Universal Basic Income and Minimum Wages: Progressive or Regressive?

Finland recently decided to end its Universal Basic Income (UBI) experiment, but the debate about whether UBI is progressive or regressive rages on. We speak to Economist Katherine A. Moos of the Political Economic Research Institute, UMass.

Universal Basic Income and Minimum Wages: Progressive or Regressive?

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SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

A universal basic income. It could be a solution to inequality and economic instability. The basic idea is that people should be able to receive a certain amount of money as a guaranteed source of income. It should be paid out to every man, woman, and child. It could be paid monthly, it could be paid quarterly, but primarily through easy electronic transfers to your bank account, the way that the payments by the state are made. Well, Finland ran such an experiment, which began in 2017, and they did it with about 2000 people who received approximately $690 per month. But recently they announced that they will end their income experiment in 2019. But this week the World Bank also published a call to abolish a minimum wage around the world. The World Bank argues that this would help protect workers from competition with robots.

Well, joining me now to discuss all of this is Prof. Katherine A. Moos. She teaches economics at the University of Massachusetts Amherst, and is a member of the Political Economy Research Institute at UMass. Katherine, thank you again for joining us here on The Real News Network.

KATHERINE MOOS: It’s my pleasure.

SHARMINI PERIES: All right, Katherine, let’s start off with the basic income. It’s considered by most people a progressive tool, mainly because it redistributes income and improves workers’ negotiating power while reducing the stigma associated with welfare. And also, it eliminates this humiliating income test for welfare recipients, that they have to undergo and declare all kinds of personal issues and details about their lives. Now, on the other hand, Basic Income is also sometimes praised by neoliberals because it can be used to justify eliminating other forms of welfare, and its redistributive powers, then, are limited. What do you think of the, of this basic income, and is it progressive? Or is it a regressive tool?

KATHERINE MOOS: Yeah. Well, I think that whether or not universal basic income, or UBI, is progressive or regressive is really still an open question. And the way I look at it is that it would really depend on two different sort of set of factors. One is the details of the program. How is it implemented, how is it designed, how is it funded? Is it truly universal, is it truly unconditional? And what is the funding mechanism that makes it possible? All of that is going to determine a lot of very important things about the program.

The second piece of it, which will determine whether it’s progressive or regressive, depends on how UBI would fit into the overall policy framework, the social labor policy mix, in terms of are there also high minimum wages, or minimum wages at all? Are there other labor market institutions that protect workers? So if a UBI program were implemented, and it was truly unconditional and it was at a high level of funding, it could be, it could be a progressive tool as long if there were also labor market institutions to protect workers who were, in fact, working. If this UBI is implemented in such a way, either that is at a very low benefit level, it’s funded in a regressive way, or if it’s implemented and then other social programs are taken away, causing a net loss for workers, then it would be regressive. So when we talk about it we really need to understand the details before we can assess whether it’s going to be progressive or regressive.

SHARMINI PERIES: All right. Katherine, now, as I said off the top, now, Finland was running an experiment with about 2000 people. Now, they have now said this is coming to an end in 2019, just after two years. Now, is this enough time to draw conclusions about the social impact of this basic income program? And also, is the experiment not skewed from the start. because the Finnish government chose to apply it to 2000 people who were already unemployed at the start of the program?

KATHERINE MOOS: Yes. So from what I understand, some of the researchers working on this UBI experiment in Finland do believe that they would have benefited from time to study this, and do believe that the experiment was cut short. The fact that it was, the stipend was given only to unemployed workers is part of the design of the study. So in Finland they were trying to understand if you supplied a universal basic income which was unconditional, would that make unemployed people more likely to go back to work, to find jobs, or to engage in some kind of entrepreneurial endeavor, as opposed to a traditional unemployment insurance program which decreased as people gain more income or gain work. So traditional unemployment insurance, the concern is that it discourages people from going back to work because their, their benefit level will decrease.

So for that purpose, the purpose of the study, it makes sense that they only, only studied the effect on unemployed workers. That being said, there’s another criticism of the design of the Finnish study, which is that the stipend level was about 500 euro a month, which is not enough to live. It doesn’t actually free someone from the necessity of working. So a criticism of the design of this study is that it actually- universal basic income of this type could actually be used as a way to subsidize or promote low-wage or part-time employment. So that’s another criticism of the way this particular study was designed.

SHARMINI PERIES: All right, Katherine, off the top I said that the World Bank’s most recent policy recommendation is to eliminate the minimum wage. And they’re saying that in order to, they say, to protect workers. Why are they saying that?

KATHERINE MOOS: Yes. So the World Bank recently released a working draft of the World Development Report. And in it they say that minimum wages and other labor market institutions increase the cost of hiring workers relative to automation. So the idea is that if the minimum wage were eliminated, then hiring workers would be less expensive, and firms would be more likely to hire them, as opposed to investing in labor saving technology.

And so there is a logic in the fact that firms do invest in labor saving technology. They do look to automation as a way to cut costs. But the World Bank is driving the wrong policy and political conclusions here. Minimum wages and other labor market institutions are necessary to protect workers. Without them there will be a race to the bottom where firms are paying lower and lower wages, because there hasn’t been legal wage floor set by the minimum wage. So the World Bank is basically saying that work will not pay for the needs of people anymore. It’s going to- work is going to pay very low wages, and that there should be some sort of universal basic income or some other kind of social insurance to sort of soften this, these low wages, and sort of pick up the slack, and maintain what they call a societal minimum standard, or minimum standard of living.

And so they’re saying that because the quality and quantity of work has been degraded all over the world, they believe that we should continue to allow firms to pay low wages, and therefore subsidize this low-paying work.

SHARMINI PERIES: And how does what the World Bank is recommending compliment or differ from what Bernie Sanders this week is talking about, which is a guaranteed jobs program?

KATHERINE MOOS: Yes. So this is, this is a very important point. So the World Bank is saying, let’s get rid of the minimum wage and other labor market institutions, and instead we could have a UPI or some other kinds of stipends to subsidize this low-wage work. Whereas Bernie Sanders and others are now proposing a full employment jobs guarantee, which would actually guarantee a good-paying job with good benefits to all workers who wanted them. So the idea of a job guarantee is that the public sector would actually create jobs that produced useful goods and services. So we’re talking about investing in infrastructure. We’re talking about investing in childcare, eldercare, things that people really need and want. And also good paying jobs along with it.

So this is sort of the opposite approach to what the World Bank is saying. The World Bank is saying job quality- good jobs are scarce. So let’s lower the cost of hiring workers so that they’re not completely replaced by machines. And Bernie Sanders and others who are in favor of Job Guarantee are saying let’s actually create some good jobs. So I really see these as sort of opposite approaches for dealing with the problem of not enough good jobs for the people who want them.

SHARMINI PERIES: Katherine, socially, you know, we are entering a phase where jobs will be eliminated because of automation. We are entering a phase where all kinds of industries are going to be restructured as a result of automation. Now, is there something going on here in terms of what the World Bank is recommending, and say what Bernie Sanders is now pushing for in terms of a guaranteed jobs program, or even this guaranteed income programs? Are we entering a stage in our industrial world where we are preparing to address some issues that might emerge?

KATHERINE MOOS: I think that it is certainly the case that we have a large-scale problem when it comes to good jobs, and there’s a lot of concern about automation. And it’s something that economist Guy Standing calls the global precariat, which is precariously-employed proletariat.

And so I think that this is a big concern. And what we see from the World Bank’s perspective is that they’re saying work has changed. Work is not going to provide for people’s basic needs. So there should be something done to provide what they call a societal minimum standard. But it might not come from work. Now, Bernie Sanders’ plan, which- the details have not been released, but the the general idea is to invest in things like infrastructure, and also things like childcare and eldercare which, while there are, you know, there are some technologies that automate these, much of this actually does need to be done by people in place when we talk about caring for children and caring for elderly people, and even infrastructure projects.

So we’re seeing now a response and different political point of view of how to resolve this this very serious problem of both poor quality of jobs and the threat of automation.

SHARMINI PERIES: All right, Katherine. Katherine is with the Political Economy Research Institute at UMass Massachusetts. She also teaches economics. Katherine, I thank you so much for joining us today.

KATHERINE MOOS: It’s my pleasure. Thank you for having me.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.