Is it time for a universal basic income?

Photo by Nicole Y-C on Unsplash

Like cheese from Chernobyl, the prospect of prolonged debt and deficit has long been viewed as unpalatable.

Last week the federal treasurer, Josh Frydenberg, announced an estimated budget deficit of more than 184 billion in 2020-21. A budget surplus, then, might as well be a millennium away for those post the age of fifty as they will likely not be around to see one.

It seems, as circumstance fluctuates, accurately predicting a budget surplus is beyond the capacity of mere mortals. In truth, economists have a poor record of predicting future economic outcomes. They’re actually not very good at it as history tells us. The 2007-08 GFC, a cataclysmic case in point.

Even worse is the politico-economist, torn between the truth of what the numbers say and what he or she would like them to say — the analytical truth versus half-truths and hyperbole.

And then there’s the counterfactual framing of an outcome — things would have been much worse if we hadn’t done what we did. And ultimately, the “I don’t have a crystal ball” response when things go exceedingly askew.

But for those unemployed or gainfully employed, the reality of a budget deficit or surplus is pretty much irrelevant.

Not so for the political fraternity!

There will come a time, in the minds of our politicians, when the unemployed move from the disenfranchised few to a large contingent of Australian voters? The pragmatic political priority then becomes how to secure the jobless vote.

The right to work and the fragility of our jobs market 

Like religion and politics, the subject of unemployment provokes a multitude of views and a lot of pent up passion.

However idealistic, Article 23 of The United Nations Universal Declaration of Human Rights states:

  1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
  2. Everyone, without any discrimination, has the right to equal pay for equal work.
  3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
  4. Everyone has the right to form and to join trade unions for the protection of his interests.

As most of us are aware, the government’s method of measuring unemployment is dubious, if not absurd. If you work one or more hours a week, you are considered employed. As pragmatic as that seems, it fails to provide an accurate picture of the state of unemployment and a measure of how many people might be operating in survival mode.

Mindful that the pandemic was not the fault of government, but government must take responsibility for the fragility of the industrial relations framework and the workforce flexibility that it has actively pursued. The rampant underemployment and gross job insecurity that this has fostered is now fully exposed.

If the competition for a decent job wasn’t fierce before — especially for young people and the mature-aged — it’s now of plague proportions. The official unemployment rate is projected to rise to more than 9 per cent by year’s end. As for the unofficial employment and underemployment rate, well, who really knows?

The Grattan Institute has estimated that between 14 and 26 per cent of Australian workers could be unemployed because of the pandemic-induced lockdown, and is likely to become the worst economic downturn in our country’s history. Under this scenario, one would also expect the greatest job creation plan in our nation’s history?

The natural rate of unemployment

But if you were unemployed before the Covid-19 pandemic, and remain unemployed, nothing much has changed apart from some temporary relief from the poverty-imposed pre-Covid Newstart allowance. Now called Jobseeker. Mindful that changing the name is not reform — it’s a mindless game of tinkering that delivers the same outcome.

Australia’s natural rate of unemployment is arguably around 5 per cent. A kind of tipping point indicating where upward pressure on wages occurs, excess capacity in the economy is taken up, the pool of available candidates for most jobs is diminished, and inflation becomes a problem.

Of course, it’s not as simple as that. The natural rate of unemployment is a disingenuous concept: it is the rationale for the market’s inability to provide enough jobs for everyone. This is accepted as the norm — an imperfection of a supposedly free-market economy that cannot be resolved without creating other adverse incidental outcomes.

As such, there is never any genuine attempt to eliminate this market imperfection and provide sufficient employment for everyone seeking it.

Although employers and politicians might semantically argue otherwise.

“Full employment” is also a disingenuous concept. It is sometimes equated with the natural rate of unemployment, but more often means that everyone who wants to work is in work.

Something of a misnomer because unemployment is never zero due to frictional and structural unemployment, and there are never enough suitable jobs for everyone. As such, like the natural rate of unemployment, it is not genuinely pursued for similar reasons. 

Free-market imperfections 

Viewed from another angle, because of the structural imperfections of free-market economies, if we have a natural rate of unemployment of 5 per cent, and it regularly hovers around this level, despite the makeup of that 5 per cent of people, there is always X number of people unemployed.

Whether it’s you or I is irrelevant in this sense. It might fluctuate over time, but gravitates back to the natural rate.

Arguably, this also renders the amount of the unemployment benefit — as an incentive or disincentive to genuinely seek employment — also irrelevant. That is, if we dare not pursue real full employment because of an inflation fear, and full employment cannot be achieved because there are never enough suitable jobs created, then we have to settle for an unemployment rate, at best, of somewhere between 4 and 5 per cent.

Considering this, and somewhat idealistically, should the incentive to get people into work be to push them into poverty or provide them with a decent, reasonably well-paid job? Some might argue both; others would argue the former while some would argue the latter. The latter naturally makes more sense.

Is it time to “seriously” consider a Universal Basic Income?

A Universal Basic Income (UBI) is something that is occasionally, but not often seriously, advanced as a practical alternative to the mess of support benefits designed to remedy the perpetual imbalance between the jobs available and the workers seeking them.

Mindful that a UBI is not meant to be an incentive or disincentive to push people into employment, but rather provide them with a means to live decently, irrespective of their employment situation.

As a consequence of the Covid-19 pandemic, several countries are now experimenting with a UBI. In March this year, Australia’s United Workers Union called for a UBI of $740 a week, roughly equivalent to the minimum wage.

Although a UBI makes practical sense, it is confounded by politics — treating unemployed people as a percentage point and a platform for political point-scoring is the Australian norm.

But because Covid-19 will not be the last emerging infectious disease with pandemic potential, a UBI must be considered as a genuine, and perhaps necessary, proposal. It might not provide additional incentive to look for work, but research shows that it is positive for life satisfaction and mental wellbeing, reducing stress, depression, sadness, and loneliness.

Not to mention its benefits against the costs of mental health and domestic violence, and its practical worth as a financial lifesaver.

The minimum wage and wage inequality: we aren’t all in this together

There is no empirical evidence that shows the minimum wage, or in fact, higher wages, causes unemployment. The same applies to the theory that trickledown economics boosts employment.

The term, “minimum wage”, is also disingenuous. We might assume, by the way it is discussed by politico-elites, that it’s a calculation of the maximum amount a business can afford to pay a worker before the cost of labour becomes an impediment to employment.

But what we should be calculating is a “livable income”.

What amount of money does a person need to live a decent life irrespective of his or her situation? Whether he or she is renting, has a mortgage, owns a home, or is married, de facto, single, in a relationship or divorced with children.

An equation that is problematic and debatable, in what is an increasingly unbalanced one, considering the unaffordability of housing and the general cost of living as a proportion of income.

It’s also time to seriously address our well-established workplace prejudices — against youths because of their inexperience, women because of their gender, mature age workers because their age, minority groups because of their ethnicity, the disabled because of their perceived shortcomings, LGTB people because of their sexual orientation or gender identity, and First Nations people because of racial intolerance.

These are ingrained structural and cultural problems that are highly solution-resistant and require dedicated policy and behavioural adjustments. Tinkering by providing one-off monetary incentives, to hire mature-age workers, for example, will not solve the problem.

It would also be a revelation to resolve the long-standing wage inequality issue — just pay women, for the same job, as we pay men. It can’t be that hard!

Job-ready and that elusive fulltime job

The term “job-ready” is also much of misnomer as opportunities for young people are quickly evaporating: sixty per cent of the jobs that students are training and studying for, will likely succumb to automation.

For many people — young, old, and in between — the promise of a fulltime job through education and retraining has turned out to be a monumental furphy.

I mean, since when did winning a fulltime job become analogous to winning the lottery?

We have also heard much about stagnant wages growth in recent years. A report published by the Productivity Commission in late July 2020, found that income for people aged 15-34 actually declined in real terms between 2008 and 2018, and was flat for those aged 20-34 over the same period.

Post the global financial crisis (GFC), the Commission also found that young workers were pushed further down the “job ladder” and into “lower-ranked” jobs. It predicted that the Covid-19 pandemic would further exacerbate this.

A shift from fulltime work to part-time work translated to less hours and thus lower incomes. Confirming to some extent, that workforce flexibility — the casualisation of the workforce and the proliferation of part-time workers as central to the prevailing business model — has a negative effect on wages growth.

Choosing between lives and livelihood: an unconscionable conundrum

In our current global pandemic, it must be acknowledged that government is under immense pressure. It is near impossible to evaluate all the incoming information and then be asked to make a judgement call that not only  proves optimal in hindsight, but appeases everyone.

What’s more, choosing between a prolonged lockdown that will no-doubt cause lasting damage to people and their livelihoods, and saving lives from a devastating virus, presents an unconscionable conundrum. There is advocacy for both options. Let’s hope we get it right.

Stephen Dark has a PhD in Climate Change Policy and Science, and has lectured at Bond University in the Faculty of Society & Design teaching Sustainable Development and Sustainability Economics. He is a member of the Urban Development Institute of Australia and the author of the book Contemplating Climate Change: Mental Models and Human Reasoning.

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