UBI solves crisis moments by guaranteeing low income workers a living income whilst avoiding high costs

[Kourtney, DIONNE POHLER , RAFAEL GOMEZ , AND AKSHAY MOHAN, “Public Policy in a Time of Crisis: A Framework for Evaluating Canada’s COVID-19 Income Support Programs,” Centre for Industrial Relations and Human Resources, University of Toronto, Toronto, Ontario, Canada, JSTOR, Accessed 6/25/23, JCP – PL]

***TBI – Targeted Basic Income

***EI – Employment Insurance

Comparing Alternative COVID-19 Basic Income Proposals with the Canada Emergency Response Benefit and Canada Emergency Wage Subsidy Using the Efficiency–Equity–Voice Framework

To assume that work is, on average (or even on the margin), disutility is not well supported by the quantitative and qualitative evidence during the COVID-19 pandemic or otherwise. The assumption that work is disutility leads to the belief that most people (and, in particular, low-income workers), if not engaged in market-based work, are shirking. At the best of times this is a flawed assumption; however, during COVID-19 this assumption is particularly problematic because individuals may refuse to work simply because they are following public health orders to shelter in place or are staying at home out of fear of contracting COVID-19 or exposing loved ones to the virus.

This assumption of work as a “bad” leads to the design of income support programs that may be simultaneously inequitable and inefficient, as policy-makers link receipt of crisis income supports to unemployment and labour market participation (as can clearly be seen in both the CERB and the CRB program that replaced it), attachment to employers (as can be clearly seen in the CEWS), or both. Inequities arise when workers are unable to access COVID-19 income support, for instance, if they quit their job or made less than the threshold amount of $5,000 in 2019 (or the previous 12 months). Explicitly linking income supports to job or income loss leads to the corollary that those who did not lose their jobs or income should not receive supports. This, however, is difficult to justify when many low-income essential workers (e.g., grocery store clerks, food production workers, and personal support workers) bear the greatest risk of COVID-19 exposure on the job because they are less likely to be able to perform their jobs from home and are more likely to work in public-facing roles (Lu 2020).

Although an economy needs workers to function, provincial and territorial governments believed that the threat of COVID-19 was so serious that it warranted widespread lockdowns and business closures on multiple occasions. Throughout the various waves of the pandemic, working from home became the new norm for many professionals who were able to do so. Indeed, many high earners (such as university professors) were encouraged to work from home or collectively organized against the perception of being forced back into the workplace (Samba 2020). Inefficiencies also arise because crisis programs too closely linked to labour market participation may be more administratively complex and costly to implement quickly or to audit post-crisis, and they can stall healthy structural economic adjustments that may be inevitable post-pandemic.

In addition to the inequities and inefficiencies that arise from linking crisis supports to participation in the labour market or unemployment, there are also implications for worker voice. Recall that the CERB was officially not available to workers who quit their jobs (e.g., because of fear of the virus) or to those who earned less than $5,000 in the previous year. The effect of these eligibility restrictions is that they do not allow these workers to access support, nor do they give them the freedom to choose whether to continue working during a time when there is a high risk of exposing oneself (and one’s family) to a potentially fatal virus.

The CEWS, a program that encourages attachment to employers, may be particularly problematic for worker voice. Low-income essential workers, who are less likely to have a job that can be performed from home and whose employers are likely receiving a wage subsidy through CEWS or a wage supplement for their essential workers, may face even greater inequality in bargaining power during the crisis vis-à-vis their employers. Without an alternative income source or access to savings, these workers may be less able to say no to unsafe work even if they or their family members are at a greater risk from COVID-19 mortality. They may also be less willing to voice concerns about workplace safety.

One of the more hotly debated alternative policy ideas for addressing the crisis involved delivering some form of a basic income through the tax system. A basic income is an unconditional income transfer from the government to individuals or families. During the COVID-19 crisis, politicians (McCullough 2020), academics (Pohler et al. 2020), pundits (Boessenkool 2020), non-profit organizations (UBI Works n.d.), and individual citizens (Monsebraaten 2020) voiced support for the introduction of some form of a basic income program. Two types of basic income programs emerged from the flurry of proposals: one in the form of a UBI and the other a TBI. The common characteristic of both types of basic income proposals was that income support was not conditional on (un)employment, lost hours, or ongoing participation in the labour market. However, they also have important differences.

The crisis UBI proposal involved distributing $2,000 to all Canadians who filed taxes in 2018 (Boessenkool 2020). Boessenkool (2020) argues that distributing a crisis UBI through the tax system would have been relatively quick and efficient, although it would have come at a high cost: $57 billion per month. Because the duration of the CERB was seven four-week periods, the total UBI program cost over this period would have been almost $400 billion. Boessenkool notes that, to reduce the net cost of the policy, the UBI could be clawed back during the following year’s tax season (as we write this during the 2021 tax season, we are still in the midst of pandemic-related lockdowns in many provinces).

Our TBI proposal similarly relies on distributing emergency cash transfers through the tax system, but rather than complete universality, direct cash payments of $1,000 per month (non-taxable) would be targeted toward low-income workers (aged 15 y or older) who earned between $0.01 and $22,000 in 201911 and who filed taxes. This monthly amount (i.e., $1,000) was chosen because it is close to the average monthly social assistance provided to single working-age people across the country (Pohler et al. 2020), and the $22,000 threshold was chosen because it is roughly the amount of income at which monthly EI benefits would also have been $1,000, assuming EI eligibility.12 Workers who earned more than $22,000 in 2019 would be ineligible for the TBI. Workers who made more than $22,000 and found themselves unemployed could still apply for EI benefits under the normal eligibility rules. Because self-employed workers voluntarily opt in to EI benefits, and many may not do so, in our modelling we also provide the $1,000 transfer to all self-employed workers regardless of their earnings.

The estimated cost of the TBI alone is $7.7 billion per month (over seven four-week periods, this would have a total cost of $53.9 billion). The cost of EI under this proposal is difficult to estimate, but we use the number of CERB applications by federal income tax brackets to calculate what the EI cost might have been under our proposal. Our highest program cost estimate assumes maximum monthly EI benefits for the number of individuals within each tax bracket that applied for the CERB for a cost of $6.1 billion per month.13 For CERB applicants in the first tax bracket, we exclude those who earned less than $22,000 in our EI cost estimates because these individuals would receive our TBI. Assuming each CERB applicant received full EI benefits for all seven months, the total cost of the EI component of our proposal is $42.7 billion. The gross cost of our combined TBI–EI program is thus $96.3 billion (note that we include students in all computations). By comparison, over the seven-month period, the GST-C, CCB, and OAS–GIS top-ups are estimated to cost approximately $10 billion in total; the CESB is estimated at $2.9 billion and the CERB at $76.7 billion. Although it is more difficult to estimate the cost of the CEWS from March to October, the 2020/21 fiscal year cost is estimated to be $74 billion. The estimated total cost of all these programs is therefore about $164 billion (Office of the Parliamentary Budget Officer 2020). Our proposed program thus costs substantially less at $96.3 billion than either the UBI ($400 billion) or the government’s mix of crisis supports ($164 billion).

Two caveats are in order. The first caveat is that the UBI was proposed as taxable income, which would reduce the program cost (the CERB was also taxable income, and the cost estimates provided by the Parliamentary Budget Officer for the government programs that we use here represent the net cost to the government). It would take a substantially higher tax rate on UBI benefits to place the net cost below the TBI–EI program, and the CERB program costs also do not take into account the post-crisis auditing costs. The second caveat is that if the CEWS had not existed, more people may have had to rely on EI, increasing the cost of our TBI–EI program; however, the CEWS will require more substantial post-crisis auditing. To facilitate comparison, Table 3 places the CERB and CEWS alongside the UBI and TBI–EI proposals in terms of eligibility criteria, payments to recipients, and total estimated program costs.

Critiques of basic income proposals have been made on equity- and efficiency-based grounds. For example, Cameron and Petit (2020, 1) note that the implementation of a basic income would have been too slow and that

policymakers know that designing and delivering new programs takes time; as we have seen … even applying top-ups to existing programs cannot be done overnight. … The best option for governments is to avoid creating new programs, and to instead use systems and infrastructure already in place.

This argument lends supports to our earlier point that programs that are slow to implement are inefficient, particularly during a pandemic when individuals require immediate income support. However, the flagship CERB–CEWS programs implemented by the federal government also did not exist before the crisis, and there is no reason to believe that a basic income would have required any more up-front investment of time. Indeed, it may even have been more efficient in the long run: it would have more directly addressed the limitations of EI (particularly its inaccessibility for many low-income and self-employed workers) by introducing a much smaller number of programs than were ultimately implemented (see Table 2). Moreover, it would not have required extensive auditing of CERB and CEWS claims post-crisis, nor the creation of the CRB to eliminate the highly criticized work disincentives within the CERB design. Although the CERB application process was a major improvement over the EI system, there are further administrative efficiencies that could be made using approaches that relied on information the government already had, requiring less administrative oversight and delivery of multiple programs and post-crisis audits as a result of less room for individual errors in interpretation of eligibility across numerous programs.14

Another critique of the basic income proposal is that some individuals would be missed using tax files as a result of changes in banking and address information and because approximately 10 percent of Canadians do not file taxes (Robson and Schwartz 2020). However, the 90 percent of Canadians who do file taxes could theoretically update their bank and mailing address information with the Canada Revenue Agency (CRA), and those who had not previously filed their taxes could do so if they wanted to be eligible for the benefit. The CERB also required all eligible individuals to apply for benefits through either the CRA or Service Canada, and CERB is a taxable benefit, so recipients who have not previously filed taxes would still be required to do so in the subsequent year.

Cameron and Petit (2020) argue that basic income proposals often lack a targeting feature and thus do not account for heterogeneity of need (i.e., they fail to achieve vertical equity). Although we agree that the UBI is not targeted, our TBI proposal explicitly prioritizes vertical equity during the crisis, because not everyone who lost their job was in need of emergency income support. It was more likely that low-income workers who lost their jobs would have been in need of emergency income support because they would have been less likely to qualify for EI or to have savings to help them weather the crisis in the short term. Because the CERB provides $2,000 a month to recipients regardless of their actual need, that program is also relatively blunt and so Cameron and Petit’s vertical equity critique applies to the CERB as well. Although the CERB is taxable income, there are no plans to claw it all back from the highest income workers.