Does the UBI need work?

Harvest_time_in_Romania,_1920Commenters point me to some illuminating work on the UBI by Ed Dolan (‘ED’).

The chief burden of the UBI for some is the potentially harmful effect on work incentives. I do not share this misgiving myself. As a matter of folk wisdom, I would claim that nobody ever said, “Sure $10,000 a year is plenty for me. I don’t need more.” Usually aspirations are greater. People tend to want a standard of living that facilitates their social inclusion in some greater community. They care about how others see them.

A fair amount of the work incentive arguments are misleading. There are two basic types of incentives in question. One is whether or not to work at all. The other is to work a bit more or a bit less. Most of the actual popular animus against means-tested benefits (MTB, a.k.a. ‘welfare’) centers on the first. Working somewhat less, say, to care for children, doesn’t carry the same stigma. Nobody cares if a couple reduces their combined weekly hours from 70 to 60. Elites, on the other hand, tend to elevate work and GDP, family well-being be hanged. On the whole, I join my comrade The Sandwichman and say we’d all be better off under less compulsion to work.

Dolan goes to some lengths to effectively lay the work incentive arguments to rest. I don’t need that much persuading, but that’s partly because I don’t view existing work incentives as so onerous. The key to his argument is the positive effect on work incentives if a UBI replaces existing means-tested benefits such as Supplemental Nutrition Assistance Program (‘SNAP,’ formerly food stamps) or Temporary Assistance for Needy Families.

In a nutshell, these programs have a negative income tax (‘NIT’) structure, which simply means you are provided some level of assistance that decreases as your income from other sources increases. So in addition to paying income tax you are subject to some ‘take-away’ rate on the benefits. The combined effect in effect is a higher marginal tax rate (MTR) which according to economics-for-squares (EFS) is supposed to affect your choices “on the margin,” to work a little more or a little less. A higher MTR makes you work less. As noted above, that you might work somewhat less, as opposed to not at all, is usually of less concern as far as ethics are concerned.

The economist’s typical concern with MTRs is that they discourage greater individual work effort and keep families stuck in poverty. Usually MTRs, whether they stem from taxes or benefit reductions, are found to affect secondary earners most. For the primary earner in a family, the normal desire is to work at least a 40 hour week, 52 weeks a year. Often there isn’t much choice about hours.

It is true that in certain income ranges, the combined MTR of benefit reductions and taxes can be very high. However, the very high MTRs don’t necessarily apply to a wide income range or have much effect on actual work behavior. It’s possible to earn your way through the high MTR ranges, and of course that’s what most full-time workers look forward to doing. There was a poignant moment on the old weekend Chris Hayes show. A Walmart activist was being interviewed. He noted that over a certain income range relevant to him, given his own situation, there was not a lot of payoff from earning an extra dollar. But he said, “that’s all right,” since he appreciated earning more salary and looked forward to more still with higher returns.

ED’s argument on work depends on a UBI replacing a NIT. It doesn’t work for a UBI in isolation. In isolation the new UBI increases income, and with more income we all want more leisure (see EFS above). Because of these offsetting effects, the net result of a higher or lower MTR is always theoretically ambiguous. It becomes an empirical question. EFS is also bullshit, but that’s another story. We’re sticking with the popular lingo here.

So fine, replace MTBs with a UBI and maybe you get more work (probably not less), lower administrative costs, total eradication of poverty. Or not.

You first get hella disruption of existing family incomes for poor and near-poor families receiving existing MTBs. The nature of an NIT requires benefits to be available above the poverty line. If they are phased out by that point, they will either be too low to begin with or have very high MTRs for sub-poverty levels of income. Putting that aside, if you replace all MTBs for families for the sake of ruthlessly eliminating poverty, you will be nailing a lot of families between 100% and 250% of the poverty line.

You get a different sort of political reaction if you fund a UBI by filling the holes in the income tax base. (Home mortgage interest deduction anyone? Charitable contribution deduction? Bueller?) In any such exercise there will be winners and losers. And their identities will not be a secret.

Replacing some means-tested benefits with a UBI is not objectionable in principle. But then it wouldn’t be a “U”BI. How you do it becomes crucial. The pesky details tend to be glossed over in UBI philosophizing.

Universality may get more political credit than it deserves. Imagine a Social Security beneficiary or modestly-paid worker. On top of their earned benefit or their earned income they get a UBI (at the cost of some taxes), while somebody they know gets the same thing and declines to work, ever. Would they be happy? I doubt it. The political problem remains if that problem stems from popular views of just deserts, rather than universality. People don’t resent their own free lunches (see tax deductions, above) because they think they are a just reward for work. Even if income does not come from work, any tax offset is seen as reasonable because all private sources of income are seen as legitimate.

It’s possible that people could easily resent equally-distributed benefits if they do not regard recipients as equally deserving. Perhaps Social Security is politically viable because of its contributory, social insurance nature, not its universality. Historically, it began well short of universal, and to some extent it remains so today. If so, the principal political argument for the UBI collapses.

I promised to respond to some specific comments made here, so watch this space.



Does the UBI need work? — 6 Comments

  1. It’s not just the quantity of work. It’s also the quality of work. If a basic income enables some people to refuse shit work for low pay all the better. A guaranteed income will not deter people from doing intrinsically rewarding work. I got a university teaching job just about the time I started receiving old-age pension. I feel the fact that working is now optional for me rather than compulsory enables me to do a better job. It’s also nice that I work two days a week and have four months off in the summer. I highly recommend my philosophy!

  2. ‘It is true that in certain income ranges, the combined MTR of benefit reductions and taxes can be very high.’

    In fact, it can be over 100%. Meaning, it costs you money to work. Especially if you lose Medicaid.

    ‘However, the very high MTRs don’t necessarily apply to a wide income range or have much effect on actual work behavior.’

    Do you have evidence, even anecdotal–and please spare me the heart rending one’s by college professors?

    ‘It’s possible to earn your way through the high MTR ranges, and of course that’s what most full-time workers look forward to doing.’

    Again, what is possible is less important than what is plausible. IF, you can’t pay your rent or feed your family or get medical care, in the short run, it might be, practically, impossible to ‘earn your way through’. I.e., cash flow constraints are real.

  3. Fantastically complex terrain for a fruitful argument
    Laid down here

    My take is simple

    Market mediated jobs out there for the taking for all thru kalecki Lerner macro

    Indexed minimum wage
    And over time premiums
    Cutting in at ever lower aggregate hours

    Yes I oppose a basic income

    Universal free day care from age zero
    guaranteed basic dwelling medicine and food
    Yes socialized charity


    Precisely because as max points out
    only market mediated income looks legit
    To the job hobbled majority

    so long as the many must job attend
    For a big hunk of their life

    Only those living off private accumulations
    can idle away

    Grotesque ?
    Not if you have a big accumulation
    There’s a reason the classical
    “exploitation theory of surplus value”
    Is the punch toy of every self respecting market scientist
    Ask Sandy

    Post Marginal revolution economists
    Notice market failures and Quasi rents and such

    But not well functioninf market certified exploitation

  4. Some devil moved universal day care ( UDC)
    To the poop room

    Of course I support UDC
    It enables a higher
    job market participation rate


  5. Ahhhh

    So true

    But you must reckon with the majority prejudice
    Against ” other ” souls contentment


    Yes this is a cultural product
    And yes we could probably drown it in a bath tub
    Once corporate exploitation is sublated

    But I see a long road ahead till then
    A road paved with a zillion hours
    Of necessary Mcjob site attendence
    and its
    Assorted misery
    for the productive masses

  6. Pingback: interfluidity » Links: UBI and hard money

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