Why a universal basic income is a poor substitute for a guaranteed job

19th Jan 2017

Photo: A universal basic income could lead to inflation by increasing demand for goods and services. (AAP: Paul Miller)

Creating a universal basic income as a means of addressing unemployment and productivity problems has become the topic du-jour as workers become increasingly separated from the means of production, with even modest salaries failing to cover the cost of living.

Consequently, Australian taxpayers have had to take on a greater burden of debt to support themselves.

What is basic income?

  • A system where all citizens receive an unconditional sum of money
  • Income is supplied by either government or public institution
  • Supporters say it would end poverty
  • Those against it argue it would destroy the incentive to work

A universal basic income works as a partial or complete substitute for the existing welfare or social security system, in which every adult citizen is paid a flat rate fee by the Government – regardless of whether they are already working, and regardless of their age, ability, gender, health status or skill level.

Leading economists claim creating a universal basic income is throwing money at a problem in lieu of actual solutions.

Besides which, from a cost of living standpoint, it could lead to inflation by increasing demand for goods and services.

They claim a job guarantee program would better address both inflation and unemployment.

“We forget the most valuable commodity is people,” Fadhel Kaboub, Associate Professor of economics at Ohio’s Denison University said.

“We don’t allow the price of corn to drop to zero, or coffee, yet we allow the price of wages and labour to drop to zero.”

A job guarantee program would act as a “Buffer Stock Mechanism” – a term coined by Australian economist Bill Mitchell, Professor of Economics at the University of Newcastle – to describe stabilising the cost of labour.

“To paraphrase Bill Mitchell, corn doesn’t commit suicide when it’s unemployed,” said Professor Kaboub.

“Corn doesn’t increase the divorce rate. But there are serious negative economic, social consequences and costs associated with unemployment. Yet we have a buffer stock to keep these commodities fully employed regardless of conditions.”

Basically, corn gets more market protection than you do.

Pavlina Tcherneva, Associate Professor and Chair of the Department of Economics and Research Scholar at the Levy Economics Institute, says a basic income program operates on the fantasy that somehow the market will provide things the recipient want or need.

“The market already doesn’t provide the things that well-paying customers want: People with incomes and want affordable childcare, for example, and it’s not there,” Professor Tcherneva said.

Affordable health insurance that doesn’t discriminate against pre-existing conditions also comes to mind.

Why every generation feels entitled


Opinion: Based on the numbers, grandpa is getting a pretty good deal but all generations have concerns.

What is a job guarantee program?

A job guarantee program would make the public sector the employer of last resort to provide jobs for the unemployed population in areas of the economy and community where demands are not being met: aged care, child care, education, retail and small business etc.

The program would also establish the basic minimum standard for a decent job at decent pay in the public sector, a standard which the private sector must match, (at a minimum) to attract workers.

It also has the added benefit of discouraging 7/11-style operations where companies conspire to pay workers below-poverty level wages, (exploitation we are likely to see more of if the Trans-Pacific Partnership free trade agreement goes ahead).

A job guarantee program would connect income with things people – and communities – need and allow them to be part of the social contract, to participate in transforming their communities and their livelihood.

“It would establish the basic minimum standard for a decent job at decent pay in the public sector, a standard which the private sector must match (at a minimum) to attract workers,” she said.

“That would include decent working conditions, a basic retirement income and wage benefits. The job guarantee is an institutional vehicle that guarantees the right to work and provides a floor to income for the economy as a whole.”

“It means you’re not just a passive consumer getting basic income. It gives you a right to serve – and spend.”

But by throwing its hands up, claiming ‘we can’t afford it’, the Government is tacitly admitting to a broad sector of the population that there’s little if anything it can do to help increase their earning potential.

Australia’s unemployment rate sits around 5.6 per cent.

Professor Mitchell calculates the output gap caused by unemployment to be around $60 billion annually, or around 4 per cent of GDP.

“By accepting that all the Government has to do is provide a pretty basic income, you’re absolving the Government of that responsibility to provide work and to pursue full employment,” he said.

“You’re really ratifying the Liberal policy positions which deliberately create unemployment as a punishment incentive for work.”

He estimates a job guarantee program would cost Australia $22 billion a year (net) to employ around 595,000 unemployed people. It would also be taxed at the same rate as income.

“This would bring the official unemployment rate down to 2 per cent of the available labour force and eliminate hidden unemployment,” the Professor wrote recently.

“It would be a transformative investment in the wellbeing and productivity of the nation.”

Dr Steven Hail, lecturer at the University of Adelaide’s School of Economics, rejects suggestions a job guarantee would interfere with the private sector.

He argues it would enhance it by creating a pool of workers that private enterprise could hire from at any time to meet production needs.

“Spending on the job guarantee is what ensures the fiscal deficit (or government spending, net of taxation) and total spending is sufficient for full employment,” he told the ABC.

“It is counter-cyclical, releasing labour into better paid private sector jobs when those jobs are available, and absorbs labour into jobs with socially acceptable minimum wages and working conditions during a slump.

“If the private sector doesn’t like the job guarantee, the solution is to hire those workers.”

Retired economist Ellis Winningham told the ABC a jobs guarantee would put a complete end to all involuntary unemployment while also gaining price stability.

“Turning humans into consumption units through a basic income scheme won’t address the problem,” he said.

But before any of this can happen, trust in the public sector must be rebuilt.

And after the disasters within the ATO and Centrelink, last year’s bungled census and former health minister Sussan Ley’s recent resignation over entitlement rorts, it is clear the public sector – and the Government itself – has its work cut out for it.

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Posted on January 20, 2017, in ConspiracyOz Posts. Bookmark the permalink. Leave a comment.

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