NOTE: I have been posting excerpts from my book World After Capital. Today’s section looks at the effects a Universal Basic Income (UBI) might have on the labor market.
Impact of UBI on the Labor Market
One of the many attractive features of a UBI is that it doesn’t do away with people’s ability to sell their labor. Suppose someone offers you $5/hour to watch her dog. Under a UBI system you are completely free to accept or reject that proposal. There is no distortion from a minimum wage. The reason we need a minimum wage in the current system is to guard against exploitation. But why does the opportunity for exploitation exist in the first place? Because people do not have an option to walk away from potential employment. With a UBI in place, they will.
The $5 per hour dog sitting example shows why a minimum wage is a crude instrument that results in all sorts of distortions. You might like dogs. You might be able to watch several dogs at once. You might be able to do it while writing a blog post or watching YouTube. Clearly government should have no role in interfering with such a transaction. The same is true, though, for working in a fast food restaurant. If people have a walk away option, then the labor market will naturally find the right clearing price for how much it takes to get someone to work in say a McDonalds. That could turn out to be $15/hour, or it could turn out to be $5/hour, or it could turn out to be $30/hour.
One frequently expressed concern about UBI is that people would stop working altogether and the labor market would collapse. Prior experiments with UBI, such as the Mincome experiment in Canada showed that while people somewhat reduced their working hours there was no dramatic labor shortage [NEED CITATION]. This should not come as a surprise as people will generally want to earn more than basic income provides and the price adjustment of labor will make working more attractive. That is especially true because UBI, in conjunction with the income tax change discussed in the previous section, removes the perverse incentive problem of many existing welfare programs in which people lose their entire benefit when they start to work, thus facing effective tax rates of greater than 100%. With UBI, whatever you earn is incremental to your UBI and you pay the normal marginal tax rate.
But what about dirty and dangerous jobs? Will there be a price of labor high enough to motivate anyone to do those? And will the companies that need this labor still be able to stay in business at that higher price? This is exactly where automation comes in: businesses will have a choice between paying people a lot more to do such work, or investing much more heavily in automation. In all likelihood, the answer will be a combination of both. But we should not fear that there is such a thing as an excessive price for labor. Because of the pressures created by technological deflation, we will not return to labor-price induced inflation.
UBI has two other, hugely important impacts on the Labor Market. The first has to do with volunteering. Today there are not enough people cleaning up the environment. Not enough people taking care of the sick and elderly. Not enough teachers. Labor is under-supplied in these sectors because there often is insufficient money behind the demand. For instance, the environment itself has no money and so the demand for clean up relies entirely on donations. As for the elderly, many of them do not have enough savings to afford personal care.
When you have to work pretty much every free hour just to meet your basic needs and/or have no control over your schedule, you cannot effectively volunteer. Providing people with UBI has the potential to vastly increase the number of volunteers. It won’t do this all by itself; we will also require changes in attitude, but historically people have thought differently about volunteering.
UBI’s second big impact on the Labor Market is dramatically expand the scope for entrepreneurial activity. A lot of people would like to start a local business, such as a nail salon or a restaurant, but have no financial cushion and so can never quit their job to give it a try. UBI changes that which is why I sometimes refer to it as “seed money for everyone.” More businesses getting started in a community means more opportunities for fulfilling local employment.
Once they get going some of these new ventures can receive more traditional financing, including bank lending and venture capital, but UBI also has the potential to significantly expand the reach and importance of crowdfunding. If your basic needs are taken care of, you will be much more likely to want to start an activity that has the potential to attract some crowdfunding, such as recording music videos and putting them up on YouTube. Also, if your basic needs are taken care of, you will be much more likely to use a fraction of any income you make to participate in crowdfunding.
