A basic income wrecks unions, job guarantee is preferable

Yameen, Senior analyst at Ernst & Young, “For a Universal Job Guarantee,” American Affairs Winter Volume I, Number 4, 2017 https://americanaffairsjournal.org/2017/11/universal-job-guarantee/

The Politics of a Basic Income

Some support a BI because the consolidation of several welfare programs into one can potentially raise its political profile and therefore secure popular support. This would theoretically make the program more difficult to weaken or eliminate.18 But this hypothesis is not borne out by the history of other welfare programs. Large, universal programs, such as Social Security and Medicare, are always part of the political discussion when it comes to budgetary cuts. The key reason they have been able to resist cuts in the past is that their largest benefits are concentrated among a particular group of constituents—the elderly. Mancur Olson’s classic analysis of government programs states that the political sustainability of a program is a function of how concentrated or diffuse its costs and benefits are. Programs that benefit a narrower, more homogenous group of recipients, while spreading costs among the broader population, are more sustainable than programs that do the opposite. A program like the BI would have the most diffuse benefits possible, to the entire political community or “universe.” While the revenue could come from the broader population, the implicit costs would be most heavily borne by existing labor institutions such as unions, who would therefore have an incentive to fight and weaken the program. The high-profile nature of the program also makes it a target for modification and adjustment when governments are under pressure to make cuts, as was seen in Finland’s implementation. The Policy Implications of a Basic Income The actual impacts of BI center around three different aspects: how it impacts individuals, the community, and those beyond the nation’s borders. In terms of its individual impacts, economic theory and the limited case studies available (such as Manitoba) clearly demonstrate that a BI disincentivizes work and reduces participation in the labor force. Income, like any other good, is subject to diminishing marginal utility. You and I may claim that we would continue working simply because of the joy we find in it, but, chances are, we do not represent the general population. For the working-class American who performs difficult, manual, or more repetitive labor, the chance to escape work would carry great allure. Therefore, an initial endowment of income, regardless of employment status, reduces the incentive to seek further employment. When viewing the BI as a transition from, and at least partial substitution of, the status quo, the program has even worse distributional effects. In pursuing universality, advocates of a BI would actually redistribute wealth upwards.19 This would not only be undesirable from a policy perspective, but would surely be used as a political argument for transforming the program into something means-tested, thereby defeating its original purpose. And this is just the economic analysis. Due to difficulties in experimental design, social scientists have not considered social impacts nearly as much as economic ones. Yet it is the social impacts in particular that could prove most disastrous. Standard economic theory focuses on how individuals make decisions given a particular set of institutions and desires or “utility functions” that stem from one’s identity. What is left out of the model is how a given set of institutions can shape and transform those desires through “culture” over time. If a program like BI “emancipated” individuals from the drudgery of work, then it could reshape a society into one where work is undervalued. This is not an exaggeration if one takes seriously the claim that a key feature of these programs is that they can “liberate” individuals from work. Individuals who grow up in such a world would be shaped by a community that says the good of “work” should be less of a priority than it is today. A conservative opposed to untested, radical change should be skeptical of this kind of social transformation. In the age of wonkery and data, the policy discussion above is where the analysis often ends. But in the long term, it is politics that determines whether a program will survive or work as intended.

If one takes a tripartite view of society, with a public, private, and civil sector, then a BI could further shrink one of the most important elements of civil society—labor unions. After all, a BI is an individualistic policy: by raising each individual’s own personal bargaining power, it diminishes the need for collective bargaining and social solidarity.20 When individuals have a stronger exit option, they are less likely to voice collective opposition towards an organization or institution than to simply leave it.21 This is why unions have expressed concerns that a livable BI will render them superfluous. By further weakening this core civil society institution, the BI removes yet another of Burke’s little platoons that play an active role in intermediating between society and an ever-centralizing bureaucracy and advocate on behalf of the community beyond the ballot box.22

This is why highly unionized countries, such as Belgium, fought against proposals for a BI. Belgium operates under the “Ghent system,” in which unions receive the revenue for subsidized unemployment insurance programs and operate voluntarily. An independent BI would weaken unions at the expense of an even stronger federal government. Since at least a portion of the American welfare system is funded by social contributions and not general taxation, a movement towards a generalized BI could be perceived as a massive expansion of welfare.23

And all of this presumes that individuals would grow to like the program in the first place. Career and work form a key part of a person’s identity. A society with a livable BI will invariably split the working classes into those who continue to work and those who choose not to. This kind of intra-class conflict would damage social solidarity and create new artificial divisions amongst individuals at a time when national solidarity and a sense of common community have fallen to an all-time low.

An economic response to all this is that by increasing flexibility and freedom for individuals, those same individuals can seek out new opportunities elsewhere. This results in a classic prisoner’s dilemma, however, for communities as a whole: large numbers of individuals relocating in search of new opportunity diminishes the social capital of some communities. Depreciated social capital and trust can result in outcomes that reduce the productivity of every aspect of a community and the broader economy.

Lastly, changes in a country’s social institutions and policies change the type of people who wish to immigrate there. A policy that promises future citizens freedom from work would attract a very different type of immigrant than the classic entrepreneurial types of yesteryear. In becoming a magnet for individuals who may not want to work, the BI undermines itself.24

Simple ideas often have a seductive allure, promising that society’s many ills can be cured with policies that seem intuitively desirable. Such policies, however, must withstand the scrutiny of rigorous analysis and historical evidence. In this regard, the BI fails on multiple counts. It is not sustainable in the form advocated by its most ardent supporters. In fact, in the few cases of attempted implementation, BI models were almost immediately overturned or altered beyond recognition.

The biggest cause for concern, however, transcends its basic sustainability issues. Epistemic restraint should make one wary of attempts to transform society in ways that we neither understand nor have any prior context for. This humility tends to discourage any adoption of a BI proposal.

But what to do instead? The ills of the modern economy will continue to exist under the status quo. Is there a program that effectively addresses these issues, while operating through existing social institutions and norms?

How Would a Job Guarantee Work?

Versus the BI, a job guarantee (JG) is a superior option, both in terms of policy efficacy and political feasibility. While it is also a relatively new concept, having emerged in the past few decades, it is preceded by various forms of public works programs. Like the public works program, it involves the government directly providing jobs to people, particularly in times of high unemployment and low labor-force participation. Unlike the traditional public works program, however, a JG tackles unemployment and poverty at both a macro and microeconomic level.

So how does it work? The government determines whether there are unfilled jobs in society—usually because the value add of such work is a public good. It then provides a fixed wage to any and all who are qualified and interested in performing the job. This can be both the unemployed and people employed in other industries. The point is that the job is universally provided at a fixed wage. In doing so, the government can operate as an “employer of last resort” that uses the price of labor to regulate its quantity.25

One current proposal for establishing JG is offered by the Center for Full Employment and Price Stability. The proposal is to offer a job to all, regardless of the state of the economy and each applicant’s demographic characteristics. By offering a living wage, the proposal would hire from the bottom of the labor pool and stabilize lower-level wages. As such, this policy could be a mechanism for implementing labor-market reforms alongside labor market stabilization.26

Addressing Demand- and Supply-Side Issues

Unlike BI, a JG program would tackle both supply- and demand-side issues related to labor, and therefore be a tool of both macro- and microeconomic policy. The age-old question of macroeconomic policy is whether policymakers should fix the level of employment and deal with inflationary or exchange-rate pressures, or fix the inflation rate and deal with unemployment. Given that evidence suggests unemployment costs are asymmetrically higher than the costs of inflation, it would be sensible to focus on the former.27