Universal Basic Income as an Alternative to Higher Minimum Wages
Are minimum wage laws necessary after universal basic income is implemented?
Below is the full audio (with text) of my commentary originally recorded for WNYC's The Takeaway for a discussion about reconsidering the minimum wage, of which only a small portion was aired. It is available here now in its entirety.
Audio:
Text:
I think that wherever possible, we should look to permanently eliminate underlying causes instead of treating symptoms without end. When it comes to minimum wage laws, we're perpetually treating a symptom and not a cause. The problem we wish to solve is that employees aren't getting paid enough to work. So the government then has to step in and say, "Hey, employers, you can't pay less than this amount, and employees, you can't accept less than this amount."
Well, why do we need to do this? Why aren't people getting paid enough? What's the core issue? I think people aren't getting paid enough because they can't really ask for more out of fear of getting nothing at all. They have no individual bargaining power. All negotiating power is in the hands of those offering the jobs and not those looking for them. Outside of unions, we can't say "No" to the terms of employment offered by employers. As long as our primary concern is that of paying for our basic needs like food and rent, all we can really say is "Yes".
If an employer can pay less, they will. They will even pay nothing wherever possible. Just look at unpaid internships. And because people prefer to eat and live indoors, and anything is better than nothing, people accept wages that or too low or even zero (in combination with work experience) because it's all better than the alternative - nothing.
So really, what we need to do is create a better alternative than nothing. If everyone were to start with $1,000 per month as a right of citizenship, a universal basic income, that's enough money outside of work to cover our most basic living expenses. That means no one is desperate for money anymore. In fact, according to our own federal poverty guidelines, poverty would be effectively abolished, as long as every child also got around $300 a month, because the amount required to not live in poverty varies by household size.
Now consider how a wage negotiation would go with a basic income in existence. Suddenly, $7 an hour may no longer be enough. Why work for $7 an hour when you're already getting $1,000 every month as a starting point for being alive? Maybe in order for an employer to find people willing to say "Yes" to work now, they need to pay $15 an hour. Maybe one employer needs to only pay $5 hour now because it's a fun job, and another employer needs to pay $25 an hour because everyone hates that job. Even better, people can actually start sharing jobs. Maybe a job everyone hates can only get any one person to work ten hours a week at it, so instead of one person doing it 40 hours and hating it, 4 people do it for 10 hours and find it an entirely acceptable way to earn additional money.
This right here is possibly the best reason to go with basic income instead of a hodgepodge of minimum wage laws, earned income tax credits, welfare programs, food stamps, housing assistance, tax deductions, and all the rest. Because basic income provides an income floor, there's no longer any reason to keep any of these bureaucracy-filled ways of easing but never ending poverty. Instead, poverty would be gone. And because poverty is gone, all jobs have to either pay enough for people to accept them, or those jobs will be automated. If automated, no one has to do that job anymore. They can do something else instead.
They could do work in the gig economy, driving people for Uber, without all the desperation it involves now racing around trying to find enough riders to scrape by each month. People could even do entirely unpaid work like volunteering or open source programming. All sorts of doors become opened as options to walk through instead of traditional labor.
Some people will then say this is paying people not to work. But that's actually what we're already doing. Right now, if you're receiving assistance, it will be pulled away with higher earnings. A better word would probably be yanked. That help is yanked away at steep rates, so steep that it's actually possible for someone without a job to earn $12,000 in benefits, get a job, and then earn $12,000 in income.
So right now, work doesn't always pay, and we even pay others to make sure it doesn't pay, by monitoring those on assistance to make sure they either aren't working or report additional income. With a universal basic income, work would always pay. $12,000 would be a floor that no one would earn any amount below, and everyone would earn everything on top of. No job? You get $12,000. Got a job? You get $30,000 more for a total of $42,000.
With a basic income, everyone would get a raise (about $6 per hour for anyone working 40 hours per week). That also doesn't happen with policies like minimum wage, or tax credits like the home mortgage interest rate deduction. Those only affect certain portions of the population, and they certainly don't help the portion of the population unable to find a job. Meanwhile the programs for them, don't help them as much as we think they do. In Wyoming, 1% of those living below the federal poverty line receive temporary assistance for needy families. Food stamps tend to only last to the third week each month. Only 1 out of 4 people who qualify for housing assistance actually get it. Referring to our system as a safety net is actually very appropriate because it's full of holes.
There are no holes with a universal basic income. Everyone gets it. No questions asked. No forms to fill out. No classes to go to or middlemen to meet with. No stigma attached because everyone gets the same thing no matter how much is earned. Instead, some people just pay more in taxes than others, and those taxes can even be financial transaction taxes or carbon taxes or consumption taxes. Income taxes can actually even go down as a result for over 80% of all households, because a household of two adults and two kids could all together get the equivalent of a $32,000 refundable tax credit. So this idea that a basic income would have to raise everyone's income taxes is overblown. Some taxes would go up, but certainly not the taxes of the middle classes and below.
Minimum wage is a tool of a previous century. When we wield it now with technology as advanced and increasingly affordable as it is, we will only increase technological unemployment and poverty rates along with it. Why pay someone $15 an hour, when touchscreen kiosks are enough to do the job more efficiently at a lower cost? Mandatory higher wages only help those with jobs, and many of these jobs are jobs people would refuse to take without sufficient pay. If people could refuse jobs that don't pay enough because they already have enough to get by, and the result would be that people either get paid more or no one has to do them anymore, why not immediately do this instead? Why not give people the ability to refuse jobs entirely, and instead pursue the work most important to them?
If we can do that, if we can use a 21st century tool like basic income instead, we can obviate the need for minimum wage laws and a whole lot of other needless things as well, up to and including the existence of poverty itself.
As long as we don't have universal basic income, we need minimum wages for those with jobs, and welfare for those who don't. As soon as we have universal basic income, such policies, along with poverty itself, become entirely unnecessary.
All great points, Scott. As I read your article, I also recalled stories I read about wage theft, too. Then I see the struggle over health care benefits, promotions, raises, etc.
Employer behavior seems to be laser focused on shifting burdens onto employees to the greatest extent possible. The game of the current system is killing the golden goose, American productivity.
When employers use their money to influence public policy to reduce the bargaining power of employees, it's for short term gain. The long term effect is that employees cannot afford to buy the products they create.
UBI provides a strong disincentive to cost or burden shifting the way that most employers are doing today. No matter how the burdens shift, everyone pays into it and everyone gets a sort of dividend from increases in productivity due to automation. It's like Alan Watts said, the robots will pay for it and everyone should benefit from the robots, not just the people who own the robots or the patents on robotics.
One final point is that the current system assumes that people lack motivation to work. It's like employers and governments think that if they apply just enough discipline and dangle enough rewards, that they will find a sweet spot where employees will continue to work for cheap, while millionaires and billionaires can still get their second or third vacation home.
I believe that most people want to work and that in most cases, motivation is not a factor. The most important factor is skillsets. I see it in job ads all the time. They list the skills they're looking for an it's a mountain, like some superman is going to do the job. And since the market is evolving and public policy reduces bsargaining power, few people have the resources to keep up with changing skill requirements.
Anyway, your article gets the gears moving as usual. Thanks.
You raised some good points @digitalfirehose. With the technological growth we are experiencing these days, UBI may actually become a feasible system. It is all about getting the incentives right and taking into account human nature.
UBI has been feasible and required IMO since the birth of private property. Even as far back as the founding of the US, Thomas Paine supported a version of it funded by essentially a land value tax for the same reasoning. Decades ago we even almost passed a version of it under Nixon, thanks to Milton Friedman himself. We could have afforded it then in 1970 when it passed the House of Representatives. Our economy has more than doubled since then, so it would make no sense at all to suggest that it was feasible in 1970 but not in 2017.
As for "getting the incentives right", the incentives of UBI are better than any form of conditional assistance that is pulled away with income. As described in this post, conditional welfare creates welfare cliffs. The highest marginal tax rates of all are applied to those on welfare, which makes no sense at all to be doing if our goal is to incentivize employment. No one in their right mind would accept a job where they lose $1.20 in benefits for every $1 earned. A UBI however could be done in a way that subtracts 40 cents for every $1 earned, no matter if it's one dollar or one billion of them. That would be the flat 40% income tax method. It's not my favorite version, but it's an option.
In regards to "human nature", we greatly are a result of our environment. UBI is about improving our environments. By covering everyone's basic needs as a given, that's a guarantee of security in addition to making sure people are able to get enough to eat, stay off the streets, and live healthier lives. The evidence is strongly in favor of basic income with reduced hospitalization rates, lower crime rates, healthier birth weights, lower stress, more entrepreneurship, greater social cohesion, and more. Definitely look into the growing body of evidence. It's the data that convinced me about UBI more than anything.
Very well written and researched piece! Followed, upvoted and resteemed! Keep it up!
Thanks! Much appreciated, and will do.
One problem in implementing the universal basic income is game theory. If there is no level playing field worldwide (aka no one world government), the jurisdictions that do not implement the basic income laws will attract all the corporations and the ensuing corporate tax income, hence making those that do implement basic income laws to lose out big time. This is a complicated balancing act for society/government/industry. On a corollary topic, tax collection systems actually should get reworked and gamified. For example, it could be almost like a lottery system with the government having an edge. So there would be some % based on income that corporations and individuals would have to donate/"gamble", and that would actually give an incentive to pay taxes into the governments' budgets by simply using human nature. Blockchain technology and transparent smart contracts can come in VERY handy to implement this idea. What do you think about this suggestion?
I think this assumption is a very flawed assumption: "the jurisdictions that do not implement the basic income laws will attract all the corporations and the ensuing corporate tax income..."
Based on all the evidence I've seen, I expect countries that implement UBI to find it as a competitive advantage in a global economy. It therefore makes little sense to expect corporations to flee countries with UBI. Remember, UBI is money. It's capital and also consumer income. Markets will flourish with UBI. Entrepreneurship will skyrocket.
Now, even if we do take your assumption as accurate, that UBI will make corporations flee, that assumption itself depends entirely on the level of UBI and how its funded. A 100% corporate tax would be absurd, and also entirely unrealistic, although it's certainly one way to achieve your assumption. There are countless ways of funding a UBI that are much smarter than a giant tax on corporate profits. I suggest the following combination of ways to fund it in the US.
Also, I think your assumption is built around an overinflated cost of basic income. If you think it's super expensive, it makes sense to imagine massive tax hikes. But UBI isn't super expensive, and it will actually reduce the tax burdens of about 80% of the US. It's effectively a large refundable tax credit for everyone.
@scottsantens If you look at countries that have amazing social benefits such as free universal healthcare and free education, which is another form of non-refundable tax credit, the actual income tax is quite high. In other words, nothing is really "free".
As the recent scandals in the media have shown, the wealthy individuals and corporations from those countries seem to end up using offshore bank accounts to hide their wealth and avoid high taxation.
As long as UBI tax on the top tier earners does not go over a certain psychological/mathematical level, it could work. But keep in mind that UBI will have to be increased by Cost of Living Allowance on a yearly basis due to inflation and other factors. For the wealthy, UBI may just seem like an additional tax on their wealth/income, unless you can mathematically prove that it would reduce or maintain their tax burden.
Also, many will just mention the numerous Socialist economical experiments and the effects of "socialist" policies on the economy and society. It seems like a steep uphill battle to convince the upper class to be for UBI, but nothing is impossible these days with good PR and "ethical lobbying" (I hope that is not an oxymoron).
On the other hand, most democratic governments do have an incentive to pass UBI laws as that would maintain the majority happy and satisfied with those in power, hence solidifying their staying power in politics. However, all governments/countries need capital, brain/manpower and resources, and if one of those is lacking or leaves, economies/societies may experience periods of decline.
Like I stated before, it is a complicated balancing act. I think more people should get involved in this discussion.
Based on your reply, you haven't read the articles I provided links to, at least not yet. Please do. At no point did I say UBI was free. I explained how it costs a lot less than you obviously seem to think it does. I also linked to what I consider to be the optimal way of going about funding it, which does not involve tax rates on the rich that you appear to be concerned about. And I also included how it should grow as productivity grows, and how to potentially go about that.
You may also find it informative to go through my UBI FAQ.
Will check it out.
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Thanks for another great post. Upvoted and resteemed.
Your last post about automation got me to write the next article on my site
https://vialcoin.com/blog/how-to-use-poloniexlendingbot/
Cryptocurrencies and automation can provide a solution that will benefit all human kind in the long run.
ps: I still think a % as a fee and a network where we actually discourage anonymity will destroy many evils from our species.
Interessting post thanks for share i followed and upvoted
Actually minimum wage is the reason people can't find jobs. Business will be competitive if wage is lower, why pay shipping from China or Mexico when wage is similar in the original country. The main reason of raising minimum wage is, in my opinion, that the "vote me I give more free stuff" politicians need more tax revenue to prevent a default of the gov.
I am expecting an argument about price inflation making upward move of wages necessary. But please think back what cause price inflation. When an irresponsible Gov./Central Bank pair produce more currency resulting in more currency chasing the same amount of output then you get price inflation. Basically if the inefficiency of a big government is not dealt with, I don't think UBI or any form of transfer policy will help the people as the inflation tax will always out pace the wage increase.
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