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FEATURE

14 POLICY • Vol. 33 No. 4 • Summer 2017-2018

The idea of a Universal Basic Income (UBI)—an unconditional payment from government to citizens—has been around for a long time. In recent years, the movement towards a UBI has gained momentum, with supporters on both the left and right—particularly those involved in the technology sector. But it is a deeply flawed idea and the case for introducing one is weak.

The spectre of widespread technological unemployment has become a popular justification for introducing a UBI, as the effects of globalisation and automation have been felt in the blue collar workforce whilst also emerging as a potential threat to white collar workers—especially given the rise of artificial intelligence. As dire predictions about the future of work increase, some believe the expectation that most people will be able to support themselves and a family will soon become obsolete. A UBI is proposed as the answer to this somewhat dystopian future.

This article argues that there is little evidence of technological unemployment in the labour market, or that the nature of work is undergoing a long-term disruption that would justify a UBI on the basis of technological change. It then examines the cost and drawbacks of the main theoretical UBI models: (a) a universal payment model where every citizen receives the same UBI; and (b) a welfare reallocation model where the existing system is reshaped into a universal payment. It finds that the first model would be unaffordable with the current taxation system and would involve enormous additional taxation, whilst the second model would see a

substantially lower UBI payment level that would not be sufficient to live on, making it politically unviable if not impossible.

Technological unemployment One of the main justifications for introducing a UBI is the impending changes to the labour market as a result of technology. Frey and Osborne have suggested that 47% of US jobs are at risk from advances in machine learning and robotics. However, other estimates by Arntz, Gregory and Zierahn are not nearly as pessimistic, suggesting that the number of jobs at risk is much lower at less than 10% on average. It is also important to note that the fact that some occupations are lost does not mean that the workers in those jobs will be permanently unemployed.

In the past, disruptions to the labour market of the size being anticipated by UBI campaigners—such as the industrial revolution—have actually led to gains for the economy and substantial increases in incomes and living standards; moreover, evidence suggests that workers do find other jobs. This tallies with analyses of unemployment from

Simon Cowan is a Research Fellow in the Economics program at The Centre for Independent Studies (CIS) and Director of the CIS Target 30 program. This is an edited version of his November 2017 CIS research report UBI— Universal Basic Income is an Unbelievably Bad Idea. A fully referenced copy is available a www.cis.org.au

UNIVERSAL BASIC INCOME UNWORKABLE AND UNAFFORDABLE

Universal basic income is a deeply flawed idea that would require massive increases in taxation, argues Simon Cowan

15POLICY • Vol. 33 No. 4 • Summer 2017-2018

SIMON COWAN

factory closures and the decline of industries like manufacturing: while some workers do drop out of the labour force, few of those who remain in the workforce looking for work are unemployed after three years.

At the moment, there is little evidence of technological unemployment in current employment data. Unemployment today is comparable with the level in the 1970s, though it has fluctuated in the interim, and there are relatively few discouraged workers who cite lack of skills or jobs disappearing in their industry as the reason they have left the labour market.

There have been very significant shifts of employment within industries; for example, manufacturing employment has declined both in real terms and percentage terms for a number of years. Unemployment has also fluctuated regionally; for example, in the last five years unemployment in the Hunter Region of New South Wales has fluctuated between 2.3% and 12.8%. Yet neither of these statistics provides substantial support to the case for a UBI.

Fluctuations within industries and regions are by their very nature temporary events; they are not permanent shifts in employment that would justify restructuring the welfare system to support them. Indeed, if the case for a UBI rested on the fact that the Hunter experienced a 12.8% unemployment rate in April 2015, the fact that unemployment had fallen to 3.7% less than 12 months later would completely undermine the argument.

Even more permanent decline in an industry or cluster of industries offers little support to those arguing for a UBI unless it is accompanied by a system-wide increase in long-term unemployment. Workers are clearly transitioning from manufacturing to service industries—a profound change to be sure—but those workers are not falling out of the workforce in large numbers. Unless the problem is system-wide, it is hard to see how a generalised intervention in the form of a UBI can be superior to targeted assistance for regions and workers in industries affected by decline.