UBI shocks economy – crushes labor supply and raises inflation and costs – policymakers raise interest rates and cause recession

[Daniel, “Why a universal job guarantee beats the basic income pipe dream,” The Conversation – Canada, July 27, 2022, Jesuit Lexis, accessed June 27, 2023, GDS-LL]

Economic stabilizer

There are a few unique barriers that undermine universal basic income and its ability to be implemented. As we have seen with government support programs related to COVID-19, government stimulus in the form of direct cash can cause inflation. These programs reduce the supply of lower skilled employees in the job market, as some people invariably decide to stay at home, rather than work.

Like the Canada Emergency Response Benefit, universal basic income might take away the incentive to work for some, resulting in a labour market bereft of workers. This would result in a vicious cycle: employers would raise wages to attract those willing to work, which would increase inflation and cost of living, causing businesses, in turn, to raise costs to be able to afford higher salaries for their workers.

The effects of cash stimulus without controls can be far reaching. To take the resulting steam out of the economy, policy-makers often resort to blunt counter measures like increasing interest rates, which can lead to a recession.