A Targeted Basic Income Is Better Than A Universal Basic Income

Universal Basic Income (UBI) proposals vary but typically involve unconditional cash payments paid at regular intervals to all residents within a country, regardless of income, wealth, or work-status. UBI supporters argue a UBI is the best way to provide relief from a host of economic ills, including poverty, erratic income, job instability, and lack of social mobility. Let's look at these problems one at a time, specifically as they manifest in the US:

Poverty: It's important to distinguish chronic and transient poverty, because they have different causes and prognoses. Transient poverty is more common during early adulthood and tends to follow a specific event, such as job loss, often resolved by another event, e.g., new job. Chronic poverty is usually the result of an ongoing disadvantage, such as illiteracy or limited skills. (Kimberlin, 2013). Depending on the study and after controlling for government benefits and tax credits, between 2-3% of Americans experience chronic poverty (Kimberlin, 2016).

Volatility of Income: Volatility can be the good or the bad sort. The good sort includes things like getting a sales commission and worker-requested flextime. The bad kind of volatility is mostly due to irregular working hours - a problem that is especially acute in low-paying service jobs like cook, janitor, waiter/waitress, maid, hairdresser, cashiers, and retail sales clerk.

Job Instability: Changing technology is expected to disrupt jobs and careers. Workers who don't update their skills to meet changing labor market demands will be the most at risk for losing their jobs (Arntz, Gregory and Zierahn, 2016)

Lack of Social Mobility: The 11.6% of Americans over 25 without a high school diploma are less mobile and most likely to remain stuck in the lower income quintiles. Ditto high school graduates who lack basic job skills. Overall, however, socially mobility is alive and well in the US, e.g., over two-thirds of Americans are projected to reach the top income quintile at some point in their lives (Rank 2014).

These challenges - poverty, income volatility, job instability, and lack of social mobility - share one thing in common: they are mostly issues for specific US subgroups and are not broad societal problems. As such, they need solutions that target those subgroups - not some giant fix like a UBI, which would cover the entire US population of 327 million plus.

Besides being overly broad, a UBI in the US would cost an arm and an leg - actually, it would cost the entire body if the cash payments were the oft-proposed $1000 a month. Such a UBI would bankrupt the US government, destroy the economy, and cause labor market participation rates to plummet*, thereby reducing the tax base that's supposed to fund the whole thing. It's called a death spiral. Click on the links at the end of this post for details.

As an alternative, I'm proposing a Targeted Basic Income (TBI) that would effectively address the same four problems as the UBI but would also encourage labor market participation and increase labor productivity, all at minimal expense to the taxpayer. This TBI would provide $1000/month up to six years total (minimum one month at a time) for adults enrolled at least part-time in postsecondary training and education programs, from ESL classes to apprenticeships to graduate school. The benefit would not be means-tested, so recipients could work without jeopardizing their BI payments. See An Affordable Basic Income That Alleviates Poverty and Promotes Social Mobility for more details on the basic proposal.

Next: How to pay for my beautiful TBI

*UBI supporters point to BI studies in Kenya and Canada as "proof" that no-strings-attached cash payments don't create work disincentives. Sorry, $22 a month to Kenyan villagers is not comparable to $1000 a month in the US. As for the poorly designed and executed Canadian BI study, there were strings attached and the findings have been misstated to advance the UBI agenda. For more on the Canadian study check the references below. Also, it's important to remember that labor market participation isn't just the result of collective choices about whether to work or not to work but also about how much to work, e.g., part-time/full-time, seasonal/temp/year-round. These collective decisions also impact labor productivity and the vitality of the economy as a whole (not to mention the tax base).

References:

Arntz, M., T. Gregory and U. Zierahn (2016), “The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis”, OECD Social, Employment and Migration Working Papers, No. 189, OECD Publishing, Paris. http://dx.doi.org/10.1787/5jlz9h56dvq7-en

Christensen, K. E., & Staines, G. L. (1990). Flextime: A viable solution to work/family conflict? Journal of Family Issues, 11, 455–476.

Forget, E. 2011. ‘‘The Town with No Poverty: The Health Effects of a Canadian Guaranteed Annual Income Field Experiment.’’ Canadian Public Policy/Analyse de politiques 37(3):283–305. http://dx.doi.org/10.3138/cpp.37.3.283

Kimberlin, Sara 2013. “Examining the Impact of Government Benefits on Chronic and Transient Poverty in the United States, 1998–2008.” Working Paper presented at the Association for Public Policy Analysis and Management.

Kimberlin, Sara "The Influence of Government Benefits and Taxes on Rates of Chronic and Transient Poverty in the United States," Social Service Review 90, no. 2 (June 2016): 185-234. https://doi.org/10.1086/687306

Presser, Harriet B. and Cox, Amy G. The work schedules of low-educated American women and welfare reform Monthly Labor Review April 1997, 25-34. https://www.bls.gov/opub/mlr/1997/04/art3full.pdf

Rank, MR From Rags to Riches to Rags http://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-to-rags.html?smid=pl-share&_r=3

Rank MR, Hirschl TA (2015) The Likelihood of Experiencing Relative Poverty over the Life Course. PLOS ONE 10(7): 0133513. http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0133513

Ryan, CL Educational Attainment in the United States: 2015 https://www.census.gov/content/dam/Census/library/publications/2016/.../p20-578.pdf

Simpson W, Mason G, and Godwin, R. "The Manitoba Basic Annual Income Experiment: Lessons Learned 40 Years Later" Canadian Public Policy, Volume 43, Number 1, March/mars 2017, pp. 85-104 https://umanitoba.ca/media/Simpson_Mason_Godwin_2017.pdf

Links:

Revisiting The Universal Basic Income: The Debate Continues, Part I

Revisiting The Universal Basic Income: The Debate Continues, Part II

Revisiting The Universal Basic Income: The Debate Continues, Part III

Revisiting The Universal Basic Income: The Debate Continues, Part IV

Revisiting The Universal Basic Income: The Debate Continues, Part V

Revisiting The Universal Basic Income: The Debate Continues, Part VI

Revisiting The Universal Basic Income: The Debate Continues, Part VII

Revisiting The Universal Basic Income: The Debate Continues, Part VIII

Revisiting The Universal Basic Income: The Debate Continues, Part IX

Revisiting The Universal Basic Income: The Debate Continues, Part X

Universal Basic Income: Effect on Labor Market Participation, Part II