UBI and incentives (Mandatory Participation on Trial, Part 4)

Editor’s note: This post is Part 4 of the series on Mandatory Participation by Karl Widerquist. Earlier parts have been also posted in this blog.

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People who are introduced to UBI often ask, “What about incentives?” UBI helps fix one of the biggest incentive problems in the market today: the lack of incentive for employers to pay living wages to their least-advantaged employees or to share the gains of economic growth with most of their employees. This incentive problem is the central cause of poverty, inequality, and stagnant wages despite increasing productivity.

Of course, that’s not what people usually mean when they say, “what about incentives?” They mean they fear “lazy workers” won’t work if they can live without working.

If “everyone has their price,” the laziest person in the world will work if jobs are attractive enough. If so, every time one person offers a job that another person doesn’t want, the two parties are disputing wages and working conditions. Yet, when the subject is whether workers want available jobs at going wages, you always hear about “lazy workers” who won’t want to work but never about “cheap employers” who won’t pay the wages you need to get people to work. No matter how unattractive wages and working conditions might be, our society judges people as bad if they don’t take whatever jobs are available.

We don’t usually moralize other economic transactions. If something on sale costs more than I’m willing to pay, nobody blames “lazy businesspeople” or thinks of our inability to agree on a price as an ethical problem. If buyers and sellers can’t agree to a price, the deal is wrong, not the people. We only regularly moralize when the buyer is an employer, and the seller is a potential worker.

When we condemn “lazy workers,” we moralize one side of a market dispute over wages and working conditions while leaving the other side free from scrutiny. We’re taking sides with the most privileged and most powerful party in that dispute, acting as if morality applied only to the people expected to take orders but not to the people who want to give orders.

Yet we know that many jobs pay poverty wages. Even many well-paid jobs often have stultifying working conditions. We know that middle- and lower-class workers have been getting a smaller and smaller share of national output for decades. And a lot of jobs don’t really need to be done. Can we never admit that sometimes it’s right for workers to refuse until employers give them a better reason to take their jobs?

The system we have effectively uses poverty and homelessness as a threat to get bad jobs done cheaply. If we have to threaten people with a complete lack of access to the resources they need to survive before they’ll take jobs at the wages we offer, maybe we are a nation of cheap employers.

We can stop using the negative threat of homelessness as our primary work inducement and still have plenty of room for positive incentives, such as good working conditions, respect, and good wages that increase with the productivity of our economy.

Remember that UBI is a basic income. It is not the same income for everyone regardless of what they do. It is a base to live on, but higher incomes—often much higher incomes—are available in the market for people who do work that society recognizes as useful. UBI is structured so that people always end up with more if they earn more privately.

The responsibility for work incentives belongs to employers. If they want people to work for them, it’s their responsibility to offer people wages and working conditions that are better than living solely off UBI. That’s how free trade works in a genuinely free market—where everyone is free not to trade.

According to economic theory, UBI has no work disincentive at all. UBI is a lump-sum payment. You get the same UBI whether you work or not. Although with a higher income, you can afford more leisure if you want, you don’t have to work less to get the UBI the way you do with many conditional programs. The taxes associated with UBI, in my examples, do change the relative price of labor and leisure, but not the UBI itself. It is possible to finance UBI at least partly with lump-sum taxes, such as resource and rent taxes, which would make UBI a purely efficient transfer in economic terms. The Alaska Dividend is very close to being that efficient transfer. Yet, policy discussions about UBI almost always ignore this aspect of basic economic theory.

What UBI gives people is the freedom to choose not to work rather than an incentive to avoid work if they find wages and working conditions attractive. What people are really saying when they complain about UBI’s supposed “work disincentive” is that UBI gives people too much freedom to choose whether to spend time making money or not. That indicates the underlying idea is not about incentives but the supposed worth ethic.

AUTHOR’S NOTE: Most of the posts in this series were written with the intention of going into my forthcoming book, Universal Basic Income: Essential Knowledge for MIT Press, and many, if not most, of the ideas presented here did make it into the book, but the publisher suggest I soften the wording and some of the arguments, because as is, in this version of it, “the anti-UBI crowd seems like a bunch of mustache-twirling robber barons,” and she rightly thought that the antagonistic stance would be less convincing than more confrontational one here. So, for the book, I made those changes, but I liked what was left out as well. I thought there must be a place for it. And I decided that place was on my blog. I refer everyone to the book because it has a different approach; because it benefits from peer review, copyediting, and more extensive proofreading; and because it has important ideas that aren’t here. Also, many of the arguments here are developed more fully in other books and articles of mine, most of which you can find on my website: www.widerquist.com.

Karl Widerquist, Karl@Widerquist.com