A primer on universal basic income

[Strap in, this is a long one]

Several countries around the world have either tried universal basic income (UBI), or are thinking of trying it to attempt to solve or mitigate economic issues in their society. The Ontario Liberals were experimenting with it just before the Conservatives won the last election, but it was cancelled for political reasons even before it had a chance to produce enough data to make a sound decision. The Canadian federal government is currently toying with the idea as a means to mitigate the problems born out of the Covid pandemic, so I felt it's a good time to give folks a primer on what UBI is, and why it might be an idea worth exploring.

One of the biggest assumptions put forth by those against the concept of UBI is that suddenly people are going to be given money they haven't earned, which will make people lazy and all quit their jobs. The fact is, our governments already give us money in one form or another, from Employment Insurance, to family allowance, to welfare, to education funding. UBI is simply a different way to manage the money that is distributed, and I would argue, a more efficient and fair way as well. Let's look closer.

The biggest problem we face in our lives is the inability to make ends meet when circumstances change. We lose our job, or have to quit a full time job to return to school. We get sick and run out of benefits, if we had any to begin with. We want time off but we don't get vacation pay. We're injured or disabled and can't work every kind of job. The work we do is seasonal. All we can find is part time work. A partner dies or leaves and we lose the benefit of access to their shared income. There are so many examples of situations where we lose income and suddenly we can't quite pay our obligations, whether it be rent, a mortgage, a car payment and the associated costs, or bills and groceries, just to name a few.

In a world that was more fair, all jobs would come with benefits. All jobs would pay a living wage. The economy would be structured to make it less likely for you to lose your job. Never mind the factors that are unpredictable and mostly unpreventable. So at some point, you're going to need financial assistance. It's just a question of when and for how long. But you don't just get what you need when you need it. There's a game we have to play, of proving that we qualify, proving that nothing else in our situation would make us qualify for less (such as living with a supportive partner), and so much more. It's never free money, it always has strings attached and the game is rigged against us. Take my word for it. I have worked all of my adult life and only needed EI help 3 times. The first time I didn't qualify for any money because of my severance, the second time I did qualify, but there were special rules attached and then after I got work again, they took the money back because I earned too much that year (which I was never warned might happen). The third time I got money but it wasn't near enough to make ends meet considering my mortgage and car payment. My story is certainly not the worst. So the system is not only rigged against you, but there is a hefty bureaucracy employed to decide who gets what, when, and for how long. Estimates put that overhead cost of each program at billions.

UBI is the alternative. There are no rules. Once you become an adult, you get paid. Everyone gets paid the same amount. Every month. Forever. Do you have a job? You still get the money. Married? You still get it. Retired? Still paid. There's only one down side. All of the other programs are gone. EI, welfare, family allowance, mother's allowance. They're done. So how does that work?

It requires financial discipline and planning. Basically, if you're working and you earn enough money to make ends meet, you shouldn't be spending the UBI, you should be saving it. If you need to use some of it to get by, you should be saving what's left. That way, if you lose your job, you not only get the UBI anyway, you have access to all the previous UBI you managed to save. Let's say for sake of argument, that UBI ends up being $1500 per month. If you're doing well with your salary, that's $18,000 per year that you can be putting away for a rainy day. Under the current system, you have to have worked a certain number of weeks to qualify for EI, and then they only pay you for so many weeks, then it's over. In the UBI scheme, you are your own EI bank. Have you worked for ten years and now need help for a year while you go back to school? $180,000 should cover it, assuming you didn't make any interest on it. Of course, this really puts the onus on the person to have their ducks in a row, but that's what it's all about. 

There are two major upsides to this program. The overhead cost is almost nothing. Everyone gets the money, there's nothing to decide. The other upside is that you have the freedom to use the UBI as you see fit. Unemployed? Live off the UBI. UBI not enough? Get a part time job to lift yourself even further above the poverty line. Are you trying to start a business but need some bridging money to keep paying bills until the business starts earning? Have you managed to sock some UBI away? Start using it. UBI would lessen the need for food banks, homeless shelters, etc.

Now, I make it sound like rainbows and unicorns, but UBI has its challenges out of the gate. Someone has to pay for this. That's called taxes. You're already paying EI premiums. Now you'll be paying UBI premiums. Except, unlike the current situation, the is no maximum contribution. If you earn a lot of salary, you pay more into the pot. Now, some will argue that this is self-defeating and that the top earners in industry will leave. But as soon as they see that people who have disposable income tend to buy more, and the added people who are spending makes for a strong economy, that attitude will evaporate.

Someone is going to have to figure out what the fair payment amount per month should be. It has to be enough to be a livable income to afford basic necessities, and it has to be indexed to the cost of living, meaning PEI residents might earn a different UBI than someone in Manitoba.

There are some who say that all a UBI will accomplish is motivating people to quit their jobs, sit on their couches and play video games all day while eating fast food. This is simply not a realistic prediction based on the fact that UBI will not make for a luxurious lifestyle, or even a normal one. Also, the point of UBI is not to make it so you don't need to work. The point is to both bridge the bad times and give you enough of a cushion to get the kind of education that would earn you a great salary. This is the key. Which means that an overhaul of post-secondary tuition would need to be part of the plan. You should not need to go into debt to further your education. Which has a net benefit to the economy in time.

One of the reasons this topic has emerged so much lately is due to the Covid-19 pandemic. Various governments, including Canada, have felt it necessary to save the economy and the people in it with a variety of payments during the peak of the shut down period, notably CERB in Canada. It has been argued that had we been using UBI, this wouldn't have been necessary because people would have been able to live off UBI plus however much UBI they had saved. I'm certain the government might also need to give everyone a pandemic financial booster shot too. Considering the devastating impact disasters have on our economies and the fact that most experts expect the number and intensity of disasters to increase in the future, this pandemic situation likely won't be the last event that forces us to either isolate from each other or be displaced for lengths of time. UBI could soften that blow.

Workplace automation is an expected result of the continuing advance of technology, robotics and AI. You don't hear much about it in the news, but countless jobs have already been lost to technology and that trend is not expected to stop or slow. Which means that the economy is going to need an overhaul if we're going to be able to house and feed everyone in the future. It's been suggested that the cost of UBI could be subsidized by taxing the extreme profits corporations will enjoy as a result of low overhead with a skeleton workforce. After all, robots and AI don't need vacations, sick time, breaks or benefits. Or even offices and parking spaces for that matter.

Lately, I've begun to realize that even though some corporate CEOs are trying to set a new example of levelling the income playing field and eliminating the idea that a CEO or executive could make hundreds of times what an average worker in the company makes, most corporations have paid little attention to the outcry of income inequality. The rich get richer and the poor get poorer. So the introduction of UBI would finally create an opportunity to start levelling the field. There was a time when a CEO only made 30 times more than the average worker. That seems reasonable to me. I'll even be generous and propose 50 times, so long as that includes bonuses and perks. Oh, multi-million dollar athletes? Yeah, we're coming for your money too.

Incidentally, UBI is not by any means a new idea. Richard Nixon wanted to overhaul the welfare and tax system to develop a negative income tax to replace welfare and other benefits. The idea being that below a certain income threshold, the government pays you. The less you make, the more you get. The opposite being true as your income went up.

There have been several experiments with UBI type schemes over the decades. Some studies have looked at employment levels during the experiments with basic income and negative income tax and similar systems. In the negative income tax experiments in the United States in the 1970s, for example, there was a five percent decline in the hours worked. The work reduction was largest for second earners in two-earner households and weakest for the main earner. The reduction in hours was higher when the benefit was higher. Participants in these experiments knew that the experiment was limited in time.

In the Mincome experiment in rural Dauphin, Manitoba, in the 1970s, there were also slight reductions in hours worked. However, the only two groups who worked significantly less were new mothers and teenagers working to support their families. New mothers spent this time with their infant children, and working teenagers put significant additional time into their schooling. Under Mincome, the reduction of work effort was modest: about 1% for men, 3% for wives, and 5% for unmarried women.

A 2018 study of the Alaska Permanent Fund Dividend, which has paid out an average of about $1,600 annually per resident (adjusted to 2019 dollars), and considered the largest scale universal basic income program in the United States, running from 1976 to the present, seems to show that although there is a small decrease in work by recipients due to reasons like those in the Manitoba experiment, there has been a 17% increase in part-time jobs. The study theorizes that employment remained steady because of the extra income that let people buy more also increased demand for service jobs. This finding is consistent with the economic data of the time. No effect was seen when it came to jobs in manufacturing, which produce exports. Essentially, the effects of higher spending supported overall employment. Case in point, someone who uses the money to help with car payments can cut back on hours working as a cashier at a local grocery store. Because more people are spending more, the store must replace the worker who started working less.

Ontario tried a limited income pilot as well, which you can read about here. 

The bottom line is this - UBI may not be perfect, and the idea really needs significant examination and thorough analysis, but it may be what saves our economy in years to come. Because the fact is, if you don't have any money, you can't buy anything. Then the economy crashes. In our current system, spending and growth is all that matters.