Should the Government Raise the Minimum Wage

The Case For UBI

With rising wealth disparities and increasing automation, the economic prospects for many Americans appear bleak. Income and wages have stagnated for Americans in lower-skilled jobs (Autor, 2014), and the wealth share of the top .1% has increased substantially - from 7% in 1977 to 22% as of 2012 (Saez & Zucman, 2016). The inevitable reality of job displacement to machine (whether it be robot or AI) amplifies the current economic insecurity for America’s most vulnerable populations (Frey & Osborne, 2017). And considering the owners of AI/robot assets and shareholders stand to be the beneficiaries of this newly automated labor, this stark future will likely exacerbate wealth inequities (Hoynes & Rothstein, 2018).

This harrowing context necessitates a radical change in our welfare organization. Current policy programs insufficiently target the entire population affected by increasing economic insecurity, having either failed to effectively insulate the poor or to consider the integral component of automation. Universal Basic Income, “ a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement” (Basic Income Earth Network, 2017), has proven positive externalities, including reduced poverty, and viable financing options (Van Parijs & Vanderborght, 2017). A national tech-funded UBI is the best available policy intervention to combat this deleterious and worsening economic climate.

Policy Alternatives

The policy alternatives to UBI contain massive gaps in terms of coverage. Policies addressing reduction in employment are both insufficient in their inclusion and unconsidered in terms of automation. And policies targeting poverty alleviation are riddled with problems that reduce their efficacy. These alternatives are helpful to portions of the population, but not sufficiently comprehensive, and almost all ignore the pressing concern of automation.

Although 85% of Americans would support the restriction of automation to jobs (Pew Research, 2017), there is no policy suggestion along this vein. “The Federal Jobs Guarantee”, the most notable policy suggestion in terms of reducing unemployment, notably fails to consider automation. This is a policy in which the Federal Government creates jobs to fully employ the populace (CBPP, 2014). This type of proposal considers full employment to be a 4-6% unemployment rate, which is a glaring issue, as success still means a level of unemployment that would leave millions of Americans destitute (CBPP, 2014).

It is also important to note that minority populations are more likely to be excluded as the labor market is discriminatory - even when controlling for other demographics, black Americans are more than twice as likely to be unemployed than white Americans (Daly et. al., 2017). Also, this proposal does not address the fact that many of the jobs suggested may soon disappear due to automation - some studies show that upwards of 47% of jobs are at risk (Frey & Osbourne, 2017).

Furthermore, if the governmentally provided job is unnecessary, there is an opportunity cost for that worker in terms of eliminating the possibility of engaging in something more productive. Lastly, a job does not guarantee an avoidance of poverty - a 2012 study by the Economic Institute found that 28% of American workers were paid less than the poverty line (CBPP, 2014). This proposal would require extensive government spending (CBPP, 2014), without a guaranteed benefit for all.

In terms of targeting wealth insecurity, there is an insufficient patchwork of entitlement programs aimed at impoverished Americans. There are mean-tested programs including Temporary Assistance to Needy Families (TANF), more colloquially known as welfare, and Supplementary Nutrition Assistance Program (food stamps), that are too limiting in scope. Food stamps only help with food purchases, and therefore do not provide the breadth of benefit necessary to address large economic disparities.

TANF is also constrained as it does not help many low-income families, like those without children, and contains lifetime restrictions on the length of benefits (Hoynes & Rothstein, 2018). The work requirement also would prove especially challenging in an economic future when finding a job is much more difficult. This need to work requirement also takes agency away from that employee in terms of negotiation - employers are not incentivized to better working conditions or wages ( Van Parijs & Vanderborght, 2017) . TANF also creates “poverty traps”, as income of a low wage job often offsets reduction in welfare, which removes the incentives to work (Hoynes & Rothstein, 2018). Furthermore, means-tested welfare requires huge amounts of bureaucracy (and thereby cost), despite missing out on many of the people it is intended to serve (Hoynes & Rothstein, 2018).

There are currently other American governmental cash entitlement programs, but they target narrow populations. Supplemental Security Income is only provided to the elderly, and Social Security Disability Insurance is only for those deemed medically unable to work (Hoynes & Rothstein, 2018).Programs like SSDI, require large amounts of bureaucracy, making them disproportionately expensive (CBPP, 2014). Moreover, these programs only address a tiny portion of the population - those who are poor, but not disabled or old, receive nothing. Another policy that does not fall into the category of increasing jobs, or serve as type of governmental entitlement, is an increased minimum wage (also known as a “liveable wage”). Studies show that increasing the minimum wage would lift millions of people out of poverty (Quittner, 2016).

However, it is plagued by the similar issue of the Federal Jobs Guarantee, in that it does not address the burgeoning prospect of job displacement by automation; it would only serve those industries that still require human capital. Furthermore, studies show that it can lead to huge job losses when small businesses are unable to afford this new wage (Quittner, 2016). In the context of increasing automation, there is also the possibility that businesses will be incentivized to automate jobs to lower the increased labor costs due to an increased minimum wage, which makes this a poor policy alternative.

Unfortunately, there is no current American policy targeting the combinatorial problem of decreasing jobs (due to increasing automation), and increasing wealth inequality and economic insecurity. It is clear that the current policy alternatives are lackluster in their ability to address the complexity and robustness of this problem.

Policy Recommendations

Comprehensive monetary relief addresses the combinatorial problem of both decreasing job prospects and worsening economic straits. There are several types of basic income that have been contemplated, including a negative income tax and a UBI. Due to more positive externalities, and a better mechanism for implementation, the best policy is a national UBI financed by proceeds generated by an “information rent” - that is big tech companies (i.e. Facebook, Google, etc.) would pay a tax to the government on profits accrued by data sales.

This national UBI must have specific characteristics (i.e. individual-based, in the form of cash) to maximize its benefits. There have been several places where UBI has been implemented, including in America, which have demonstrated several positive benefits (Hoynes & Rothstein, 2018). Although there are large obstacles to adoption, like financing and political feasibility, the components of this plan largely combat those concerns. UBI has a plethora of demonstrable benefits and studies have invalidated many of the anticipated negative consequences. One huge positive externality is reduced poverty and increased wages for those who do stay in the labor market (because employers are pushed to attract workers) (Van Parijs & Vanderborght, 2017).

Currently, the Alaska Permanent Fund gives its residents 1-2K annually from the states oil revenues, which has shown to have partially contributed to Alaska having one of the lowest poverty rates in the country (Jones & Marinescu, 2018). Also, this study demonstrated that there was no impact on employment - it did not decrease the labor supply (Jones & Marinescu, 2018).

This is not as much of an issue when considering automation and our exponentially increasing population (as we will not have enough jobs), but the common argument that basic income will disincentivize people from seeking work has been invalidated by numerous studies (Hoynes & Rothstein, 2018). Other benefits include increased psychological well-being, reduced crime and increased educational attainment (Akee et al. 2018). Furthermore, it is linked to increases in innovation because people are more willing to take more creative and entrepreneurial risks (Van Parijs & Vanderborght, 2017). There are several important characteristics to a UBI that make it the best alternative in terms of increasing overall societal benefits.

First, it must be a periodic payment instead of a lump sum, as that would help those who are more economically established - that is not as helpful to poor people as a monthly (or even bi-monthly) payment (Van Parijs & Vanderborght, 2017). This is one of the reasons it is better than a negative income tax, which is an annual lump sum.

Second, it must be cash, as studies show people know best regarding what they need to increase their welfare (Hoynes & Rothstein, 2018), and moreover, this has the added benefit of supporting local businesses because it increases purchasing power (Van Parijs & Vanderborght, 2017)

Third, this national UBI will be distributed individually. There has been some debate over whether UBI should go to households or individuals, but research supports the former for a plethora of reasons: households would be harder to administer, a household income would discentive people from living together (Van Parijs & Vanderborght, 2017), and considering our deeply entrenched patriarchy, an individual income increases female autonomy.

Fourth, the national UBI must be universal. This will ensure that all poor people are served (as targeting inevitably misses part of that population (see TANF) and reduces the stigma, which can also act as a inhibitor (Van Parijs & Vanderborght). This also requires less bureaucracy than a targeted policy (there is no figuring out who should benefit), and would help middle class earners for whom this income would allow increased human capital - like educational attainment that would otherwise be constrained due to cost (Hoynes & Rothstein, 2018).

Lastly, this national UBI will be unconditional - that is not have any requirements tied to its receipt, unlike a welfare program where you must prove work. This has the positive externality of increasing the negotiation power and leverage of workers, especially low-income workers. They have the security of refusing a job with bad working conditions, and furthermore, this forces employers to make their jobs more attractive, by bettering conditions or even raising wages (Van Parijs & Vanderborght, 2017).

Even with these well-defined criteria, there are still big obstacles in terms of feasibility. The main issue is financing, given the fact that a UBI of 12k per year to all those over 18 would cost a whopping three trillion dollars (Hoynes & Rothstein, 2018). If other entitlement programs were cut, with the implementation of UBI, this would partially offset the financing. However, my recommendation would be to not cut those programs as that would make the UBI regressive when implemented (although as I argued those programs are not alone sufficient). One of the main financing plans posited is increasing taxes on labor (Van Parijs & Vanderborght, 2017).

There are some large obstacles in terms of drastically raising taxes (which is what it would necessitate) especially in terms of political feasibility (Van Parijs & Vanderborght, 2017). An “information rent” would be more politically palatable given that it would require the taxation of a few large corporations who have been freely profiting off of virtually the entire population data. This would also include a “robot tax”, which would address the fact that their current profits only go to owners or shareholders. By taxing the wealth generated by the robot, it would redistribute this wealth, instead of the increasing GDP only going to the economic elite.

One might think that another obstacle would be powerful tech lobbyists opposing this kind of tax, however tech companies want to encourage the public’s support of an increasing automated society. By receiving income from these companies, it would make the population a shareholder in this data economy, and therefore more supportive of increasing automation (Van Parijs & Vanderborght, 2017). This does pose a potentially problematic power dynamic that would likely require regulatory oversight. The fact that these companies would be providing monthly income should not give them a license to do whatever they please at the detriment of society.

Lastly, this recommendation is for a national UBI and not a local pilot program. Several cities have been developing pilot programs, although the funding has been privatized - like the Oakland study currently funded by Y Combinator of 100 million dollars in funding (Hoynes & Rothstein, 2018).

This pilots are good for gauging the best ways of implementing such a program, but there are not a solution to economic disparities faced nationally. It is reminiscent of America’s current healthcare crisis, in terms of access and affordability. Massachusetts passed free healthcare reform in 2006, but over ten years later, the entire nation is still struggling. This kind of incremental implementation takes time that we do not currently possess.

Conclusion

A national UBI, funded by Big Tech, will serve as a necessary supplement for citizens impacted by increasing wealth inequality and reduced job options. Automation is transforming workers into consumers. It is equitable that Americans benefit from that consumption, with money accrued by their data. It will also enable people to seek new educational opportunities and job training that will support their inclusion in this new labor market. In a society where capital is even more central to our economy, for those without capital or the skills required for a new labor market, financial security is necessary.

It is clear that current American policies and proposals, like welfare reform and “Jobs For All”, do not address our automated future or increasing wealth disparities. This recommendation for a national UBI is economically feasible, and politically viable, given the fact that its positive externalities, like reduced crime and increased education, benefit society as a whole. Not only will a national tech-funded UBI benefit all Americans, but this policy ensures that even the most economically disadvantaged will now have some protection from further economic disparities caused by increasing globalization and automation.

References

1. Akee R, Copeland W, Costello EJ, Simeonova E. 2018. How does household income affect child personality traits and behaviors? American Economic Review 108(3): 775-827.
2. Autor D. 2014. Skills, education, and the rise of earnings inequality among the ‘other 99 percent.’ Science 344(6186): 843–51.
3. Basic Income Earth Network (2017). Basic income. Retrieved from http://basicincome.org/basic-income/.
4. Daly, M., Hobijn, B. & Pedtke, J. (2017). Disappointing Facts about the Black-White Wage Gap. Federal Reserve Bank of San Francisco . Retrieved from http://www.frbsf.org/economic-research/publications/economic-letter/2017/september/disappointing-facts-about-black-white-wage-gap/ .
5. Frey, C. B. & Osborne, M. A. (2017). The future of employment: how susceptible are jobs to computerisation? Technological Forecasting and Social Change, 114:254 280.
6. Gramlich, J. (2017). Most Americans would favor policies to limit job and wage losses caused by automation. Pew Research Center . Retreived from http://www.pewresearch.org/fact-tank/2017/10/09/most-americans-would-favor-policies-to-limit-job-and-wage-losses-caused-by-automation/.
7. Hoynes, H. & Rothstein, J. (2018). Universal Basic Income in the US and Advanced Countries. Annual Review of Economics : 1-30.
8. Jones D. & Marinescu I. 2018. The labor market impacts of universal and permanent cash transfers: evidence from the Alaska Permanent Fund .
9. Working Paper 24312, N ational Bureau of Economic Research . Retrieved from https://home.uchicago.edu/~j1s/Jones_Alaska.pdf.
10. Paul, M., Darrity, W. & Hamilton, D. (2018).
11. The Federal Job Guarantee - A Policy to Achieve Full Employment. Center on Budget and Policy Priorities . Retrieved from https://www.cbpp.org/research/full-employment/the-federal-job-guarantee-a-policy-to-achieve-permanent-full-employment#_ftn7.
12. Quittner, J. (2016). What a minimum wage hike would really mean for small business. Inc. Magazine . Retrieved from https://www.inc.com/leigh-buchanan/small-business-week-2018-service.html.
13. Saez, E. & Zucman, G. (2016). Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2):519 578.
14. Van Parijs P. V., & Vanderborght Y. (2017). Basic Income: A radical proposal for a free society and a sane economy . Cambridge: Harvard University Press.

Cite this page