Basic Income Proposals, Labor Market Interactions, and Good Jobs

The primary argument for a government-provided basic income is that it will make those with low incomes better off, by increasing their financial resources and by allowing them to negotiate for better jobs.

But the extent to which this conclusion holds true will depend on individual circumstances of the recipient, and what other adjustments happen in response to a basic income. For example, what happens if a basic income is counted as “income” and eligibility for other public support is correspondingly reduced? What happens if firms, recognizing that lower-income workers have an alternative source of support, look for ways to impose charges on employees (say, for training or for uniforms)? For that matter, what if owners of rental housing see a universal basic income as an opportunity to raise the rent? Of course, these kinds of counter reactions in government policy and markets are not what advocates of a universal basic income desire–but that doesn’t mean they won’t happen.

David A. Green delivered the Presidential Address to the Canadian Economic Association on the topic: “Basic income and the labour market: Labour supply, precarious work and technological change” (Canadian Journal of Economics, November 2023, pp. 1195-1220).

Green focuses in particular on potential interactions between a universal basic income and labor markets, and on how economic models which define work as a negative and leisure as a positive can miss important aspects of the debate. Green writes:

In our main models, people value leisure and would always prefer a life of living on benefits without work (if their earnings options place them near the benefit level of income). Supporting such a life for the least productive people in society is considered a policy success in a system in which walls are built to prevent others from joining them. My sense from the discussions with people who might actually need the benefits is that a more accurate model would be one in which people have a basic desire for working (for reasons of self-respect, feelings of self-efficacy and social connection) but would also, in any moment, prefer more leisure. … At the same time, many of the people who are in need of support face multiple barriers to work (health issues, poor work records, insufficient housing, etc.) that mean they face low paying, short duration jobs. That is, we should not think in terms of models in which they can be moved into permanent working states but ones in which they will repeatedly find themselves in need of support mixed with jobs they take in their search for self-respect and connection. The obvious trade-off is that we would want to create a system that provides support in this sporadic work pattern without creating incentives to take up sporadic work patterns for people who might not otherwise face them. I do not know of any papers that take this perspective when thinking about designing transfer policies. …

Returning to the main theme of this paper, a perspective that places more emphasis on supporting self-respect and social respect and their relationship to work has implications for how we think about a basic income. On the one hand, a basic income does well under this perspective. At the very least, it implies providing benefits without the judgement associated with work requirements. In that sense, it is closer to the recommendations of optimal tax theory. On the other hand, it does not pay enough direct attention to the relationship between respect and work. People could (and might) use a basic income as monetary support for their desire to find work and get training. But this is left entirely up to them. Surely, a system that provides direct support would be more effective.

Here is Green’s argument as to whether a basic income is likely to be a useful tool for reducing the number of “bad jobs” and increasing the number of “just labour exchanges” by giving workers the freedom to leave a job and look for alternatives:

I think the answer is no for two reasons. The first is an ethical argument. If a key problem with bad jobs is that they damage workers’ self-respect and rob them of autonomy then a cash payment is not the correct response. A key tenant of justice is that the remedy should operate in the same realm as the problem. Paying someone cash to compensate them for an insult may, for example, heighten the feeling of being insulted rather than remedy the problem. The right realm would be to alter the work arrangements to remove the direct insult to dignity. I think this is a key problem with economic models when thinking about the justice of worker–firm relationships because we write our models in terms of individual utility and, ultimately, monetary equivalents, thus taking us away from a consideration of different realms of exchange. Put another way, when we broaden our lens to consider outcomes in terms of justice then we are led to consider jobs as locations of self-respect and self-image rather than simply as vehicles of increased income and reduced leisure. In that context, it becomes harder to think about reducing everything to monetary equivalents.

The second reason is that our models miss the nature of the problem at hand. Changing workplace conditions in a situation in which individuals do not freely move among jobs requires the workers to act collectively. Indeed, I believe that an accurate model of the creation of workplace amenities is one that involves both the employer and the set of employees, with a critical mass of the latter needing to act in order for changes to occur. Put another way, the set of employees at a workplace is a community and, in fact, is a key community for a person’s notions of self-respect. One individual in that community deciding to walk away from the job because she does not like the level of amenities will not be sufficient to alter the work conditions because frictions in the labour market prevent market discipline of the kind that happens in a simple neoclassical model. Using a basic income as a response in this situation involves hoping that each of the individuals takes their personal backstop as a means to engage in a community action. This might happen but there is no clear reason why it would. Maybe it would allow them all to walk away from a bad job but, as we have seen, it is not clearly the case that this will lead to a reduction in the proportion of bad jobs because it funds walking away from good jobs (in the hopes of finding an even better job) as well.

A problem with a basic income as a response to an over-abundance of bad jobs is that it ignores both of these issues. It acts as if money is the right realm and that backstopping individual effort is sufficient to correct the problem. But that would be true only in a neoclassical world and in that world, we are either in a compensating differential equilibrium—in which case no response is actually needed—or the more directly effective response is regulation, not cash. In a world where individual workers do not have sufficient agency through the market to bring about change, a basic income is not the right response.

To put this another way, at least some advocates of a basic income have, in an indirect way, considerable faith in the operation of a free-market labor system. They believe that with a universal basic income, the decentralized negotiations between workers and employers, along with movement between jobs, will provide an improved incentive for employers to offer better jobs. On the other side, Green argues that better jobs are unlikely to result from the market-oriented dynamic: instead, he argues that better jobs are the result of collective action between workers who are staying on the job and their employers, as well as from regulation and government programs tied to issues like assistance with training, child care, and transportation costs.