the added benefit is almost imperceptible (these are represented by the little tick mark pointing upwards at the point of “UBI”).
This is nothing too surprising, though, because it essentially confirms that having a system where wealthier individuals also receive the benefit is not as socially efficient as targeting the poorest individuals, because the dollars are worth more to poorer individuals. What is interesting is that savings in administrative costs in this model also do not provide a big boost to social welfare.
Advantages and drawbacks of universal cash transfers
A UBI would address some of the failings of targeted transfer programs by providing what the authors call “horizontal equity”, which essentially measures the degree of errors at different levels of transfer, and also an added benefit of transparency.
If we imagine a family in the exclusion error population goes to apply for benefits and find that they are not eligible, verifying their eligibility would be difficult given the secrecy of the methods used in proxy-means identification. A UBI would be an ideal fix for this problem because it is available to everyone, and though you would be including those who may not necessarily need it, you would not deny anyone who actually does need it.
There is also the issue of labor market distortions that targeted transfers can cause. It is well known that programs in the US and in some European countries result in recipients to avoid finding work because they risk losing their entitlement. Even if the methods used in proxy-means testing are not known, households in developing countries may restrain themselves on activities that they perceive may end up disqualifying them for the benefit, such as reducing consumption or avoiding formal income.
Other issues with a large informal sector that would complicate implementation of a UBI are identification to avoid double counting, getting the money to recipients that may not have bank accounts or formal residences to mail a check to, and accruing taxes from the rise in incomes that will occur through increased consumption. Dependence on consumption taxes also presents a risk to the scheme, because large informal sectors might also affect tax losses from consumption.
Discussion on UBI in developing countries and alternative methods
The primary strength of the argument for UBI in the context of a developing country comes from the fact that targeted transfers currently deny resources to some of the extreme poor, where a UBI would theoretically not be denied to anyone. It would also theoretically be more straightforward and fairer of a system. A crucial strength with targeted transfers comes from the fact that it can use limited resources the most effectively, and even if it misallocates some resources, on the whole, it can effectively allocate resources.
It makes sense on an intuitive level for developing countries with tight budgets to send money where it would be the most effective through targeted transfers, but this results in both inclusion and exclusion errors, which can either be seen as the best outcome possible or simply insufficient. The exclusion error population could be seen as an unacceptable outcome creating a highly underprivileged class, and even the definition of the population that qualifies for transfers might be considered insufficient. In Indonesia, while the impoverished population has been receding, during the Asian financial crisis it rose to as high as 23%, and the population that is “near poor” have been estimated to be as much as 42% (3). This could play into an argument for UBI: by allowing everyone to have the same benefit, there would be no inclusion or exclusion errors, and it would still be much more socially optimal than no transfer at all.
While the authors recognize that targeted and universal programs work well in different circumstances, they seem to imply that, for developing countries, the social welfare achieved by targeted transfers is currently the best game in town. Universal programs like public education and health care are two examples of already widely accepted government programs, yet cash transfer programs remain largely targeted.
The authors also introduce some interesting alternatives that capture some of the strengths of targeted and universal programs. For example, with “community-based targeting”, a village might get a certain number of “beneficiary slots”, and in a completely public setting, the village communally decides where to allocate them. The strength of this program seems to emanate from the fact that local communities have a more intimate knowledge of who needs the assistance the most. In the “differential cost and self-identification” method, benefits would be available to an entire population like UBI, but your relative wealth would affect the ease of which you get the benefits, as determined by a proxy-means test. The key to this program would be the fact that the benefits are worth less the higher up the income ladder you are, and things like long application processes would deter some applicants. The added benefit to this would be that those who are in the exclusion error population would receive some recourse if they are initially denied benefits.
It is clear that having an income tax base with which to measure prosperity and draw taxes from is currently the ideal system to operate with a UBI. Jenson (2019) demonstrates that development accompanies a shift from self-employed to employed populations in the United States with over a century of data, which could be the natural outcome of development in other contexts. If a UBI turns out to be an ideal system for reducing extreme inequality and increasing other indicators of human wellbeing, a question of its appropriateness might also entail identifying the correct level of development. Advancing this issue still requires more pilots in more varied circumstances.
This research adds to the knowledge of basic income in developing countries from pilots in Namibia (2008), Madhya Pradesh (India, 2010), and in other expansions of cash transfer schemes in Zambia (2010) and in Iran (2011).
Notes
1 – The informal sector describes the portion of the population who work but do not contribute to a social security system, are often self-employed, and whose activities and revenue amounts are largely unknown.
2 – By contrast, in the 2017 US Federal Government budget, 83% of revenue came from individual income and payroll taxes.
3 – Figures from the World Bank’s report “Making the New Indonesia Work for the Poor”.
More information at:
Rema Hanna, Benjamin A. Olken, “Universal Basic Incomes vs. Targeted Transfers: Anti-Poverty Programs in Developing Countries”, The National Bureau of Economic Research, August 2018
Abhijit Banerjee, Paul Niehaus, Tavneet Suri, “Universal Basic Income in the Developing World”, The National Bureau of Economic Research, February 2019
Anders Jensen, “Employment Structures and the Rise of the Modern Tax System”, The National Bureau of Economic Research, January 2019
Namibia Pilot Project, Basic Income Grant Coalition
SEWA, “Piloting Basic Income Transfers in Madhya Pradesh, India”, SEWA and UNICEF, January 2014
Pedro Arruda and Laura Dubois, “A brief history of Zambia’s Social Cash Transfer Programme”, International Policy Research Brief, June 2018
Chris Weller, “Iran tried its own basic income scheme — and people didn’t give up working”, Business Insider (France), May 23rd 2017
Jehan Arulpragasam and Vivi Alatas (coords.), “Making the New Indonesia work for the poor”, The World Bank, November 2006
Adi Renaldi, “Poverty Isn’t Decreasing, Indonesia’s Official Poverty Line Is Just Too Low”, Vice, July 23rd 2018
by Rebecca Rosewarne | Apr 3, 2019 | News
Which analytical models exist to defend UBI, and how convincing are they? What would the introduction of an UBI mean for different parts of society? What would be the associated opportunities and risks?
To answer these, and many more questions, the Christian-Albrechts-University of Kiel has programmed a series of interdisciplinary lectures, in order to share both further directions of research and also to make some academic contributions. These academic events will happen between April 23rd and July 2nd 2019, at designated rooms and auditoriums at the University, as indicated below.
This lecture series come from various academic disciplines and touch on a broad spectrum of questions and aspects. They will also be accessible to interested members of the public. At the end of each 45-60 minutes paper presentation, there will be space for discussion between the authors and the audience. The papers will be recorded and made accessible after the event.
General and increasingly extensive discussions of the reforming idea of an unconditional basic income (UBI) seem to have come to stay, especially among the younger generations. One basic income experiment after another is springing up around the world. For the first time in Germany, the current state of Schleswig-Holstein has taken up the theme, and has introduced a ‘social security for work yet to be undertaken’ in the state parliament, alongside its coalition agreement. So, the idea of an UBI in particular, together with the Liberal Party’s [FDP = Freie Demoktratische Partei] concept of a citizen’s wage and further initiatives, are being discussed in Germany, and trials are being conceived.
Such a UBI would definitely represent a deep intrusion into the pre-existing architecture of the welfare state, the job market, the economy, the family life of both female and male citizens, and the whole community in Germany and abroad. The moral model of a ‘working society’, which developed alongside industrialisation and the rise of capitalism and whose scope has extended ever further in the last few decades, would be abandoned or at least significantly marginalised. That’s because UBI would change the normative way of life for every adult until retirement age, which still is paid employment. The broad distribution of material prosperity, mostly organised in accordance with the criterion of performance at work, would also change considerably.
Summary of lectures:
23rd April 2019 (Tuesday): Dr. Alexander Lorch – Philosophical reflections on an unconditional basic income.
26th April 2019 (Friday): Prof. Dr. Roswitha Ploch – Unconditional basic income – opportunities and hurdles in the political implementation of a good idea
30th April 2019 (Tuesday): Dr. Thieß Peterson – Macroeconomic effects of an unconditional basic income
10th May 2019 (Friday): Prof. Dr. Hilmar Schneider – Do we need an unconditional basic income or better Maths lessons?
17th May 2019 (Friday): Prof. Dr. Ute Fischer – Liberation or backwards roll? Opportunities and limits of a UBI from the perspective of gender.
24th May 2019 (Friday): Prof. Dr. Gesine Stephan – Field experiments in labour market research: potential, challenges and practical examples
31st May 2019 (Friday): Prof. Dr. Ueli Mäder – Social security democratised (rather than economised)
7th June 2019 (Friday): Prof. Dr. Michael Opielka – Basic income in the labour of the future. On the relationship between payment in cash, kind and service in the welfare state of the future.
11th June 2019 (Tuesday): Prof. Dr. Thomas Straubhaar – Unconditional basic income. From Utopia to reality.
21st June 2019 (Friday): Prof. Dr. Nicole Mayer-Ahuja – Unconditional basic income – an emancipatory response to changes in the world of work?
2nd July 2019 (Tuesday): Dr. Manuel Franzmann – Democritisation of leisure? Unconditional basic income from the point of view of educational theory.
Article reviewed by André Coelho
by Tyler Prochazka | Mar 28, 2019 | News
A nearly-packed auditorium of mostly young Taiwanese arrived on an early Saturday morning to learn about Universal Basic Income and its role in addressing key trends for the next generation.
This is the third year UBI Taiwan held its international summit in Taipei to push discussion of basic income on March 16. This year’s conference focused on the challenges Taiwan and the global economy is facing in the coming decade and what steps could be taken to make basic income a feasible solution.
Dr. Sarath Davala, vice chair of Basic Income Earth Network, was the keynote speaker for the second year in a row. Davala said this year’s attendees were even more enthusiastic.
“UBI Taiwan exudes unique energy and dedication to the idea of basic income. This kind of energy is perhaps rare in the basic income movement. Nowhere in the world, have I seen such critical mass of students collectively excited about basic income,” Davala said.
Dr. Ryan Engen, an economic officer at the American Institute in Taiwan (AIT), the unofficial U.S. embassy in Taiwan, gave the opening speech for the conference. Engen said basic income is “perhaps the most promising policy” to address Taiwan and the world’s economic transformations.
“If you can succeed in what you are trying to do, I actually think it has the potential to be the tipping point that changes the direction for the rest of the world, and that’s not an exaggeration,” Engen said.
In justifying the need to explore basic income, Engen discussed how the return on capital has outstripped income, which has exacerbated global income inequality.
The world is moving toward nationalism as a result of globalization and automation, which requires “creating a new global social contract that leaves nobody behind,” Engen said.
Guy Standing, BIEN’s co-founder, provided a video message for the conference Taiwan. He said Taiwan’s activists should frame basic income primarily in human rights terms, rather than as just an economic policy.
“Basic income is a matter of social justice,” Standing said. “We believe every man, woman, and child has a right to a share of the public wealth of the Commons from the wealth generated over generations, whether it is in Taiwan, China, Britain or anywhere else.”
Standing said while basic income would reduce poverty, this should not be the primary focus of Taiwan’s UBI movement.
“We must constantly stress the ethical basis of the campaign for basic income,” Standing said.
In the final round-table discussion, Ta-Ching Shih, a Taiwanese economic specialist at AIT, said basic income activists in Taiwan must first get attention to the idea and then focus on the policy specifics later.
Peter Knight, a former World Bank economist and a member of Fernand Braudel Institute of World Economics, also produced a video message for the conference where he discussed the economic rationale for basic income.
Knight said Taiwan is likely to face high levels of job automation in the coming years, along with Japan, Singapore, and South Korea. Taiwan’s coming status as a super-aged society may also induce consideration of whether basic income could help alleviate this issue, he said.
“UBI and progressive taxation to finance it, and the use of advanced labor-saving technologies are the key policies for Taiwan to achieve economic, social, political, and ecological sustainability,” Knight said.
Professor Ku Yun-wen from National Taiwan University’s Social Work Department went through a detailed analysis of Taiwan’s welfare policies and discussed how basic income may fit into the system.
Ku had previously written a report on UBI for Taiwan’s National Development Council, Taiwan’s Executive Yuan policy planning agency.
Professor Fong from National Taiwan University’s Economic’s Department provided insight into some of the relevant economic trends to basic income, such as increasing automation and its potential impact in Taiwan.
The conference was assisted in funding from the U.S. State Department’s Critical Language Scholarship through the Alumni Development Fund (ADF).
Before Alan Krueger passed away, he discussed the prospects of basic income in Taiwan with James Davis, one of the managers for this ADF project. Krueger was the former chair of President Barack Obama’s Council of Economic Advisers.
Krueger agreed Taiwan implementing basic income would likely inspire conversation around the world. However, Krueger said “there is a lot of work to be done.”
Professor Hou-ming Huang, the director of National Chengchi University’s Sociology Department, presented on the economic and philosophical transitions of humanity throughout history.
A journalist from Taiwan’s magazine The Reporter spoke on the misinformation that is often spread in Taiwan and global media regarding basic income.
Despite this misinformation, Davala said he is optimistic about the future of basic income’s development in Taiwan.
“I am sure that the debate in Taiwan will progress beyond conference halls and to the policy corridors,” Davala said.
Engen ended his remarks by noting Taiwan could play a very important role in the global UBI movement.
Taiwan is a “melting pot” of international influence and is at the center of global supply chains, Engen pointed out. Taiwan is also the “most progressive example in all of the Indo-Pacific,” he said.
“UBI happening here in Taiwan is very different than it happening anywhere else because Taiwan is a fully developed market democracy that is a technology epicenter of the world,” Engen said. “If UBI happened here it would send ripple effects around the world.”
In the run-up to the conference, Elyse Mark and Brian Anderson, who were also managers of the ADF project, produced interviews with U.S. scholars. Mark interviewed a legislative director for a councilmember of the District of Columbia council who produced a policy report on implementing minimum income in DC. Anderson interviewed an economist to understand the benefits of basic income across Taiwan and the United States. Davis also worked with Stanford’s Basic Income Lab to understand the context for how research there could help propel basic income frameworks for Taiwan.
by Guest Contributor | Mar 13, 2019 | Opinion
Written by: Felix FitzRoy & Jim Jin
School of Economics and Finance
University of St. Andrews
As interest in UBI has exploded in recent years for many positive reasons, including the United Kingdom’s disastrous new “universal credit” policy, three major issues remain that are almost universally neglected. First, a modest ‘affordable’ UBI could not raise non-working individuals or households above poverty, even in addition to existing, means-tested benefits. Second, UBI alone would effectively subsidise low-wage and low-quality jobs, reducing pressure for improvement. Third, meaningful work is essential to well-being for most people, but unattainable for two million discouraged workers who want to work but have given up looking for work, as well as the officially unemployed (and those with inadequate jobs) – a major cause of unhappiness.
As we argue in Prospect, a public sector job offer (JO) at minimum wage, combined with a UBI of £3,000 to £4,000 per year could raise all households above poverty when combined with improved disability and housing benefits. Urgent and growing needs for care of an aging population and improvement of deteriorating infrastructure would ensure meaningful employment for all who took up JOs, with appropriate training when needed.
Such a modest UBI as proposed by Stewart Lansley and Howard Reed for Compass, and many others in the UK, could be partially funded by abolishing the regressive personal tax allowance. It would replace some means-tested welfare measures, though disability and housing benefits should remain and need augmenting. The additional cost of JOs is modest, only about £28 billion, which is around 11 percent of total welfare spending for 2 million full-time JO workers, less than total cuts in welfare spending under austerity measures since 2012. As a result of these cuts, child poverty has risen to 30 percent, and the UK holds the worst record in Western Europe. Child poverty has severe negative consequences for the entire life course of those affected.
By providing good working conditions and career advancement, our JO would set standards for minimum wage employment which could not be undermined by common current practices such as demanding unpaid overtime, since those affected could always credibly threaten to quit. Such a general improvement of working conditions would not greatly disrupt existing labour markets, in contrast to the high–wage job guarantee discussed in the US by prominent Democrats, promising to double the minimum wage. This would likely generate excessive uptake in public employment, causing substantial inflation, followed by restrictive government policies. Such a policy would not compensate for the unpaid work done mainly by women in the home as caretakers for children and the elderly.
JOs for all who want to work would be part of the framework of a Green New Deal (GND), now proposed by figures in America’s Democratic party, such as Alexandra Octavio-Cortez. This would involve greatly increased investment in the urgently needed transition to a carbon-free economy by 2050, which is essential to avoid catastrophic climate change. Such a GND could generate full employment similar to the mobilization in World War II but would require higher taxes on the rich for long-run funding. Though such tax increases would face strong political opposition, this would in turn help to reduce extreme inequality and all its negative effects.
About the authors:
FF – Emeritus Professor of Economics, and Research Fellow, IZA – Institute of Labor Economics, Bonn;
JJ – Reader in Economics, both in the School of Economics and Finance, University of St. Andrews
by Daniele Fabbri | Mar 11, 2019 | Research
Credit Picture: CC(Billy Wilson)
The International Labour Organization published a paper investigating Universal Basic Income (UBI) proposals in light of ILO standards.
With the ILO Social Protection Floors Recommendation (No. 202) providing relevant guidelines for the discussion on the adoption on UBI, namely:
“(i) adequacy and predictability of Universal Basic Income (UBI) benefits to ensure income security, set at least at the national poverty line; (ii) social inclusion, including of persons in the informal economy; (iii) social dialogue and consultation with stakeholders; (iv) enactment of national laws regulating UBI entitlements, including indexation of benefits; (v) coherence with other social, economic and employment policies, and (vi) sustainable and equitable financing”,
the paper shows how some models of UBI can be in accordance with ILO standards, while others cannot.
The paper consists of five parts:
1) Universal Basic Income: A tool for social justice or a strategy to dismantle social security?
In the complex and variegated scenario of UBI proposals, the paper identifies two main currents, one which sees UBI as a tool for social justice which would grant social security to all, and the other, neo-liberal or right libertarian in its concoction, which seeks to substitute the welfare state with a minimalistic safety net.
The first is designed to reduce poverty and inequality, promoting individual rights and freedom, giving people the opportunity to engage in forms of work not recognized by the market (domestic work, volunteering). It would also reduce the administrative costs of existing social protection systems, and increase workers’ bargaining power providing an exit option. The second is a way to reduce the complexity of the modern welfare state and the degree of involvement it requires from governments. For UBI to be an instrument of social justice, the first current is the one to follow.
UBI impact on poverty and inequality, on growth, on work and employment, and on gender inequality varies depending on how the policy is designed, what its source of financing is, and on which level it set at. It is thus complex to generalize its effects, and even for specific contexts in which experiments have been done it would be an error to imply that local effects would be the same once replicated on a larger scale.
The positive effect attributed to UBI is that of tackling the issues of increased social and economic insecurity, growing inequalities and the existing gaps in social protection coverage. The growing debate surrounding it “reaffirms the necessity and importance to provide every member of the society with at least a minimum level of income security which is essential to the realisation of human dignity”, principles that are at the hearth of the ILO Constitution and the Recommendation No. 202. UBI would thus represent the income component of the recommended social protection floor.
Social protection floors should guarantee “effective access to essential health care and basic income security throughout the life course, to allow life in dignity.” This means that UBI can’t represent the entirety of social protection floor, as a nonmonetary component would nonetheless be required, and that UBI would need to be integrated in the institutional settings of the state.
2) Benefit levels, adequacy and coverage
For UBI to be a solution to inequality and poverty it needs to be set at a level sufficient to meet at least people basic needs, and needs to be financed in a sustainable and equitable way. With Recommendation No. 202 requiring social protection floors to be set at “a sufficiently high level to enable individuals to live in dignity and to ensure effective access to essential goods and services” a possible benchmark is represented by national poverty lines.
UBI proposals vary greatly in the suggested benefit levels, but given that in most of them it would supplant social assistance benefits, following the guidelines set by the aforementioned recommendation, the level should be enough to allow access to a set of necessary goods and services. Proposals built taking this into account are promising, whilst those with benefits level set below the poverty line are not able to fulfill the promises of poverty and inequality reduction.
The amount provided via UBI cannot be uniform through the populations, as it wouldn’t be able to account for those in special need, and if the amount was to be uniform UBI would be required to coexist with other forms of social security benefits safeguarding those with specific needs. UBI would thus need to be integrated in the existing systems, in order not to leave individuals worse off, the paper states.
The paper also recommends that, in order to ensure adequacy over time, attention should be given to adjustments to changes in purchasing power and overall standards of living, as to ensure the adequacy of benefits over time. For UBI to maintain its effects over time, it would need to be indexed to inflation and wages.
UBI, a cash benefit, would nonetheless need to be complemented by effective access to services (e.g.: health, education). If UBI was to be financed via the reallocation of the budget dedicated to such services, it would have detrimental effects.
Even with universalism being often presented as one of the key features of UBI, some proposals restrict its coverage in two ways: 1) depending on the age of the recipient (children wouldn’t receive benefits in some instances, whilst older persons would be subject to different rules); 2) depending on the requisite of nationality, or that of residency after a minimum duration, in order to prevent migration.
With ILO standards requiring states to provide “all members of society with adequate social protection” and with the principle of universality of protection being “at the core of the social protection floor concept, stipulating that everyone should enjoy at least a basic level of social security throughout their life course”, a UBI restricted to only nationals, or not granting sufficient benefits to meet children’s needs, would be insufficient to provide the required protection.
3) Costs, Affordability and Financing
The paper presents two scenarios for the cost estimates of UBI:
- A basic income transfer at 100 per cent of the national poverty line for all adults and children;
- A basic income transfer at 100 per cent of the national poverty line for adults and 50 per cent to children up to 15 years old.
Under scenario I. the global average cost as a percentage of GDP would be around 39.4%, with a cost of 79.1% of GDP for low income countries, 28% for lower middle-income countries, 22.8% for upper middle-income countries and 29.9% for high income countries.
Under Scenario II. the global average cost as a percentage of GDP would be 32.7%, with a cost of 62.3%of GDP for low income countries, 23.1% for lower middle-income countries, 19.8% for upper middle-income countries and 27.4% for high income countries.
One possible benchmark for adequacy of the benefit level supported by Recommendation No.202 is that of national poverty lines, but many UBI proposal are far below them. Even so, an UBI set at 25% of equivalent disposable income is nonetheless deemed unfeasible under the existing fiscal context. In order to provide benefit levels capable of reducing poverty and inequality, new financing sources need to be explored, among them the paper briefly explores:
- The reallocation of public expenditures
- Increasing tax revenues
- Lobbying for aid and transfers
- Eliminating illicit financial flows
- Using fiscal and central bank foreign exchange reserves
- Restructuring existing debt
A mix of the aforementioned would be needed, with an increase in tax revenues being central in order to assure progressivity to the policy. For low income countries, lobbying for aid and transfers may be a feasible method, as the estimate cost for the introduction of an UBI is just 0.68% of the global GDP, 3% of what has been spent by the G20 to rescue the financial sector in 2009.
Regressive proposals are not in line with ILO standards as they would further inequalities. Budget neutral proposals, which rely on cutting existing social benefits in order to provide a modest UBI coupled with social insurance, result in a social net loss which would exacerbate income and gender inequalities.
4) Who would benefit from UBI? Different implementation scenarios
The paper investigates three different scenarios for the implementation of an UBI, in order to find out which one could be beneficial to society to investigate winners and losers.
Only under scenario 1, which assumes the introduction of a UBI set at the level of the poverty line, the majority of the population is found to be net winner, thus reducing inequality.
Under scenario 2 a UBI is introduced in exchange for cuts in employers’ contributions to social security systems. This setting would reduce the capacity for social insurance to redistribute wealth across society. With net losers being among the lower and middle classes, and the net winners being corporations, this scenario is not in line with ILO standards.
Under scenario 3 UBI is introduced in exchange for the complete abolition of public social insurance:
“In this scenario virtually everybody is a net loser; the poorest will not receive anymore social assistance at the poverty line level; the low and middle classes, before covered by a better social protection system, now they will lose their accumulated social protection benefits. Eliminating public social insurance systems by a modest UBI, and promoting individual savings and private provision for those who can afford it, would reduce the potential for both vertical and horizontal redistribution, thereby exacerbating income inequality.”
5) Conclusion: Universal Basic Income in light of ILO standards
While UBI cannot be considered as a solution to all the problems of society, it can potentially act as a useful tool for closing coverage gaps and provide basic income security.
The benefit level should be set at a level sufficient to provide income security to everybody, particularly to those without other sources of income. The benefit should avoid discrimination towards those in special needs.
UBI by itself wouldn’t be enough to provide access to basic services, and it should be coupled with policies granting universal education, health care and social services. At the same time, contributory mechanism will have to remain in place, with public social insurance continuing to provide a level of social protection.
Progressive means of financing are essential in guaranteeing equity, sustainability and that UBI satisfies ILO standards. UBI implementation will need to follow a progressive realization, by setting standards and time frames: this calls for the creation of an ad hoc legal framework and effective governance and administration.
Moreover, “systematically assessing implications for the broader policy context is essential for a UBI to positively contribute to social justice and inclusive development”. UBI cannot be a stand-alone policy, but needs to work in concert with labour market institutions, and the potential interactions that could arise call for further studies.
“The momentum gathering behind the idea of a UBI can help to spur a discussion on how to respond to existing economic and social changes in a more effective and empowering way based on social solidarity and while ensuring social justice outcomes for all.”
Final remarks
The paper is clear in defining Basic Income and in discussing its potential advantages, clarifying that different UBI designs would bring very different end results.
The paper also provides a comprehensive list of experiments, proposals, and pilots, and does a service by calculating the proportions of national poverty lines that their Basic Incomes represent. This is done calculating the gross cost of UBI, which however says little about its net costs.
Much attention is devoted to proposals that eliminate current benefits, a practice that, as the authors of the paper themselves suggest, is not in line with ILO standards.
Rather than investigating a particular mean of financing and its potential effects, the paper follows a more general approach, and highlights that further studies are needed in order the understand the practical implications of UBI, nonetheless being clear about its potential to be a powerful instrument for the enhancement of social security and the reduction of poverty and inequality.
More information at:
Isabel Ortiz, Christina Behrendt, Andrés Acuña-Ulate, and Quynh Anh Nguyen, “Universal Basic Income proposals in light of ILO standards: Key issues and global costing“, Social Protection Department, International Labour Organization, Geneva, 2018
Citizens Basic Income Trust, “ILO paper on Citizen’s Basic Income and ILO social protection floors” 7th December 2018
