Corona’s opportunity for basic income

Iris writes*

Advocates of Universal Basic Income (UBI) argue it will reduce financial stress, increase employment, and reduce poverty. Opponents of providing people with unconditional funds argue UBI is too expensive, unproductive and does not fit into the capitalist market economy [pdf]. Although experiments have been done and roundtables held, so far none have led to the full, long-term implementation of a UBI. With the current global crisis looming, however, now would be the perfect time to implement UBI, and reap its benefits in the future.

With many people becoming unemployed due to the crisis, as well as many at risk of becoming so, governments have invested huge amounts of money into businesses and individuals. In order to limit the effects of the corona crisis on the finances of individuals and businesses, governments have made available relief funds, used for subsidizing the move to online platforms, giving companies relief money to limit the number of employees that are fired, or even transferring money directly to individuals.

Although these investments could be manageable for governments now, they are not sustainable in the long run, and with the crisis sticking around at least until a vaccine has been made, other solutions should be considered. Even if a vaccine has been developed, in the shadow of the pandemic, the economic crisis will have large effects. However, keeping up with the expensive spending patterns currently sustaining businesses and individuals is not feasible for governments. Thus, in the long-run, a UBI could well be a solution to alleviate the wounds that will be left after corona itself is long gone. Although the specifics of a policy would have to be determined, the premise is a monthly fixed payment that would be different from a social safety net, in the sense that it is unconditional rather than depending on employment or other conditions. UBI would function more like an unconditional floor to stand on, as opposed to a social safety net to get stuck in [pdf]. UBI would have positive effects: reducing individual financial stress, allowing people to volunteer or take lower-wage jobs in needy sectors, and reducing poverty. These outcomes would reduce government spending on poverty reduction policies, monitoring of the specified conditions for regular social pensions, as well as spending aimed at the limitation of negative effects of poverty.

Furthermore, there are projections that due to the corona crisis inequality will rise even more. Due to the difference in types of jobs, with low-paid jobs usually being harder to continue from home than high-paid jobs, people working in low-paid jobs are more likely to lose their job due to the crisis, or to fall ill due to the need to physically go somewhere to continue working. In this way, inequality may be exacerbated due to the crisis, making the current situation even more fitting for the introduction of the basic income.

Bottom line: Basic income, a solution to economic problems of the past,  could reduce the harm of the crisis we face today.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

4 thoughts on “Corona’s opportunity for basic income”

  1. Hey Iris, I really liked your blogpost. I think it is very interesting and the idea of a UBI I think would benefit The Netherlands.
    However, I have two questions. You state that the UBI would form a floor to stand on which would reduce financial stress, and allow people to take on lower-wage jobs in needing sectors. First, I wonder if people will automatically do this since there jobs are often linked to status. So, doubt if the UBI has this affect on human behavior. Second, you state that it would reduce government spending, but what about government income? If like you said, the UBI leads to people taking on lower- wage jobs this means less tax-revenue. I hope you address these points in your final paper, because I think the UBI is a great idea!

    1. Hey Fay, thank you for bringing up those points! As to your first point, I think it is very hard to determine what people would actually do once they get the UBI. There are many skeptics of the UBI who argue that when people do receive this, they will do nothing productive whatsoever. The argument that jobs are linked to status is of course also a valid one. However, not all jobs are linked to status. Often people are heavily dependent on a job with which they are not content, or have to work very long hours to earn their living. The UBI would then allow these people to be less dependent on this job, and put their productivity somewhere else. Furthermore, the UBI would also allow people who now receive disability incomes to put their remaining productivity towards volunteering. The current national pension system only allows for a limited number of hours per year, and sanctions people who do work for a limited amount of money for only a few hours a week. The UBI would take away these sanctions, and allow people to still do the limited work they would be able to do.
      Then to your second point, I think this is a very good one. I should look into this more to be able to include this in my final paper, as I have not done this yet, so thank you for bringing that up.

  2. Hey Iris, thank you for this blogpost, UBI has been getting more and more attention recently and you clarified well a couple of aspects. However, I still have a couple of questions. First, if UBI is indeed applied in the Netherlands, does not it incentivize employers to give lower wages? I will explain you my logic, in times of crisis wages tend to decrease and jobs are lost, if the employer knows the employee whose in dire need for a job already has a basic income, he can use his bargaining power to offer lower wage. This can happen collectively across the economy, cancelling out the purpose of the UBI to begin with. Second, relating to Iris question, are there any studies proving that cutting the expenses of poverty reduction equals (relatively) the sum needed to provide UBI? Because otherwise, the cost will be higher income taxes (for individuals and hopefully corporate), which can also have a distorting effect on the economy.

    1. >This can happen collectively across the economy, cancelling out the purpose of the UBI to begin with

      Unlikely, without collusion across ALL employers. What’s more likely is that people will leave jobs they dislike but “need for the money” for jobs they like more and can now (with UBI) afford. So SOME jobs will be able to pay less while others will need to pay more, ignoring the ever-present need to pay in proportion to productivity 😉

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