By Kyla Fisher, Queen’s University

Over the past few years there has been increasing discussion in the media about the potential that technological change has in leading large portions of society to be unemployed. On one side, doomsayers point to the rapid progress in automation and artificial intelligence (AI) as signs that human workers will soon be replaced. Their opponents note that these same predictions were made in the past during the industrial revolution and turned out to be incorrect. One thing that does seem clear is that large numbers of jobs are susceptible to automation. A study by Carl Benedikt Frey and Michael Osborne found that 47% of U.S. workers had jobs at high risk of future automation (Frey & Osborne, 2017). The remaining question is whether enough new jobs will be created in other industries that can employ the displaced workers. Whatever your opinion, it is interesting to consider our options as a society if we had a major increase in unemployment. To consider this, let us assume that it’s 20 years in the future and that we are facing a significant reduction in the number of jobs available. What are options? In this article, we’ll consider two of the most popular solutions: universal basic income (UBI) and guaranteed basic income (GBI).

The UBI in particular has been popular in the media over the last few years, led by proponents in Silcon Valley like Marc Andreessen and Tim O’Reilly (Sadowski, 2016). A universal basic income or “UBI” is exactly what it sounds like – an income provided by the government to every person in society. A related but much less expensive option is a guaranteed basic income (“GBI”), which targets low income households specifically and is reduced as household earnings increase. While many remain skeptical, the GBI has enough support that there are now several small pilot projects underway. Here in Ontario the government launched a GBI pilot project last year, offering a basic income to up to 4000 low-income people for a period of 3 years (Government of Ontario, 2017). Somewhat similar to an expanded Working Income Tax Benefit, the income is gradually reduced based on earnings (in this case at a 0.5:1 ratio).

Finland also began a similar pilot project last year. Unfortunately we won’t have the results from these policy experiments for at least another year or two. However, there was a similar pilot project conducted in Manitoba back in the 1970s. This project included over 1000 people in total, with a randomized selection of low-income participants in Winnipeg and rural areas. In addition, the small town of Dauphin was given blanket eligibility to test the effect of a concentrated program, more similar to UBI. It was found that the effect on labour force participation for the Winnipeg residents was minimal while the rural participants and Dauphin participants decreased their labour force participation by 8% and 11%, respectively (Simpson, Mason, & Godwin, 2017). Although no health data was collected directly at the time, based on health records it was found that the program reduced injury and mental health-related hospitalization rates in Dauphin and also reduced physician claims for mental health disorders (Simpson et. al, 2017).

One major concern people have with any type of basic income is that it may incentivize people who would otherwise choose to work to stop working. If that happened then any remaining jobs may need to offer very high wages to get people to take them, especially if they aren’t particularly pleasant. These experiments may provide some insight but arguably if a basic income program was implemented permanently and on a wide scale we might see very different effects. All of the experiments to date provide basic income for a relatively short period of time. We might expect that this would change the incentives of the recipients. If someone is offered a basic income for a short time they might be less inclined to quit their job or stop looking for work as that they will know that once the program has ended they will need to work to sustain their current lifestyle. Making a lifestyle change takes time and is a significant commitment. If there is a group of people who would prefer to live on basic income than work we would expect that they would take steps to reduce their expenses by moving to low areas with a low cost of living. However, it seems less likely that people would take such a step if they know that the income supplement is only temporary. At this point we can’t be sure that a basic income program wouldn’t decrease employment quite significantly. Another area of concern which has not been tested in the existing pilot projects is the effect of GBI or UBI on inflation. We might expect that at least some of the benefits of these programs for participants would be negated by increased prices, caused by the increased demand from low income households. For example, there is evidence from a U.S. study showing that there are price increases in goods purchased by benefit recipients on the first of the month when benefits are received (Hastings & Washington, 2010). By contrast, a recent study on a food subsidy program in Mexico found that the subsidies had a minimal effect on food prices in most areas (Cunha, De Giorgi, & Seema, 2017). Overall, further research is needed to understand the potential inflation effects of basic income programs.

Perhaps even more important than the impact on employment and inflation is the overall impact on society. A universal basic income that provides a liveable income would require extremely high taxation on the rest of society. Even a guaranteed basic income would require a significant increase in taxes to be “liveable”, despite being targeted towards low-income individuals only. How society reacts to this is likely to depend significantly on culture. We might expect more “individualistic” societies – such as the U.S. and, to a lesser extent, Canada – to react the worst. Already the U.S. sees a large amount of political backlash for its welfare programs. Unless the culture changes significantly a GBI may be politically infeasible. Proponents of UBI suggest that the universal nature of the program would make it less controversial, although at a very significant cost compared to GBI. It is difficult to predict 20 years in the future, however, from today’s perspective it seems likely that this cost difference would be prohibitive.

There may also be a negative reaction from the participants themselves, particularly if many of them are not out of work by choice. In the U.S. it has been posited that worsening labour market opportunities for certain subpopulations has contributed to an increase in so-called “deaths of despair” – death by drugs, alcohol, and suicide (Case & Deacon, 2017). While it is difficult to prove causality in this case, this trend may be due in part to a feeling of not contributing to the society, rather than just poor economic circumstances. If this is true then any type of basic income wouldn’t address the fundamental issue. It seems likely that how people feel about receiving a basic income would depend strongly on culture – and could be the most important part of the success of any basic income program.

References

Case, A., & Deaton, A. (2017). Mortality and morbidity in the 21st century. Brookings Papers on Economic Activity, Spring 2017, 397-443.

Cunha, J. M., De Giorgi, G., & Jayachandran, S. (2015). The price effects of cash versus in-kind transfers, Federal Reserve Bank of New York, Staff Reports: 735.

Frey, C. B., & Osborne, M. A. (2017). The future of employment: How susceptible are jobs to computerisation? Technological Forecasting & Social Change, 114(Complete), 254-280.

Government of Ontario (2017). Ontario Basic Income Pilot.

Hastings, J., & Washington, E. (2010). The First of the Month Effect: Consumer Behavior and Store Responses. American Economic Journal, 2(2), 142-162.

Sadowski, J. (2016, June 22). Why Silicon Valley is embracing universal basic income? The Guardian.

Simpson, W., Mason, G., & Godwin, R. (2017). The Manitoba Basic Annual Income Experiment: Lessons Learned 40 Years Later. Canadian Public Policy, 43(1), 85-104.