By: Trisha Iley

2021 marks the two-year anniversary of Stockton, CA’s universal basic income experiment, and researchers have begun releasing empirical findings. The sample size is on the smaller end because only 125 families have been receiving this assistance, but the results are stunning. I don’t want to regurgitate the entire article [but definitely read it for yourself here], so I’ll note its most prescient findings: families overwhelmingly spent the $500 on household essentials, and those families receiving assistance saw a 7% larger increase in full-time employment than the control group not receiving the money. That last point is so stunning to me because the “but it will make people lazy” argument against universal basic income is so prevalent. But the evidence is clear: most people want to work, want to make themselves useful to their communities, but poverty can get in the way of that. Finding full-time employment that is suitable for yourself is hard, and has become especially difficult in pandemic times. And it has always been especially difficult for families living in poverty, who have no safety net to fall back on in times of hardship or unemployment.

Universal basic income benefits the working class in general, not just those living in poverty/who are unemployed. These positive externalities are less tangible than the instant relief it brings, but relevant and impactful nonetheless; a UBI that is truly universal (as in, available to every individual regardless of employment or income status) provides a sort of safety cushion to the working class which they can fall back upon if they are treated too poorly by their employers. This Huffington Post article explains the concept: a universal basic income means that employees are not choosing between keeping their job and having zero dollars to live on, but rather choosing between their job and the UBI, which increases the market power of labor. Universal basic income lowers the going market price for labor by offering a substitute for employment, but not by reducing labor market participation rates; rather, it forces firms to reduce their profit margins and improve conditions for laborers, or turn to automation.

Another benefit of a universal basic income, in comparison to the welfare state that states and federal agencies create together, is the constancy. Under the welfare state recipients can experience “welfare cliffs,” as shown on this graph:

Because of the complexities of tax and transfer systems, there are small but meaningful cliffs that can leave those trying to improve their lot feeling like they are being punished for climbing the employment ladder. A universal basic income would help to smooth out those cliffs because it is universal, meaning that every individual would qualify no matter their private income.

I’d like to highlight the elementary economic differences between raising the minimum wage and implementing a strong UBI program. One way to compare the scenarios is to say that raising the minimum wage increases the cost of labor while implementing a UBI program can be seen as increasing the elasticity of demand of workers for jobs; workers’ demand for jobs is equivalent to the labor supply, so we can conceive of the UBI as an increase in the elasticity of the labor supply as well. A more highly elastic labor supply means that workers are more willing and/or able to refuse jobs that don’t fulfill their basic needs as a direct result of UBI policy, even in comparison to a counterfactual in which minimum wage is increased. 

It’s easy to assume that installing a UBI and raising the minimum wage are roughly equivalent policy tools. Through a microeconomic lens, however, UBI and minimum wage are distinct economic policies resulting in unique outcomes, though they will both be important if Americans want the future of our economy to be more equally distributed.

Other Reads:

• https://www.wsj.com/articles/democrats-stealth-plan-to-enact-universal-basic-income-11614727507 
  
• https://www.economist.com/finance-and-economics/2021/03/02/might-the-pandemic-pave-the-way-for-a-universal-basic-income
  
• https://wol.iza.org/articles/is-unconditional-basic-income-viable-alternative-to-other-social-welfare-measures/long