Presentation at Melbourne Institute Public Economics Forum
Canberra, Tuesday 6 September 2016
Presentation at Melbourne Institute Public Economics Forum
Canberra, Tuesday 6 September 2016
Presentation to Jobs Australia conference, Hobart, November 2017, Peter Davidson
This is the final in my four part series on basic income. In Part 3, I highlighted potential impacts of different basic income options on the labour market and social security system. This demonstrated that basic income schemes can have adverse unintended consequences, especially for low paid workers. In this final Part 4, I examine three possible responses to these dilemmas:
(1) a means-tested Basic Living Income;
(2) a less strictly means-tested ‘life cycle’ Living Income; and
(3) a set of smaller Supplements to meet particular costs.
These could be combined to form a two-tier Basic Income scheme with a base rate of payment to meet general living costs and a supplementary tier to meet additional costs. Continue reading
In part 1 of this series on Basic Income, we travelled back in time to England on the eve of the industrial revolution in search of the first Basic Income scheme. When capitalism supplanted the traditional master-and-servant system of pre-industrial England, the Speenhamland system of local benefits for rural workers was replaced by the brutalities of the New Poor Law that denied benefits to ‘able-bodied’ unemployed people so that the factories had a ready supply of labour.
In the 20th century, the labour movement and social reformers learned from the past that under capitalism, the labour market, politics and social welfare are intertwined. They built a ‘welfare state’ on a foundation of universal suffrage, full employment, labour regulation, universal social services, and social security for people lacking enough income to live decently.
In part 2, we identified challenges to the modern welfare state including precarious employment, attempts to wind back social spending, and the increasingly harsh treatment of people relying on working-age social security payments which recalls the Poor Law distinction between ‘deserving and undeserving’ poor. This has led to new questions about whether, and how, a Basic Income scheme might be part of the solution.
This piece (Part 3) examines the structure of the ‘social minimum’ (minimum incomes) in Australia, and explores the implications of replacing parts of this system with different kinds of Basic Income.
Income support is only one element of the ‘social minimum’ – the set of social guarantees that underpin income security in wealthy capitalist societies. The three pillars of a decent minimum income are the family, labour market regulation, and the welfare system, broadly defined.
Figure 1 shows trends in key components of the social minimum income in Australia.
Figure 1: Wages, benefits and pensions for a single adult ($ per week, adjusted for inflation)
2.Minimum wages have barely increased in real terms for two decades, and there is a reasonably consistent relationship between them and Newstart Allowance rates.
A Basic Income scheme alone cannot guarantee that everyone in or out of paid work has a decent income. Critics of universal basic income are right to warn that replacing employment, wage and welfare protections and services with a minimum income guarantee is risky. It risks a repeat of the Speenhamland experience that powerful interests pull the new system down, arguing that it’s too costly and work incentives and the ‘dignity of work’ would be diminished. Another risk is that income protections in the other pillars of the social minimum – especially wages and human services – would be adjusted downwards.
A better question to ask is whether a Basic Income, together with reforms to strengthen the other pillars of the social minimum, could ensure income security for all.
Much depends what kind of Basic Income scheme is introduced. Some options are:
At the heart of the contest between different Basic Income models are tensions between adequacy and universalism, and between the obligations and entitlements of citizens.
Either a living income or an income supplement could be conditional (for example, on labour market participation) or unconditional (for example, an entitlement of citizenship). This distinction was drawn by Tony Atkinson, who advocated a ‘Participation Income’.
Tensions between adequacy and universalism arise due to the high cost of a universal scheme providing sufficient income for people to live on. As Martinelli (2017) puts it: ‘an affordable UBI would be inadequate, and an adequate UBI would be unaffordable’.
Whiteford estimates that a universal, unconditional Basic Income set at the pension rate ($21,000 a year for a single adult), with allowances for partners and children, would cost $360 billion a year, compared with the $150 billion cost of existing social security payments. A large increase in tax rates (not only for high income-earners) would be needed if this were funded through the income tax system, even if the Univeral Basic Income replaced the tax-free threshold (Scutella 2004).
On the other hand, a Universal Basic Income costing the same as the current social security and welfare programs would yield a payment of around $6,000 a year, less than half the already inadequate Newstart Allowance ($13,500).
Most debate in Australia has focused pragmatically on two options (the shaded segments of Table 1):
Table 1: Types of Basic Income
What is the likely impact of these basic income options on the labour market and welfare system?
Much of the debate over the labour market impact of a Basic Income scheme concentrates on ‘work incentives’ for paid work. As Martinelli (2017) and Bowman et al (2017) point out, this argument has been over-stated. Experimental unconditional Basic Income schemes in the United States and elsewhere have only marginally reduced labour force participation. The myth of the ‘dole bludger’ who would rather do nothing at home than work is just that. The main impacts on paid workforce participation were among people who gave priority to other activities, especially caring and studying.
The more interesting, and more important, labour market impact of a basic income is its effect on wages. This could go either way. If workers have an alternative to working for wages they may drive a harder bargain, in which case wages would rise. Alternately, if workers have access to a wage supplement, employers may drive a harder bargain to capture this subsidy, or the Fair Work Commission may discount minimum wages, in which case wages would fall.
Option 1 (Basic Living Income) is likely to improve pay and conditions for low-skilled work. It might (modestly) reduce workforce participation among unemployed people, especially if unconditional. Low-skilled workers, who are less likely to have substantial family resources or personal savings to fall back on, would have a viable alternative to working in a job they don’t want.
If the Basic Living Income were income tested to moderate its cost, then it is of no immediate benefit to middle and higher income-earners, but would still play a vitalinsurance role for those households. We all face risks such as redundancy, ill health or marital separation.
Option 2 (modest Universal Basic Income) is likely to strengthen pay and conditions for higher-skilled work and may reduce their paid workforce participation slightly (mainly among parents and other carers). This is because even a modest Basic Income would enhance choices for those with significant family support or savings.
However, it would probably reduce wages for low-skilled workers who lack family support or savings. A modest Universal Basic Income would do little to improve their bargaining power. Unless it is built on a solid foundation of robust minimum wages and secure working hours, the subsidy is likely to captured by employers, especially if Fair Work Commission takes account of a major increase in public support when setting minimum wages.
Climbing or sinking?
(Source: Koi Bito Forum)
The end result could be an increase in wage inequality. By supplementing low-paid, insecure work, there is a risk that a Basic Income that is too low to live on could entrench it for people lacking bargaining power.
In Part 4, I will examine three possible responses to the dilemmas identified above: (1) a means-tested Basic Living Income; (2) a less strictly means-tested ‘life cycle’ Living Income and (3) A set of smaller Supplements to meet particular costs. These could be combined to form a two-tier Basic Income scheme with a base rate of payment to meet general living costs and a supplementary tier to meet additional costs.
This four part series is written based on the presentation, ‘From basic income to poor law and back again: can a UBI break the Gordian Knot between social security and waged labour?’, by Peter Davidson at the Australian Social Policy Conference at UNSW on 27 September 2017.
In the first part of this series, we followed the introduction and abolition of the first ‘Basic Income’ scheme, the Speenhamland system in the United Kingdom in the 19th century. When Britain industrialised, cash benefits were replaced by the ‘New Poor Law’ and the Dickensian workhouse. The conclusion drawn by social reformers was that to end poverty and financial insecurity, they would have to work on a broad front: from industrial regulation to universal suffrage and the construction of a welfare state (social security, education and community services). This strategy was very successful, but now there are concerns that it no longer works and can’t be sustained.
This four-part series explores the genesis of the idea of a ‘basic income’, how this evolved into a more broadly-based strategy for social improvement, the risks to job security and the welfare state, and the role of a basic income in overcoming them.
It featured recently in the Australian Tax Transfer Institute’s policy blog
Part 1 examines the surprising origins of basic income. Continue reading
I haven’t blogged for a while. My excuse is that I’m writing up my PhD thesis comparing the emergence of activation policies in four countries: Australia, United Kingdom, Denmark, and the Netherlands. As you can imagine, this is taking a while!
In case this is a topic that interests you, here’s a sample of my work: a paper I presented at the FISS conference in Sigtuna Sweden in 2014 comparing activation in the UK and Denmark:
The conclusion? These two pioneers of activation policy took the same ideas – structural unemployment, activation, and New Public Management, and implemented them differently. They put the activation policy jigsaw together in different ways. Path dependency was at work here: the two countries had very different sets of labour market and social security institutions, and still do.
With an unemployment rate of 4.1%, Norway must be getting a few things right. In 2007 they did what few countries do: seriously invest in an employment program to reduce entrenched, long term unemployment. The two-year ‘Qualification Program’ aims to overcome social barriers to work as well as low skills. Participants must undertake full time activities and caseloads are 1:18. In a new twist on work incentives, they receive higher income support than similar unemployed people. It’s not cheap, but 4 years after starting the program, long term unemployed people are 18% more likely to be employed.
The WordPress.com stats helper monkeys prepared a 2015 annual report for this blog.
Here’s an excerpt:
A New York City subway train holds 1,200 people. This blog was viewed about 7,200 times in 2015. If it were a NYC subway train, it would take about 6 trips to carry that many people.
The emerging narrative on tax reform in Australia goes like this:
This blog answers the question: which are more economically efficient – personal income taxes or consumption taxes?