Arguments for a UBI – The Capitalist

This post is part of the sequence Arguments for a Universal Basic Income.

Removal of Market Distortion

It is a frequently made argument, that minimum wages distort the market. Either forcing companies to pay more for a certain activity than it is really worth to them, or rendering someone unemployable if their skills are not worth the minimum wage that a company is allowed to pay.  This is an unavoidable negative consequence of a minimum wage law, yet without it, companies would be allowed to pay many people so little that they would struggle to survive.  After all, what is their alternative – if no-one is willing to pay them any more money, their only other option is to not work, and either live off state benefits, or starve.  The provision of Universal Basic Income would mean that everyone was able to survive, and could then augment their earnings with additional employment income.  This would remove the requirement for a minimum wage, as everyone would have enough income to survive, which would then free up the companies to pay the market rate for the work they required.

This leads to the obvious objection – “wouldn’t companies use this as an excuse to drop pay for all workers?”, however because a Universal Basic Income is not dependent on whether someone has a job, or has recently chosen to leave a job they were unhappy with, people are not held hostage by the companies they work for – no-one has to work just to survive, so if people feel that they are not being paid a fair amount for their work, they are free to leave.  This freedom should also reduce the inertia stopping people from moving between jobs, which is another distortion in the market.  When you move jobs, there is often a probation period, so you are potentially leaving a secure position, where it would be expensive for the company to make you redundant, and moving to a position where you could be laid off with very little difficulty, and almost no severance package, leaving you in a very fragile position.  With the safety net of a Universal Basic Income, you know that your income cannot drop below a certain level, making the risk less severe. This should make people feel able to move jobs with less risk to their personal finances and wellbeing, which should make the job market more efficient.

The ability of people to survive without a job, without the demeaning process of jumping through a series of bureaucratic hoops, and without the pressure to take any job that is offered, no matter how uncomfortable they are with it will also empower people in other ways.  They will be able to turn down jobs offering poor working conditions, and if enough people are disinclined to work under such conditions, this will incentivise employers to improve them.  Mindless or unpleasant jobs would also likely have to pay more to encourage people to do them, which would increase the drive for automation.  Flexible working is a popular concept, that companies could find it beneficial to offer, as it would increase the size of the employment pool that they have access to – forcing people to work full-time or not at all would no longer be viable if people could afford to pick the latter option.  All of this effectively levels the playing field between companies and employees, giving rise to a much freer and less distorted market.

Some might be inclined to say that a Universal Basic Income reduces the link between merit and reward, which is itself a market distortion, however it does not affect this link very much at all, by the very nature of its universality.  Unlike other state benefit systems that reduce as incomes increase, thereby reducing the reward of incremental merit, the universality of a Universal Basic Income means that being paid by someone will necessarily increase your income, but that there is a base level below which it is not possible to fall.  The link between merit and reward was outlined by John Stuart Mill:

“This System does not contemplate the abolition of private property, nor even of inheritance; on the contrary, it avowedly takes into consideration, as elements in the distribution of the produce, capital as well as labour.” … “In the distribution, a certain minimum is first assigned for the subsistence of every member of the community, whether capable or not of labour. The remainder of the produce is shared in certain proportions, to be determined beforehand, among the three elements, Labour, Capital, and Talent.”

The capitalist would argue that the market is the best way of distributing this remainder, according to the value of the labour, capital and talent brought to bear by each individual.  This approach allows the market to do just that, whilst minimising the interference required to create a society that is still able to provide for all.