Basic Income: 3 Questions We Must Answer

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Originally, I was going to write this article on the Liberal government’s choice to increase the minimum wage to $14 by Jan. 1st, 2017, and to $15 by Jan 1st, 2018. [1] But, as an employee at a closely-held business , I foresee hurting both my chance of being employed in the future, as well as the security of the few hours I have as a part-time worker. Regardless,as I surveyed the work of  various research groups, I began to realize that the question, as automation replaces many of the ‘blue-collar’ and well-paying ‘white-collar’ jobs, is not necessarily whether basic income should be implemented, but rather how it should be implemented. (It was impossible to make an definitive judgements given many of the projects had completely different variations of minimum wage hikes.)

I say this because minimum wage – as with all price floors – is a form of flexible taxation whereby the government revenue generated from the additional price increase for producers (consumers of labour) is directly and immediately funneled to the laborer. This would then effectively decentivise businesses from choosing to hire people than use capital to replace them with robots, self-checkout machines, among other technologies.

Here’s a few graphs to help you understand. Here, we see a typical price floor. As with all price floors, we see a rise in the price (or the price floor would be unneeded and insignificant), but also the creation of a black market, and a shortage in demand. In the labour market, this is known as unemployment.

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But really, the effects are kind of like a tax & subsidy within the labour market. A shortage (unemployment) caused by an increase of supply and a decrease in demand.

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On the other hand, businesses are not taxed per hour of automation-technology use – which makes a lot of sense, given that intending to quantitatively measure how “much” automation a business uses for its day-to-day operations would not only be practically infeasible, but incredibly cost-inefficient. So, what exactly are different features that basic income can have to alleviate the growth of automation? Here are the three major concerns I have in terms of how we choose to implement such a policy.

  1.       Top-Up vs. Universal

Universal basic income would mean that no matter how much you make, you would receive a certain amount of funding from the government that would be uniform regardless of your income bracket. The primary criticism of this particular policy is that if it were implemented, millions of dollars in welfare would be given to families that would not otherwise need it.

Top-up basic income indicates that the government will “top up” your income until you earn enough beyond a certain threshold (current suggestions draw this at the poverty line).his also means that if you already earn more than the threshold you will not receive any benefit. While this is a lot cheaper than universal income, this would mean that individuals that may already make below this threshold, like those with a part-time job, would have no incentive to work as effectively, and they would not make any additional income than what they otherwise would by not working.

  1.       Household vs. Individual

Household basic income suggests that your basic income would be allocated for everyone in your household family, and would be scaled up as you increase the number of dependents. It is cheaper than an individually-based basic-income; however, it may increase sociological damage in financially-dependent families by forcing individuals to stay in abusive families/partnerships. As well, given Ontario’s current system regarding “crown wards”, this would leave a pre-existing problem, concerning a lack of welfare for independent 16-18 year-old individuals, untouched.

Individual basic income would be allocated for everyone, independent of one another. Given the current child benefit program implemented by the federal liberal government, this would not result in increased direct spending among children; however, it would mean that the government would be sending thousands of dollars to each individual person. This type of policy would greatly help with the government’s current “crown ward” problem, as 16-18 year old could file for formal emancipation (if Ontario does adopt an emancipation process) and receive mature basic income, and ensure that welfare payment is not a sociological factor in inciting poor relationships in communities.

  1.       What to do about labour unions in relation to a minimum wage?

Unfortunately, such an idealistic policy is incredibly expensive. It would cost the province of Ontario around 160 billion CAD (2017), a massive hike from the 6.6 billion currently spent on welfare, to give everyone in Ontario over the age of 18 a basic income of $11,000 CAD (2017) each year. While this policy is inherently more liberal and Left-wing, I tend to agree with conservatives that weaker labour unions and a lower (or non-existent) minimum wage will have to be in place. To be clear, when I advocate for weaker labour unions in the case of basic income, I mean strictly in terms of benefits, wages and firing, not worker safety standards, specifically ones that pertain the physical safety of workers.

Simply stated, many companies will have to have lower labour costs to afford increased taxation that will have to occur to fund the policy. Even if all 160 billion CAD is spent, only around 13% will return to the Ontario government (as most businesses don’t pay HST). This would mean that, nominally, $20 billion will be directly re-absorbed by the government through private spending. However, unlike a minimum wage hike, tax hikes affect all businesses equally, whereas minimum wage hikes hit labour-heavy businesses the heaviest. Moreover, classical economics suggest that in the long-run, prices are neutral, and other wages will increase, creating a sort of “fiscal inflationary” effect, thus diluting the intended wealth redistribution effect.

In any case, I hope that we continue the dialogue about basic income, the philosophical and behavioral consequences and, more importantly, the potential benefits in ensuring a balance between aggregate supply and aggregate demand in the technological age, where at every turn previously-held economic assumptions are challenged, even scarcity itself.

Sources:

BIEN:  basicincome.org

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