Saturday, 20 July 2013

Basic Income, Guaranteed Jobs, both, or neither?

Certain corners of the internet have recently been engaged with discussions about the relative benefits of two rival policies to provide help to the less fortunate; basic income and the job guarantee.

I will be advocating a job guarantee scheme in my forthcoming book (rethinking taxation), to complement a novel form of earning subsidy, and so I have a horse in this race. I will therefore take this opportunity to weigh in on the subject. However, before doing so I will devote a post to setting out the terrain for the benefit of those who are less au fait with the discussion.

Basic Income (BI)
This is the idea that people with a low income should receive an income from the state, whether or not they are actively searching for work. The unconditional aspect of the basic income therefore contrasts with the conditional nature of unemployment benefits as they currently exist. Indeed, this unconditionality indicates why it is sometimes referred to as a UBI for unconditional or universal basic income. This and similar proposals have been proposed under a number of names such as a demogrant,  stakeholder grant.  It is related to similar proposals for basic capital,  or a “property owning democracy.”  The basic income was also proposed by the libertarian pin-up Milton Freidman, under the name of a “negative income tax.”

Job Guarantee Programme (JG)
The job guarantee is a programme whereby the state provides work to those who are unable to find it in the job market. This has also been referred to as state being the Employer of Last Resort (ELR),  or an Employment Assurance Policy (EAP).  These schemes all attempt to ensure that everyone is able to find work in society at a decent rate of pay. There are various methods of achieving this aim. One is obviously to have a centrally planned economy, though the programmes above assume a broadly capitalist job market, as do I. The proposals usually therefore require the state to create jobs for the unemployed. These jobs might conflict with “private” firms, and advocates usually indicate that this should be avoided where possible. Workers should therefore be employed to provide services that would not be provided by the market or would not be provided as a matter of course by government (central or local). I imagine that it is usually possible to create such work as it is always possible to improve the local environment and provide services that will benefit less well-off and vulnerable members of society—improving the quality of life and/or education of schoolchildren, the elderly, the disabled and prisoners. I imagine that people should be able to propose local projects that could be voted upon by the local populace, with administrators also setting schemes of the sort mentioned above.

How do the proposals help the worst off?
Basic income helps the worst off by providing a safety net. This will improve the bargaining position of workers as employers will have to ensure that the package they offer to workers is better than the default option of not working at all.
Job guarantees are beneficial to the worst off to the extent that they provide a higher income than alternative jobseekers benefits (such as the jobseekers allowance in the UK). It would also provide workers with more work experience, and the self-esteem benefits that follow from productive employment.
Both proposals should therefore improve things for the worst off in society, though they might be expected to be fairly expensive for the government. Basic income may be taken up by many people who are capable of work, thus increasing the cost of the scheme (or the amount that each person on it will receive). Job guarantee schemes are expensive to administer as they will have to create schemes to keep people working.

Most people advocate either one scheme or the other, and so advocates of the schemes often argue against the proponents of the alternative option. However, as many have acknowledged, the two proposals are not mutually exclusive. It is perfectly possible to provide both schemes in parallel – a JG programme for those who wish to work but cannot find any and a BI for those who do not wish to take any of the forms of employment available. However, few people advocate both schemes because this would then involve the higher costs of both schemes at the same time. Furthermore, since both schemes are aimed at benefitting the worse-off members of society there is a degree of duplication if both are provided together.

The differences, then, are as follows. One important issue is the conditionality of benefits. BI is unconditional whereas JG is conditional. JG is therefore closer to present benefit proposals in this regard. However, the JG goes beyond these existing schemes by more actively attempting to improve the position of the worst off.

Both of the proposals are fairly niche, and it seems that the passive and ungenerous schemes currently existing have a fairly widespread support in our punish-the-poor, reward-the-successful society. However, if one proposal were to win out with those interested in such things it would be easier to get more mainstream attention as an attractive alternative.

Further complementarities
BI and JG are intended to improve the position of the worst off in the labour market, though they are also compatible with other policies intended to achieve the same ends; the minimum wage and earnings subsidies.

I mentioned at the outset that I would suggest providing funding for the JG through the provision of an earning subsidy (a negative hourly tax). This means that every hour someone works below the 'minimum net wage' the state/society would subsidise that income to ensure the person receives a decent amount. This would enable a drop in the 'minimum GROSS wage' (i.e. the minimum wage as it is currently called). Most advocates of the JG do not imagine the scheme to work in such a way. Instead the national programme would itself pay the workers a reasonable wage, and so the minimum wage would need to be kept (or would not even be needed since firms paying less than this would struggle to attract workers from the JG scheme).

Hopefully that provides some background to the issue for those who are less familiar with the debates. In the following two blog posts I will engage with some recent debates on the subject.

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