There’s a certain view of the future of the economy in Silicon Valley that envisions people working independently of companies.
It’s a freelancer model wherein people and their skills are portable. They move from company to company, plugging in their skills for a few hours or days at a time, then move on to the next project.
The problem with this plan is that it’s hard to support yourself on a freelance income, particularly if you do low-skill jobs like delivery, driving, or house cleaning.
People who make an average or below-average hourly wage need the benefits generally tied to employment, such as health insurance and retirement savings.
Last week, venture capitalist Simon Rothman said there should be a “third class of worker,” neither employee nor totally independent. This class of worker would get benefits from another entity that wasn’t her employer.
But there might be an even better, simpler way: a universal basic income, or UBI.
What is UBI?
Universal basic income is exactly what it sounds like.
Every person — well, usually every person below a certain income threshold — gets a basic amount of money handed to them on a regular basis without question or direction. Typically, the government is the one to make the payments (yes, that means raising taxes). It’s essentially getting paid for living in a place or being a citizen. It’s not a lot — just enough for a person to scrape by. Almost everyone will still need a job to maintain their standard of living. But it’s a regular payment that everyone can count on for the basic necessities in life, even if for some reason they find themselves unable to find enough, or any, work.
In the freelance economy, independent contractors could use their UBI funds to pay for their healthcare and start contributing a predictable amount of savings. Their skills could be used exactly where and when they were needed most. Employers wouldn’t need to be tied to a heavy, broken employment system. They could be light and nimble and pivot as many times as needed. Everyone might be better off.
Is there any proof that this works?
Studies about UBI are hard to do, because simply handing money to people is such a politically fraught topic. But the research that has been done on it shows that it doesn’t actually reduce employment much for primary earners. People still want to work. It does reduce poverty, and may contribute to better health and social outcomes.
An experiment in Canada in the 1970s seems to suggest that people living with a guaranteed income are healthier. An experiment in India found that poor households with a UBI used it to pay down debt and increase their savings rate. The India experiment showed that people who received this regular cash were more likely to work. And more likely to work for themselves.
“Cash grants led to an increase in own-account work, and a relative switch from wage labour to own-account farming and small-scale business,” the paper said.
How would you pay for it?
UBI is expensive, but not impossible to afford.
Economist John Quiggin did some back-of-the-envelope calculations a couple of years ago and figured out how much taxes would go up by (emphasis added):
Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.
Summing up the exercise, I’d say that a universal basic income of the type I’ve sketched out here is economically feasible, but not, in the current environment, politically sustainable. However, while economic feasibility is largely a matter of arithmetic, and therefore resistant to change, political sustainability is more mutable, and depends critically on the distributional questions I’ve elided so far. A shift of 10 per cent of national income away from working households might seem inconceivable, but of course that’s precisely what’s happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.
So this would be expensive.
But there’s a way to do it that makes it expensive only for the wealthy. The wealthy, generally the economy’s capital, are the ones who are advocating this shift in the economy in the first place.
Are they willing to fund this economic paradigm shift? The current political climate would suggest no. But the important thing to know is that it’s economically feasible, if the political climate changes.
Imagine a socialist state fuelling the libertarian dream economy.
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