Universal Basic Income: The Bad Idea that Won’t Die

Making the wage subsidy uniform would target those individuals most at risk of being mechanized out of employment, namely less skilled workers. A column by Barry Eichengreen.

Barry Eichengreen
«Throughout history, work has been an integral element of human society.»

In June 2016, when they overwhelmingly rejected a proposal for a Universal Basic Income, Swiss voters presumably thought they had seen the last of this idea.  It didn’t turn out that way. In Silicon Valley it is currently impossible to have a semi-serious conversation about the future of the economy without this idea popping up and receiving a sympathetic hearing. Prominent backers include Chris Hughes of Facebook fame, the venture capitalist Marc Andreesen, web-maestro Tim O’Reilly, and Sam Altman, head of the tech incubator Y Combinator. Given the influence of this circle over digital media, the concept is not going away.

The timing and location of this interest are no mystery. The rapid pace of technical change, so evident to the titans of tech, is reviving the question of whether there will ultimately be jobs for human hands, hearts and minds. If not, there is an obvious logic for a Universal Basic Income for adults who can no longer put bread on the table by earning a paycheck.

In particular, recent advances in robotics and artificial intelligence have raised questions about whether the last preserves of human labor are safe from mechanization. For as long as one can remember, experts pointed to the difficulty of designing a napkin-folding robot as an example of the limits of mechanization and the continued advantage of humans capable of manual dexterity and close hand-eye coordination. Now, however, a German company named Denso has succeeded in developing a robot capable of folding napkins, laundry and more.  Napkin folding may not be the most demanding task in the history of the world, but Denso’s achievement suggests that no job involving manual labor is safe.

Japanese robot provides health care and affection

If not jobs involving hand-eye coordination, then surely those requiring empathy, compassion and interpersonal skills are not going away. Your nursery-school teacher, marriage counsellor, rabbi and home health-care provider, whose productivity derive from social skills deployed in face-to-face settings, are not about to be replaced by Alexa or Siri.

Or are they? In Japan, where demographics make home health-care workers costly, engineers at Riken and Sumitomo Riko Labs have created a life-size robotic teddy bear named Dinsow capable of providing not just basic health services but, in addition, conversing, directing group activities, and providing succor and affection to suffering patients.

If one extrapolates this example, it follows that jobs for humans will soon be a thing of the past. And, if so, the case for a Universal Basic Income is there.

A world without work – really?

But the idea runs up against formidable practical problems. If a basic income of US $10,000 a year is given to every adult American, the cost would exceed the entire current federal budget. Were it given only to households below the federal poverty line of $50,000, it would still cost $400 billion, or a tenth of current federal government expenditure. If payments were terminated abruptly when a household’s income rose above $50,000, there would be strong incentives not to work more when income approached that threshold, since the marginal tax rate for a household in that position would be astronomical. Payments could be phased out gradually rather than terminated abruptly when the threshold income level is reached. But doing so would increase costs still further. Moreover, it would introduce difficult ethical questions.  Should the phase-out start while the household remained below the poverty line or only after the latter had been exceeded? And how quickly should the phase-out proceed?

Moreover the very premise of a world without work can be questioned. To be sure, the Luddites, disaffected English handloom weavers, pointed to this specter more than two centuries ago. In 1930, in «Economic Possibilities for Our Grandchildren,» John Maynard Keynes foresaw a world in which humans, with the aid of sophisticated machinery, would work no more than 15 hours a week. Again, it didn’t pan out that way. Rapid technical change or not, history shows that for every old job mechanized out of existence, multiple new jobs are created in other activities. It’s not surprising that the Luddites, still on the cusp of the Industrial Revolution, failed to anticipate what would follow. More surprising is that the best brains in Silicon Valley fail to see it after more than 200 years of technological progress and employment growth.

And history has shown that people are more than willing to fill these jobs. They remain ready to work more than 15 hours a week, assuming of course adequate compensation. But this last assumption is key. People will want to work if the wage is high enough to render the job attractive. But firms will want to hire them only if the wage is low enough to render humans capable of providing health care services a better price than Dinsow.

SF 5 or SF10 per hour

So the more productive the robotic alternative, the less likely it is that there will exist a market wage that satisfies both parties. That’s the bad news. The good news is that this way of looking at things suggests a superior alternative to a Universal Basic Income, namely a Universal Wage Subsidy. A uniform subsidy of, say, SF5 or SF10 per hour worked, extended by government to each and every employed person, would shift the individual’s calculus from idleness to working, since work would be more remunerative. It would also shift the calculus of an employer choosing between a worker and his or her mechanical replacement, since the worker is subsidized but the robot is not.

Making the wage subsidy uniform would target those individuals most at risk of being mechanized out of employment, namely less skilled workers whose relatively low wages can’t fall still further in order to price them into employment. At the same time, a SF5 or SF10 subsidy would have only a small impact on the cost and employment of more skilled persons with higher wages.

Sense of purpose

But the most powerful argument for this approach is that people derive satisfaction and skills from working. Work provides a sense of purpose that can’t be obtained, by most of us anyway, from sitting on a couch in one’s underwear playing videogames. Work is a way of acquiring not just economically useful experience but also interpersonal skills that render people more productive members of society. At the most basic level, having to follow a work routine teaches you to show up. In many settings, individuals work as part of a team or group, which entails developing verbal communication skills, nonverbal communication skills, listening skills and cooperation skills. The value of being able to listen, communicate, cooperate and empathize extends beyond the workplace into virtually every societal realm. It makes for a more harmonious society. It is conducive to a more constructive politics.

Throughout history, work has been an integral element of human society. Focusing on a Universal Wage Subsidy rather than a Universal Basic Income acknowledges this fundamental fact.