The recent release of the European Social Survey showed several interesting trends regarding the opinions of younger generations regarding welfare policy. Throughout the continent, the younger generations were in strong support of a Universal Basic Income (UBI), with strongest support coming from Russia. The European Social Survey is not the first indication of support for this simplified welfare system. Finland is in the midst of a 2-year long trial run where the government selected 2,000 unemployed individuals to receive a UBI to see how it impacts their employment status, income, and social well-being. A similar pilot experiment is taking place in Oakland, California where Y Combinator, a venture capital firm, is providing participants with an unconditional UBI to seek to understand the social behaviors of participants throughout the study.
So how exactly does UBI work? Current UBI proposals vary in their specificities, though most involve an unconditional cash transfer guaranteed to all members of society, no matter the income level. Such a system would be financed by taxes, not by increasing money supply thereby avoiding inflationary pressure. Many proponents of UBI believe that such a system would be able to replace welfare all together.
Then what exactly is the purpose of UBI? Arguments in favor of UBI see the value of such a system coming from its redistributive potential, specifically as a mechanism to reduce economic inequalities. Specifically, those in support cite that many industrial and manufacturing jobs are put at risk of being replaced by machinery. A UBI would create a cushion of income for those who jobs are threatened during cycles of structural unemployment. Beyond it’s redistributive measures, replacing our current welfare system with UBI would get rid of the bureaucratic inefficiencies that are associated with our present welfare system. Instead, having a single system that distributes payments to all citizens would certainly reduce the dollars lost in our complicated system.
Those against UBI cite cost as one of the number one factors that would compromise such a system. Placing trillions of dollars into the economy is not a task that can be done without heavy impact. Estimates by the Cato Institute indicate that if every individual in the U.S. received $12,000 per year from the federal government, the total cost would be approximately $4.4 trillion per year, which is in excess of the current U.S. federal budget. Many critics further contend that such a plan may lead to inflationary pressures. This argument is thrown back and forth as UBI is a redistributive system. Thus normal goods, which would theoretically go up in demand under UBI, may see prices inflated while inferior goods, whose demand would go down under UBI, would see deflated prices. Finally, there is the argument that establishing a base income would negatively impact work incentives. A guaranteed income, even the widely proposed $10,000 per year, would reduce the number of hours needed to obtain a living wage. Thus, a UBI has the potential to reduce work productivity, particularly amongst mid-income positions who already obtain a living wage. Many argue that reducing work hours could serve the benefit of allowing individuals to engage in activities for the public good such as volunteering, which would otherwise be labeled as unproductive.
At present, the status of UBI as an economic policy but more importantly, as a potential replacement to welfare, is in its earliest stages. At the moment, there is little momentum to make the switch from our current, more comprehensive form of welfare to such a simplified model.
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Conger, K. (2016, May 31). Y Combinator announces basic income pilot experiment in Oakland.
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Goodman, P.S. (2016, December 17). Free Cash in Finland. Must Be Jobless.
Hammond, S. (2016, June 9). “Universal Basic Income” is just a Negative Income Tax with a leaky bucket.
Nice presentation of the pros and cons.