by Guest Contributor | Feb 16, 2017 | Opinion
Written by: Derek Horstmeyer
Aside from the numerous societal benefits that Universal Basic Income (UBI) offers in the future as automation disrupts the nature of employment, we in the basic income movement should not forget the benefits it also offers in the immediate term.
Economists across the board, whether they focus on labor, corporate governance or environmental issues, love to see mechanisms and incentive systems designed so they are free of distortions. Our current national system in the US of assistance for the short-term unemployed and long-term unemployed is designed with incentive misalignment over different income levels. This is particularly evident on the lower end of the income distribution.
An individual who has just lost their job or an individual who continues to suffer long-term unemployment faces a daunting decision when posed with the prospect of taking on a new job. Many of these individuals may have been approached by executive search headhunters (PIXCELL – Chasseurs de Têtes Montreal Headhunters or a similar headhunter, for example) to take up a good position in a renowned company. On one hand, there are the wages associated with the new job and on the other there are is potential loss of federal and state assistance. CATO’s 1995 “The Welfare-Versus-Work Tradeoff,” estimates that a change in employment status from a part-time position (below the poverty line) to a full-time position at 18 dollars an hour might actually cost the individual a net of 5 to 10 thousand dollars a year due to a loss in state benefits.
These benefits that the individual may have to relinquish span numerous forms including cash assistance (Temporary Assistance to Needy Families), food assistance (SNAP), medical insurance (Medicaid) and housing assistance. And, one criticism of the Affordable Care Act is individuals just above the income cutoff for Medicaid are doing far worse when you consider the mandatory penalty they must pay as compared to those who are receiving Medicaid. It also might be worth thinking about those that do get Medicaid aren’t actually receiving the support for free. For instance, read over this article touching on avoiding medicaid estate recovery, a part of Medicaid some people look past or don’t even know about. If someone that was receiving Medicaid passes away, Medicaid could then actually legally possess your house to cover the costs, leaving living family members a lot worse for wear. The idea of these benefits and aids always seems to have some downfalls, but there can also be ways to navigate around them.
While the magnitude of the loss in state benefits that one suffers as their wages increase is debated, one thing that all economists agree on is that poverty traps are real. As an individual moves up the income ladder, there is a class of income where they would better off monetarily if they turn down a job (or a pay increase) because they must forfeit state benefits.
If we desire to have incentive alignment in our economic system, where every marginal amount of time worked by an individual leads to a marginal increase in total income, the poverty trap created by the welfare system is a major problem. Of course, there are a few ways to fix this issue. One is to just reduce the number of benefits that people receive on the lower end of the income distribution. This does not sound appealing seeing as the number of vulnerable people in the US may continue to increase as the nature of employment changes over time. The second way to handle this issue is to extend the ‘phase-out’ ranges, so people don’t lose as many benefits as they earn more income. This is more appealing, but only puts a band-aid on the issue and still allows for income ranges where incentive misalignment persists.
The third and final option is UBI. The beauty of universal basic income, paired with a negative income tax, is that these decisions to forgo work or a raise because of a loss in state benefits, are non-existent. In a UBI system, incentives are always aligned for the individual to accept a raise or to work an additional hour because it will always put more money in their pocket.
As work becomes more automated, it is important to highlight the wonders that UBI may serve us in the future. However, one should also not forget what UBI affords us today in terms of a system of welfare and assistance that is free of incentive misalignment.
About the author: Derek Horstmeyer is a professor at George Mason University School of Business, specializing in corporate finance. His research, which has garnered several awards, focuses on boards, governance and hedge fund activism. He has presented at conferences across the country as well as internationally, and is consistently rated a top professor by his undergraduate, MBA and EMBA students who have honored him with teaching awards.
Derek has a BS in Mathematics and Economics from the University of Chicago, an MS in Financial Mathematics from Stanford University and a PhD in Finance from the USC Marshall School of Business.
by Tyler Prochazka | Dec 12, 2016 | Opinion
This week, I had the opportunity to be a guest on New York University’s Students for Criminal Justice Reform podcast. I spoke with Thurston Powers about the positive effects a basic income may have on American society.
One overlooked potential benefit is the effect of basic income on crime rates. I noted that a basic income could create more stable households and increase the likelihood of parents spending time with their children. Unstable and low-income households are linked with creating long-term issues for children that grow up in these situations. The fact that crime could be higher due to these circumstances speaks volumes about how important it is for families to have access to an income that can help them provide for their children without them having to consistently work to keep a roof over their heads. Crime happens all the time, and the use of firms such as Salwin Law Group, as well as similar other legal representation, may be used to show evidence on how financial issues have provided this base for criminal activity, not as an excuse but as a show of how the system needs to change to help people in these situations.
Those that critically point out single mothers work slightly less under a basic income do not understand this is probably a good thing. Considering it is single mothers in the data that show reduced work hours, it is likely they are spending their extra time raising their child. In the long-run, raising a well-adjusted adult will produce social and economic dividends.
In fact, research shows that basic income experiments have resulted in increased social cohesion. Studies have shown increased school attendance after the introduction of a basic income-type grant. In Namibia, there was about a 40 percent drop in crime in areas where the basic income was introduced.
While it is highly probable the basic income would improve some of the factors that lead to crime, I said in the podcast there is virtually no chance a basic income could increase crime. Frankly, the conservative narrative surrounding welfare is just not true.
The problem is not that welfare recipients become lazy, it is that the structure of welfare can discourage work. This is because welfare benefits diminish sharply as low-income individuals improve their wages — which is precisely why a basic income is more effective.
I also noted that most research demonstrates that overall people will not work less, and in some cases may work more if it benefits them, under a basic income. For libertarians that are interested in creating an effective solution to deal with the upcoming wave of automation, a basic income is the most efficient answer.
Listen to the full podcast below:
https://www.youtube.com/watch?v=iW6KgITEdT0&feature=share
by Guest Contributor | Sep 21, 2016 | Opinion
Evidence indicates that Universal Basic Income (UBI) policies would benefit our society’s least fortunate, decreasing poverty and improving the prospects for long-term income mobility. However, one UBI critic has asserted that a basic income replacing current forms of welfare would make it harder for immigrants to become naturalized citizens of the United States because of political pressures. An excerpt from an interview journalist Megan McArdle gave to PBS News Hour:
A lot of immigrants are low-wage workers. They’re not skilled, a lot of them. They don’t have as much education as most Americans and so they never do get up to the point where they would ever pay enough in taxes to make back that check. Even if you just limited it to their children, the political support for importing people whose children will then be entitled to the same $15,000 a year as your children — I don’t think that would ever be politically viable.
So if you want to have a guaranteed minimum income, you need to shut down, pretty much effectively, shut down immigration, or at least immigration from lower skilled countries…
There are three reasons why McArdle’s conclusion, that UBI would complicate the immigration debate and necessitate an end to immigration, is very incorrect. First, naturalized immigrants are already the recipients of welfare transfers in the status quo; distributing this aid through a UBI will lower administrative costs, be less controlling, and help those in poverty more than existing welfare policies do. Second, the UBI’s political effects on immigration are largely unpredictable, but the reform could be sold to the public in a bipartisan fashion. It is not hard to imagine that UBI would have broad appeal if constituents knew it offered a simplified benefit structure, created clear incentives for legal immigration, and eliminated some of the perverse incentives embedded in current welfare policies.
Welfare policies already exist – and naturalized immigrants already participate in these programs at relatively high rates because immigrants are more likely to be low-income than the average American citizen. This is worth repeating for emphasis: naturalized are already eligible to receive social security benefits, Supplemental Security Income, food stamps, TANF benefits, and benefits from other transfer programs. This fact alone means that UBI, as a phased-in alternative to current welfare policies, would not increase the amount of money transferred to naturalized immigrants.
While it is feasible that welfare transfers to new citizens could be viewed as unpopular, the balanced approach of a UBI could help mitigate these concerns while leaving everyone better off. Policymakers who answer to constituents with negative views on immigration could effectively communicate that a UBI would reduce the total cost of welfare by reducing administrative costs. Policymakers who answer to constituents with positive views on immigration could argue aid would be given to those in need in a better way, a way that empowers new immigrants to make their own choices rather than choices dictated by the government.
Depending on implementation, a UBI policy may slightly increase or decrease aid to the families of illegal immigrants. Although immigrants illegally residing in the U.S. are generally ineligible to receive welfare, illegal immigrants are permitted to apply to receive food stamps on their children’s behalf. A UBI equal to the value of the food stamps the family would have otherwise received should be the preferred policy. Various states already have their own forms of supplementary assistance for illegal immigrants in addition to food stamps: these states could bridge any perceived gaps by offering the same assistance they do now.
Lawful, non-citizen residents, such as students, exchange visitors and foreign workers, are eligible for certain welfare transfers depending on their circumstances. Current laws also require waiting periods and point systems for noncitizens to become eligible for Supplemental Security Income (SSI) transfers. These rules could be maintained to alleviate concerns that noncitizens would take advantage of the UBI: as it stands now, non-citizens receive substantially less welfare transfers than their citizen counterparts. Essentially, a UBI would end up looking very similar to the SSI – the general idea would be to have fewer onerous requirements on how welfare dollars are spent.
The political implications of UBI implementation are nearly impossible to predict, especially in the context of immigration. For example, even though illegal immigration has been falling over the last decade, voter concern is relatively high. Additional demographic changes will likely change the political realities surrounding immigration reform and welfare policies.
It is also unlikely that a UBI would drastically change the rate of naturalization or where non-citizens choose to call home. After all, research shows that welfare spending does not have large effect on immigrants’ decisions on where to live (the biggest factor appears to be economic opportunity). It also appears that citizenship fees are a bigger factor in determining whether immigrants will pursue naturalization than welfare is.
It is clear that UBI would not lead to the cataclysmic outcomes McArdle expects: we would have already seen those consequences with current welfare policies. A UBI would just improve the existing system.
About the author:
James Davis is an undergraduate at Columbia University studying Economics and History.
by Stanislas Jourdan | Apr 26, 2016 | News
A report commissioned by the government to Member of Parliament Christophe Sirugue recommends a complete revamp of the French welfare system. This could constitute a major stepping stone towards the introduction of a basic income.
In October 2015, the French government commissioned the Socialist MP Christophe Sirugue to conduct a review of the welfare system in France and formulate a proposal for improving and simplifying of the existing social benefits schemes.
The report entitled “Rethinking Social Minima” was released on April 18th and remitted to the French Prime Minister Manuel Valls. The report (available here) suggests three possible ways to revamp the welfare system:
- Simplify the architecture of the existing system by implementing 12 measures to reduce its complexity and make it more fair.
- Reduce the number of social minimas from ten to five by merging them.
- Create a “common protection floor”, which would in effect be a complete revamp of the current system, by ultimately replacing all of the ten social minima.
The last proposal, which is favoured by the author of the report, is distinct from a universal basic income. In fact, although the report comprehensively reviews the idea of basic income and stresses some of its merits, it excludes its implementation for now. One of the arguments put forward is that basic income is a bigger issue than the scope of the report, which only aims at improving the welfare system while basic income is implicated with other societal debates, such as the changing nature of work.
The French Movement for Basic Income, which was consulted by MP Christophe Sirugue, notes three main points of progress in the conclusions of the report:
- Opening the minimum income scheme to people from 18 to 25 years old.
- Making social benefit payments automatic.
- Partially individualizing the minimum income.
The Prime minister Manuel Valls welcomed the report, which is seen as “both pragmatic and ambitious” and has already asked all his ministers to work as fast as possible to implement the proposed reforms.
Confusing statement from the Prime Minister
In a confused statement on his Facebook page, Valls claimed that his government was opening the debate on “universal income” in order to implement it by 2018, while immediately making it clear he meant something very different than a universal basic income:
“Not a benefit paid to everyone including those who have sufficient income – it would be too costly and meaningless – but a targeted grant to all of those who really need it.”
“Unfortunately, the debate seems to be poorly started if the terms of the topic are not well defined,” responded the MFRB in a column in the newspaper Le Monde to clarify that universal basic income must indeed be universal, while debunking the idea that a full basic income was not affordable.
Many other media outlets and politicians – including Socialist MP Pascal Terrasse – reacted similarly, revealing once again the rapidly growing interest and support for the idea in France. Earlier this year, a report by the Digital Council also recommended running a basic income experiment.
Picture Credit CC Parti Socialiste
by Andre Coelho | Apr 15, 2016 | News
Credit to: Tri-City Radio
In this article, Martin Sandbu compares basic income to UK’s Universal Credit (UC), a policy introduced in the United Kingdom by Duncan Smith, the Conservative Party politician who recently resigned as Secretary of State for Work and Pensions.
Although UC implementation has been a “disaster,” according to the article, it does have some similarities with basic income — the most striking of which is the attempt to promote work incentives by reducing or eliminating the withdrawal of benefits as recipient’s earnings increase, in contrast to many traditional welfare programs. And this, according to Sandbu, is “exactly the right direction”.
More information at:
Martin Sandbu, “Free lunch: basic welfare policy“, Financial Times, 29th March 2016
