Imagine receiving cash on a regular basis on top of your income from work. How about receiving money as a fresh graduate looking for work? Imagine still having a source of income despite being one of the workers axed from an expansive corporate retrenchment program. These are the benefits and promises of a universal basic income or UBI system.
A UBI system involves the government handing out cash to all of its legal-aged citizens regardless of their employment and socioeconomic status. However, although there are several attempts to implement this concept, no country implements a full UBI system, and it has also been met with valid criticisms due to its disadvantages and limitations.
Advantages of Universal Basic Income: Purpose and Main Arguments
A universal basic income is a proposed policy and social welfare program in which a government provides all citizens or legal residents a regular and fixed amount of money without conditions and regardless of employment status, income, or wealth. The amount is based on a minimum livable income. Individuals receive it without a means test or income and asset check or requirement to do work. The following are the general features of a UBI:
• Universal: It is distributed to all individuals in a defined population. The common basis of eligibility is legal-aged citizens and legal residents of a country, state, or city.
• Unconditional: All legal-aged recipients will receive the income without conditions. The system does not factor in employment, income, or willingness to work.
• Periodic: Payments are made at regular intervals rather than as a one-time lump sum amount. Examples include a monthly, weekly or bi-weekly payments.
• Cash Payment: The income is provided in a medium of exchange or cash instead of in-kind benefits to give recipients the freedom to decide how they spend it.
• Individual: Payments are typically made to individuals and not households. This means that a single household can have multiple qualified recipients.
The aforementioned features of UBI set it apart from other social welfare programs such as limited dole outs, conditional cash transfers, and in-kind benefits like food stamps. Proponents noted that the main goals of a UBI are to improve income security, reduce poverty or poverty risk, redistribute government revenues, simplify social welfare programs, adapt to automation, and improve overall well-being. Below are the advantages and arguments for UBI:
• Promotes Overall Economic Security: One of the purported advantages of UBI is that it can be used to ensure the economic security of individuals and households by augmenting their income, lifting others out of the poverty line, and preventing others from falling below the poverty line through a guaranteed and livable income.
• Encourages Education and Entrepreneurship: A UBI provides a financial cushion that could allow individuals to take risks. These include pursuing further education or starting a business. Others can pursue arts. These pursuits can be difficult for individuals forced to partake in the labor market to earn a living and survive.
• Simplifies Social Welfare Programs: Some proponents have argued that a UBI could be the sole social welfare program of a government. This eliminates all other welfare programs like limited dole-outs or food stamp distributions. It can also replace complicated and what others have deemed undignified bureaucratic processes.
• Workaround Against Technological Progress: A UBI can be a solution against the threats from technological progress. The growing applications of artificial intelligence and further advances in the field are threatening to disrupt the labor market and could result in millions of unemployment. A UBI system could be the best workaround.
• Government Revenues Redistribution: Another application of UBI centers on the equal distribution of revenues generated by the government through tax collection, operation of state-owned enterprises, and investing activities. It can also be considered a profit-sharing mechanism or a channel for distributing wealth tax.
Disadvantages of Universal Basic Income: Criticisms and Limitations
Both Mongolia and Iran have implemented partial UBI programs in the past. Mongolia launched its Child Money Program in 2005 and expanded it further around 2010. It was funded by surging revenues from copper and gold mining. It involved unconditional and regular cash transfers to all children under the age of 18. Each child received cash each quarter at its peak. It was later scaled back due to fiscal pressures and shifting government priorities.
The Cash Subsidy Reform Plan was launched in Iran in 2010. It replaced fuel and food subsidies with monthly cash payments to nearly every citizen to reduce inefficient subsidies and ease the transition to market-based prices. The program reached more than 90 percent of the population at its peak. However, because of inflation, the real value of the cash eroded. Fiscal pressure compelled the government to scale it back by disqualifying higher-income groups.
Both examples are considered partial UBI programs. The program in Mongolia is not a full UBI because it targets children and was later scaled back. The program of Iran might be considered an emerging full UBI program but it was later scaled back and could not be regarded as a true UBI program. Both programs demonstrate that implementing a universal basic income requires sizeable funding that can be unsustainable in the long-run. This is a critical drawback.
No country has implemented and sustained a full UBI program. The main issue is cost. Even highly industrialized countries like the United States and Japan would not be able to afford it using revenues from tax collection alone. It is also worth mentioning that most governments have to issue government bonds to raise funds needed for existing public services, infrastructure projects, and social welfare programs. Below are the criticisms and limitations:
• High Cost for Implementing and Sustaining: Implementing a UBI system will require budget surpluses. Most countries have suffered from budget deficits. A government might resort to significant tax increases and find other income-generating ventures like running profitable state-owned enterprises and sovereign wealth funds.
• Erosion of Cash Value Due to Inflation: The program must also factor in the importance of increasing the universal basic income over time because inflation or average increases in the prices of goods and services will erode the real value of the income. This means that the government must constantly increase the revenues it generates.
• Potential to Disincentivize Labor Participation: Several social welfare programs such as unemployment cash allowance, conditional cash transfers, and food stamps have been criticized by right-wing groups because of how these demotivate people to work. Critics have raised the same concern over handing out guaranteed income.
• Does Not Promote Socioeconomic Equity: A universal basic income might adhere to the tenets of socioeconomic equality but it does not promote equity. To be specific, since it is universal, everyone receives it, including those who do not need it. Others have argued that the government is better off funding more targeted and effective programs.
• May Trigger or Exacerbate Demand-Pull Inflation: One of the main drawbacks of expansionary fiscal policy or monetary policy aimed at increasing the purchasing power of consumers by circulating more cash in the economy is demand-pull inflation. This happens because of an increase in demand. UBI also increases cash in circulation.
FURTHER READINGS AND REFERENCES
- Conesa, J. C., Li, B., and Li, Q. 2023. “A Quantitative Evaluation of Universal Basic Income.” Journal of Public Economics. 223:104881. DOI: 1016/j.jpubeco.2023.104881
- Fitzpatrick, P. 2022. “Universal Basic Income: An Idea Whose Time Has Come or Just Another Mechanism to Grease the Wheels of Capitalism.” Journal of Global Faultlines. 9(2): 225-234. JSTOR: 48713465
- Gentilini, U., Grosh, M., and Yemtsov, R. 2020. “The Idea of Universal Basic Income.” In eds. Gentilini, U., Grosh, M., Rigolini, J. and Yemtsov, R, Exploring Universal Basic Income. World Bank Group. DOI: 1596/978-1-4648-1458-7
- Lowe, C., Grosh, M., George, T., and Gentilini, U. 2020. “What Does It Take to Deliver a Universal Basic Income in Practice?” In eds. Gentilini, U., Grosh, M., Rigolini, J. and Yemtsov, R, Exploring Universal Basic Income. World Bank Group. DOI: 1596/978-1-4648-1458-7