Disclaimer: I haven’t researched or thought about this much, and a lot of what I’m saying is probably derivative or completely wrong. I just wanted to work through some of my thoughts.
What would happen if we implemented basic income guarantees tomorrow?
Assume we’re just talking about the United States here. Assume we don’t have any major technological advances between today and tomorrow, so we can’t automate every single person’s job. Let’s say that the income guarantee is enough to live off of—maybe $30,000.
What would people do? And would the economy continue to generate enough money to be able to pay for everyone’s income guarantee?
Change in Incentives
When people automatically get $30,000, this dramatically reduces their willingness to work. There are a lot of jobs that people only work because they desperately need a job, and they would really prefer not to. Once they get a basic income guarantee, demand for these jobs will drop dramatically. If the jobs are important, wages will increase until some people once again become willing to take those jobs.
Exactly how much people are willing to work depends on the tax rate. Let’s say we have a progressive taxation scheme which starts much higher than the current tax rate—maybe 50% at the lowest bracket and 90% at the highest (I’m just making up numbers here). That means if you make $30,000 a year for doing nothing and take a job that pays $30,000, now you’re making $45,000 after taxes. People have diminishing marginal utility of money, so people will be less willing to do this, but there should still be a lot of people who want to make more than the basic income and end up taking jobs.
Which jobs will they take?
When people have a basic income, that dramatically changes their incentives to work. In economic terms, supply of labor drops. Which jobs continue to be prominent depends on which jobs have high or low price elasticity of demand for labor.
To get more concrete, let’s think about two jobs: garbage collector and fast food burger flipper. Probably a small minority of the people in these jobs actually enjoy them; if these people suddenly had a guaranteed $30,000 a year, how would the market respond?
People really need garbage collectors, so they have a high willingness to pay for their salaries. Or, more precisely, they have a high willingness to accept higher taxes so that the government can employ garbage collectors. In all likelihood, not enough people will be willing to work as garbage collectors for their current salaries. Demand for garbage collectors is highly inelastic, so as supply of willing workers decreases, wages will increase by a lot. The increase in wages should be enough to incentivize people to continue working as garbage collectors.
The labor supply for burger flippers would similarly decrease. Fast food companies would have to raise salaries by a lot in order to get people to keep working for them, which means they would have to increase food prices. The increased food prices would decrease quantity demanded, and fast food companies would shrink (and possibly disappear entirely). I am probably okay with this.
The Broad Market
But since people have less need to work, they should become more willing to work intrinsically enjoyable goods, so we should see an increase in the supply of short films, music, and other similar goods. Interestingly, writing books seems to be so intrinsically enjoyable that the market’s already over-saturated even without a basic income guarantee—publishers get way more manuscripts than they can use.
There’s a spectrum between “everybody intrinsically enjoys this” and “nobody intrinsically enjoys this”, and every job lands somewhere on the spectrum. Even among jobs that most people don’t intrinsically enjoy, we will still see differences. A lot fewer people will work in factory farms, since I can’t imagine that anybody would actually want to do that. But we probably won’t see that big a reduction in the quantity of auto mechanics. A lot of people like working on cars—people often do it as a hobby. We’d expect these people to be willing to work as auto mechanics for only relatively little pay.
I want to talk a little extra about software development since it’s my field. Generally speaking, a lot of programmers enjoy programming, but there are a lot of kinds that are more fun than others. We’d probably see more people starting their own companies and fewer people working software jobs that involve a lot of boring repetition.
This changes the incentives for companies hiring developers. Boring routine work becomes more expensive since fewer developers are willing to do it, so companies have stronger incentives to automate as much work as possible.
There probably won’t be a huge effect since developers tend to make well $30,000, so that extra money doesn’t do as much for them; the most affected jobs will be those that pay less than or about as much as the basic income.
Does It Work?
An economy with a basic income guarantee would reduce or remove unimportant jobs while still retaining important jobs. Prices would be higher and people probably wouldn’t buy as much, but the things they’d buy less of would mostly be the things that weren’t really important to begin with. People aren’t perfectly rational; a lot of purchases people make just keep them going on the hedonic treadmill and don’t actually improve their lives.
Perhaps a world with McDonald’s is better than one without, but if it is, it’s certainly not much better, and I wouldn’t feel too bad about it if McDonald’s went out of business after all the low-level employees quit.
Please explain in the comments why I’m wrong about everything. I think the economic effects of a basic income guarantee could be really interesting and possibly surprising, and I want to hear what you think.