The pandemic and UBI
By Scott Sumner
Tyler Cowen and Garry Kasparov have a new piece on Universal Basic Income and the pandemic:
Universal basic income was a popular topic in the U.S. before Covid-19 — in a theoretical sense. Now a pandemic is providing a tragic preview of some of the conditions UBI was conceived to address. And, though there are some important qualifications, Covid-19 is making UBI look better. . . . In response to an unemployment level unseen since the Great Depression, the federal government has instituted cash transfers, which in some cases result in unemployment payments that are higher than wages. This is a radical experiment. It is being called stimulus, inaccurately, when it is a humanitarian program designed to tide people over during economic duress — and it draws explicitly upon UBI-like ideas.
I’m not sure which programs this refers to. The $1200 checks to most adults are not aimed at tiding people over, as the cost of living has fallen for people with jobs. The unemployment insurance payments are indeed a humanitarian program to tide people over. But these payments only go to the unemployed, and thus are nothing like UBI (which goes to everyone.) Indeed the whole point of UBI is that everyone should get an equal payment.
Perhaps this refers to government subsidies allowing airlines to continue paying their workers through the recession. But the next quote (e.g. “in contrast”) suggests not:
In contrast, many European countries have been guaranteeing wages in the hopes of “freezing” the economy and then “defrosting” it when it is safe to return to work. Yet some recent U.S. estimates suggest there will be 3 new hires for every 10 layoffs caused by the pandemic, and furthermore 42% of the new layoffs will be permanent. (In post-pandemic America, there will be less need for waiters.) That suggests the American UBI-like strategy is likely to outperform the European approach, because the world is changing rapidly and labor will need to be reallocated accordingly.
I see no evidence that the world is changing rapidly or that there will be less need for waiters. Indeed productivity growth is much slower than when I was young. In the decades after WWII the world did change rapidly. Today, change is slow and I expect it to slow even further. Slow change also implies a slow rate of reallocation of labor into different fields.
To be sure, the world has changed rapidly in just the past 2 months, as productivity has declined. But we have no evidence that the pandemic will be permanent, and hence no reason to support a UBI program that would presumably be intended to be permanent.
Another positive sign for UBI is that most Americans seem keen to return to their workplaces. One fear has been that UBI would lead to a couch-potato culture, with people choosing to stay at home even when they’re finally able to leave. But blue-collar service workers are continuing to brave the front lines even when faced with reasonably high risks of infection. They are not trying to get fired so they can collect unemployment.
I don’t see the same “positive sign”. I see employment falling by millions each week. A UBI program might or might not discourage work (I think it would), but certainly there is no evidence in recent employment trends to suggest it would not discourage people from working. Again, employment is plunging at the fastest rate in history. The fact that 100% of workers have not suddenly quit their jobs is hardly reassuring. Most workers presumably assume that the lockdown will end soon—why quit your job in that case? If you did quit, it’s not easy to collect unemployment insurance. And if you get fired, that makes you less employable going forward.
In addition, evidence from Europe suggests that the disincentive effect of social welfare programs shows up over a very long period of time, not all at once. People don’t typically quit jobs to get welfare, rather they fail to get new jobs after being laid off. After the 1960s, unemployment rates in Europe rose stepwise, one recession to the next.
At this point the article switches emphasis and begins making arguments against UBI. I mostly agree with the last half of the article.
PS. Wired also has an article on UBI and the coronavirus: