I recently read “Universal Basic Income in the US and Advanced Countries” (Hoynes & Rothstein, 2019) and was particularly interested in the authors’ discussion of the possible impact of a Universal basic Income (UBI) on the labor supply. They indicated that a UBI would likely lower labor supply in the short term although the beneficial effects of a UBI on public health, child development, and adult education and training could boost labor supply over the longer term, given the improved job prospects of a healthier and more skilled population. My concern is that the “short term” drop in labor supply would be too precipitous and enduring to sustain the economy (and government coffers) long enough for all the good things to occur later on.
Who would be tempted to stop working, reduce their work hours, take longer breaks between jobs, plan gap years from work, or simply retire early if they could count on a UBI check of, say, $1000 a month? Some candidates:
Late middle-age workers. In one survey I came across, 11% of men and 42% of women reported a preference for retiring in their 50s. A UBI would allow many of them to do so. It no wonder so many countries are raising their retirement age: even when pensions are not mean-tested, younger retirees often choose not to work. Not good for the tax base. It’s not much of a surprise that countries that have increased the age at which pensions can be collected, like Germany and Austria, have seen “job exits” go down.
Rejected applicants for disability benefits About 60% of those who apply for Social Security Disability Income (SSDI) and Supplemental Income (SSI) are denied the benefit, often because there was insufficient evidence they were unable to work. These individuals have already signaled their desire to stop working, as well as a willingness to live on a pretty small government benefit. (For the record, I used to do employment feasibility evaluations of SSDI applicants).
Part-Time-by-Choice Workers More than three-quarters of part-time workers don’t want to work full-time. These are often busy students or individuals with family obligations. With a UBI, many won’t have to work at all.
Parents working full-time who want to work less A few years ago, a Pew Research survey found that 67% of mothers would work part-time (47%) or not at all (20%) if they could afford to. According to other surveys, a good number of fathers would prefer to cut their work hours as well.
Would-Be Entrepreneurs The Hoynes and Rothstein paper mentioned that a number of UBI recipients might be attracted to risky business ventures. One concern is that a UBI would encourage individuals to pursue nonviable projects longer than they should, because they have an outside source of income that makes it possible. As a former vocational counselor, I evaluated the business plans of hundreds of such individuals and found most to have poor business sense and unrealistic expectations. Unfortunately, time spent pursuing a dream is time not participating in the labor market.
Young adults In one survey, half the respondents under 30 reported they'd like to take a gap year and that financial considerations were the main reason for not doing so. College graduates in their early 20s might be especially susceptible to the enticements of subsidized travel for a few years. Especially humanities majors.
If just 10% of individuals in the above groups reduced their labor market participation as the result a UBI, the labor supply would still take a significant hit, as would tax revenues – making the whole thing that much harder to fund. But besides issues of labor market effects and expense, there are political considerations. Put simply: if a UBI is implemented but turns out poorly, how do you walk it back? It’s hard enough to reform pension systems – think of the outcry if the US government threatened to stop those monthly UBI checks. There are better ways to address the problems a UBI seeks to fix, e.g., poverty, income volatility, insufficient social mobility, job market instability - such as a time-limited Adult Student Basic Income*.
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For more on the ASBI, see The Adult Student Basic Income: Better than a Universal Basic Income, Part I: An Affordable Approach to Fixing the Same Problems The Adult Student Basic Income: Better than a Universal Basic Income, Part II: How to Pay for It An Affordable Basic Income That Alleviates Poverty and Promotes Social Mobility
Reference:
Hoynes, Hilary Williamson and Rothstein, Jesse, “Universal Basic Income in the US and Advanced Countries” (February 2019). NBER Working Paper No. w25538. Available at SSRN: https://ssrn.com/abstract=3332286