Arguing for Universal Basic Income

By Abhay Venkitaraman

Alaska: it’s a frigid expanse, peppered with a plethora of wildlife, barren tundra, and glaciers. What most people wouldn’t associate with it – however – is a revolutionary idea that has the potential to radically transform our way of life: universal basic income.

Replete with oil and gas reserves, Alaska’s government places 25% of its annual fossil fuel revenues into a ‘Permanent Fund’. The money is then invested in a variety of assets, with the returns on these investments funding an annual dividend that almost each and every Alaskan receives – irrespective of their income.

Alaska’s UBI policy is a shining beacon of hope. An idea that has been argued for by luminaries ranging from American economist Milton Friedman to philosopher Bertrand Russell, it has recently increased in prominence within the public sphere. And for good reason too – in a world that is all too often fraught with burgeoning inequality, economic insecurity, and welfare systems that trap the people they purport to help, UBI would represent a giant leap towards a fairer, more prosperous society.

A UBI would provide an additional source of income to individuals and families, providing them greater security against financial difficulty and poverty, and providing them added freedom to engage in endeavours that they otherwise may have been dissuaded from by the cost. With demographic groups such as the elderly, children, and disabled especially prone to poverty, a universal basic income would allow money to be efficiently-transferred to impoverished households, relieving stress and providing them the ability to meet their basic needs. It would also lessen the burden on those employed in insecure workarrangements such as casual workers, who do not have a set number of minimum working hours, and whose earnings are thus volatile and unpredictable.

This newfound economic security would have a secondary effect: increasing the bargaining power of workers. In an era where the share of income reaped by labour has consistently declined, policies that would empower workers to bargain for a larger slice of the economic pie are more necessary than ever. Right now, workers are often stuck between a rock and a hard place, having to make an agonising choice between exploitative work on one hand, and abject poverty on the other. By providing people income security even in the event of unemployment, UBI would allow employees to turn down substandard jobs, providing them breathing room to scout for employment opportunities that offer upgraded pay and improved working conditions. This could go a long way towards bolstering wages, crushing corporate greed, and evening the balance of power between capital and labour.

Some worry that this income security will reduce work incentives, diminishing employment and output. However, the bulk of the empirical literature suggests that this is not something to worry about. A review of basic income trials in the OECD noted that the policy had a “weak” impact on employment outcomes. Similarly, a study of the UBI programme in Alaska suggested that it had no significant impacts on full-time employment. There are important caveats, however. In the case of the basic income trials, participants were acutely aware that the payments were temporary, and it’s certainly possible that work incentives could be significantly diminished if they were made permanent. Moreover Alaska’s UBI programme only pays out roughly one-thousand to two-thousand US dollars annually: substantial, but hardly enough to make ends meet on its own. Therefore if a UBI were set at a livable level, it’s certainly possible that its effect on employment would be more robust.

However, it seems plausible that opposition to UBI on the grounds that it would diminish employment reflects a fundamental misunderstanding of human nature. If people sought out work solely for the purpose of earning money, then this would be a more legitimate critique. Ultimately though, this just isn’t the case. Work isn’t just a source of income; it’s a source of dignity and purpose, and an act that increases the prestige of those that engage in it. It’s no coincidence that long-term unemployment has been shown to diminish the self-esteem of those that fall victim to it. Therefore, it’s reasonable to assume that most employees are likely to pursue work even if a universal basic income were to meet their most basic needs.

There’s even the possibility that a UBI would increase work incentives if it were to replace means-tested benefits. Means-tested benefits are only available to those who earn an income below a certain threshold; as such they are typically only accessible to poor and lower middle-income households. With means-tests in place, benefit payments “phase out”, meaning that after a certain level of income is reached, benefit payments taper off the more money households earn. With many means-tested programmes, this is taken to the extreme; for example many claimants of ‘Universal Credit’, a means-tested welfare payment in the United Kingdom, see 55% of every additional pound of income they earn snatched away from them by the state. These phaseouts act similarly to taxes, diminishing the incentive to work, save, and invest. Infamously, they often create “welfare traps”: situations where it pays more to remain on benefits than it does to work.

With a UBI in place, each and every person would receive the same amount of money from the state, regardless of whether they are a billionaire or an impoverished worker. Some might object that this is unfair; after all, why provide handouts to the affluent when they don’t actually need the money?

One good reason for this is that with universal programmes like a UBI in place, benefits don’t phase out, thus avoiding the poverty traps and work disincentives that plague means-tested benefits. As compared to means-tested benefits – therefore – a UBI would do vastly more to reward individual initiative and thrift; rather than punishing working families for earning more, a UBI would let these households keep more of their hard-earned money. Not only do means-tested benefits discourage work, but they are also difficult to administer, as the process of targeting benefits payments at those who are eligible is a deeply arduous and expensive endeavour. They also impose complex paperwork on claimants, making it harder for impoverished families that desperately need state assistance to claim welfare payments. In contrast, a UBI is simple to implement and doesn’t force a colossal administrative burden on those that claim it, increasing takeup rates and easing people’s lives.

By providing households cash with no strings attached, a UBI would also do away with onerous eligibility restrictions that demean welfare recipients and constrain individual liberty. In our present paradigm, welfare payments are often made conditional on claimants meeting specific conditions; often they must be actively seeking work to receive state aid, and claimants are sometimes disallowed from purchasing particular products; claimants of the United States’ ‘Supplemental Nutrition Assistance Program (SNAP)’ – colloquially known as “food stamps” – must face up to an assortment of peculiar restrictions on what foodstuffs they can buy, such as a ban on the obtainment of food that is hot at the point of sale. Not only do these restrictions prevent individuals from exercising their right to choice, but they are fundamentally degrading, treating grown adults like children and revealing a fundamental disregard for the agency of claimants.

Whilst a UBI would certainly present a step in the right direction, it certainly wouldn’t be enough in itself. It would do nothing to relieve market failures in areas such as the healthcare industry, nor would it relieve supply constraints that are commonplace across the developed world, particularly in relation to housing. Nonetheless, in many respects it reigns supreme over welfare models that are currently predominant, and therefore ought to be heavily considered by governments and policymakers.