Universal Basic Income in the U.S. and Advanced Countries

National Tax Association, 111th Annual Conference New Orleans, November 15-17, 2018 Hilary Hoynes Professor of Economics and Public Policy Haas Distinguished Chair of Economic Disparities University of California Berkeley

Despiteallofthis…•  Attentionmayberunningaheadofactualpolicydevelopment

•  LittleagreementaboutwhataUBIis•  Whatspecificproblemisittryingtosolve?•  Howdoesitrelatetoandcomparetoexistingprograms?

•  Whatarethekeyresearchquestionsthatneedtobeanswered?

Outline

•  WhatproblemistheUBItryingtosolve?•  WhatisaUBI(andhowdoesitcomparetootherincomesupportpolicies?)

•  Distributionalconsequencesandcost•  Economicissuesandwhatcanwelearnfrompilotsandexperiments?

*FrompaperinpreparationforAnnualReviewofEconomics,jointwithJesseRothstein.

Outline

•  WhatproblemistheUBItryingtosolve?•  WhatisaUBI(andhowdoesitcomparetootherincomesupportpolicies?)

•  Distributionalconsequencesandcost•  Economicissuesandwhatcanwelearnfrompilotsandexperiments?

Falling Labor Force Participation

And looking to the future, concerns about “the robot apocalypse” (Lowrey) and the loss of work.

Or less futuristic … Stagnating Wages

And Rising Inequality

OtherargumentsforUBI•  Replacecurrentpatchworkoftransferprograms(incomplete,sometimeswithhighcumulativemarginaltaxrates)

•  Insufficientbenefitsofcurrentpolicies(postwelfarereformlossofoutofworkbenefits,potentialbenefitsofmoreuniversalprograms?)

Thewhymattersbecauseitfeedsintoanalysisofhowmuchyoucareabout,say,laborsupplyeffects

Outline

•  WhatproblemistheUBItryingtosolve?•  WhatisaUBI(andhowdoesitcomparetootherincomesupportpolicies?)

•  Distributionalconsequencesandcost•  Economicissuesandwhatcanwelearnfrompilotsandexperiments?

WhatisaUBI?(basedonourreadingofthework)

• Universal:threedimensionscomeup:–  Paidtoall,nodemographictargeting–  Paidtothosewithoutearnedincome(andwithoutanyefforttofindwork)

–  Paidto“all”,eventhosewith“high”earnedincome

• Basic:(basicincome)largeenoughtomeetbasicneeds

•  Income:cashratherthanin-kind

Howdoesthiscomparetootherpolicyinstruments?

•  ThisisadiscussionaboutUBIinadvancedeconomies(fordevelopingcountriesseeHannaandOkun2018,Banerjeeetal2018)

•  Advancedeconomieshavesocialsafetynetpolicies.Thisraisesquestionsaround:– WhatistheUBIprovidingthatisn’t(orcan’t)beprovidedbythecurrentsocialsafetynet?

–  IstheUBIareplacementfororanadditiontotheexistingsocialsafetynet(superrelevantfordistributionalandcostconsiderations)

UBIcomparedtootherprograms:Asimpleframework

UBIcomparedtocurrentUSpolicies

Outline

•  WhatproblemistheUBItryingtosolve?•  WhatisaUBI(andhowdoesitcomparetootherincomesupportpolicies?)

•  Distributionalconsequencesandcost•  Economicissuesandwhatcanwelearnfrompilotsandexperiments?

Cost

•  Pureuniversalwithbenefitsetatpovertyline($12K/yr)àtotalcost=$3trillionforcoveringalladults

•  Costis1storderissue– 75%oftotalfederalexpenditures– 2XthecostofallUSnon-healthtransfers(dropMedicare,Medicaid)

– 6XthecostofallUSnon-health,non-socialsecuritytransfers

Cost

•  Solvingcostproblembyaddingaphase-outàthenwearemovingtowardscanonicalwelfareprogramorNIT(morephase-out,morelaborsupplydistortions;usualprotectionvs.distortiontradeoff)

•  Solvingcostproblembyreducingthebenefit(andpreservinguniversality)ànotbasicincome

DistributionalImplications

•  Usefultocomparetothedistributionaleffectsofourcurrentsocialsafetynetprograms

•  Weanalyzethisusingthe2017CurrentPopulationSurvey

•  Wemeasurehouseholdbenefitsandcalculatetheaverageperperson,usingOECDequivalencescale

#1:Hugedifferencesacrossdemographicgroups

#2:Benefitstonon-elderly,non-disabledaremoretargeted(lessuniversal)

DistributionalimpactsofUBI

•  ReplacingcurrentsocialsafetynetwithUBIwouldleadto– Redistributionfromlowearnerstohigherearners– Transfersawayfromelderlyanddisabled

Outline

•  WhatproblemistheUBItryingtosolve?•  WhatisaUBI(andhowdoesitcomparetootherincomesupportpolicies?)

•  Distributionalconsequencesandcost•  Economicissuesandwhatcanwelearnfrompilotsandexperiments?

EconomicIssuesandwhatwecanlearnfromcurrentpilotprograms

•  Highprofilepilots– StocktonCalifornia:EconomicSecurityProject,$6K/yrfor100familiesfor12-18months

– YCombinator:$100millioninfunding,$12K/yrfor1,000peoplewithincomebelowcountymedian,for3or5years

•  WhatcanwelearnfromthesepilotsandhowdoesthatrelatetothekeyeconomicissuesunderlyingaUBI?

1.  Laborsupply:Lotsofevidencefromtheexistingliterature;howmuchwecareaboutpotentiallaborsupplydistortionsdependsonwhetherweareinwagestagnationworldorrobotapocalypseworldàlittlenewtolearnfrompilots

2.  Universality:Wouldatrulyuniversalprogramleadtoreductionsinstigmaandincreasesintakeupthatwouldgeneratewelfaregains?àcan’tlearnfromapilot

Otherquestionsaboutwhichwehavelittleevidenceyetashort-termpilotisnotwellsuitedtoanswer:•  Greaterhumancapitalinvestmentandtraining(andthushigherwagesinthelongerterm)

•  Greaterentrepreneurialactivity•  Higherwagesofthenextgenerationduetogreaterresourcesinchildhood

Also,apilotprogramdoesn’thavetograpplewiththecostandthetaxes/spendingcutsthatareneededtosupporttheUBI.

Concludingthoughts•  Thisisagoodconversationtobehaving;attentiontostagnating

incomesandwhatisworkingornotworkinginourexistingsocialsafetynetisimportant

•  NotalotofclarityonwhatmakesaUBIandwhyourcurrentprogramscannotservetheneed

•  A“pure”UBIwouldbeextremelyexpensive(2Xtotalexistingtransfers)

•  ReplacingthecurrentsocialsafetynetwithaUBIwouldbehighlyregressive

•  Thecriticaloutstandingquestions,abouttheeconomiceffectsofaUBIarenotlikelytobeansweredwithshorttermsmallpilotprograms