May 30, 2020

Testing Maslow… or would people work with a Basic Income

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(This article is co-posted on SocialCanada.org. This is the first of a two-part series.)

The Basic Income concept has been gaining traction in Canada, to the point where detractors are finding it necessary to start attacking it. The Broadbent Institute (BI) on the left, and MacDonald-Laurier Institute (MLI) on the right, have published opinions of opponents to the idea. The main objections are based on estimated costs of the more expensive models and concern about the impact of unconditional money on the incentive to work.

Both the MLI document (1) and a recent Broadbent (2) webinar have taken shots at the supposed cost of a universal payment model, without factoring in its economic impact of stimulating consumption. They also addressed a theoretical model, rather than the costed model recently put forward by the Basic Income Canada Network.

Here I want to address the fear of reduced work behaviour. This concern was part of Jack Mintz’s objection in the MLI paper.

If people had enough to survive on…?

…A Basic Income Guarantee ensures everyone an income sufficient to meet basic needs and live with dignity, regardless of work status… Basic Income Canada Network

I think it is fair to say that not many people are worried that doctors, lawyers, accountants, pharmacists, professional athletes, professional entertainers, engineers, physicists, chemists, social workers, software engineers, television commentators, teachers, university and community college professors, politicians, police officers, bankers, financial industry specialists, foreign service officers, epidemiologists, psychologists, psychiatrists, public servants, sociologists, economists, business strategists, management consultants, marketing vice presidents, corporate CEO’s and directors will quit their work. Their work is too rewarding for that.

The concern is really that poor people won’t take those low end jobs that don’t pay a living wage (although we discovered during the pandemic that some are essential to our well-being.) The underlying assumption is that our economy requires some people to work for a wage that might meet basic needs, but would not permit an adult to live at what would be considered a community standard for life in Canada. An unattached low end worker cannot rent an apartment in a safe neighbourhood, put healthy food on the table, pay for internet and communication devices, buy a car, take sick leave, take a vacation trip, save for a family or retirement. The low end jobs won’t support a normal Canadian standard of living.

But some worry that if these people don’t accept to work at subsistence wages, then the economy won’t function for the rest of us. Some owners of businesses employing those workers are among the richest people in the world. The Walmart-owning family, for example, is now made up of several multi-billionaires. They are probably the richest family in the world. Their low store prices and massive profits are being subsidized by their workers.

Canada has one of the highest proportions of low-wage workers among the OECD countries. Canada and the US face the dubious distinction of being outliers among those countries. The years of global supply chains and technological revolution, combined with government policy to deregulate labour markets, have resulted in the creation of a two-tier labour force. The behaviour of the lower tier is a public concern. If our low income people were all to stay home, our high income society would have problems.

So what does history tell us about unconditional income and participation in the low wage economy? Not much, but here it is.

The guaranteed income experiments in the late 60’s and 70’s, in the US and Canada, showed a small net decrease in labour force participation. In both countries, some people were able to clear up personal problems or get training and move into jobs. But more people moved out of the labour market. Those who moved out were primarily women with children. In those days child care options were minimal, child support payments were rarely enforced, and work opportunities for under-educated women were precarious. The women chose security for themselves and their children, a rational economic choice in that era. More recently a two year experiment in Finland showed a small net positive increase in labour market participation.

These experiments were all limited in duration and geographic area. They tell us almost nothing about how the overall society would adapt over time, nor how the economy would be affected over time.

We know that social assistance systems have many disincentives to work built into them. The loss of special purpose subsidies, especially subsidized housing and medical costs, can make marginal jobs unattractive. As well, many people dependent on social assistance have combinations of financial, personal, physical and mental health issues that are bound up in that dependency. Basic income proponents believe that unconditional income, free of stigma and constant oversight, can help to free them from these barriers.

We have already tried tough love.

With a different philosophy, Canadian federal and provincial governments acted in concert during the 90’s to force people who were considered employable – meaning they could not prove a disability – into the labour force. Their assistance was cut by as much as fifty percent. Many of them did manage to become working poor, although total poverty rates did not change. Some lived on the streets and became panhandlers. So starvation works as an incentive. It did during the years of a slave economy too.

But overall, the evidence that an unconditional income will or will not induce sloth is thin and nuanced by different times and situations. It does seem clear by subsequent analysis of the Canadian experiment, as well as reports from the aborted recent experiment in Ontario, that people will use extra money to improve their health and overall living conditions. The money goes into the local economy.

We are left with Theory….

Public policy by its nature interacts with human motivation and behaviour. Economic theory would suggest that people who receive enough money for basic needs would continue to strive to get more. Why not? The majority of households in Canada can pretty easily take care of basic needs, but still they continue to work and earn more to accumulate more and spend more. Low income people are not a different breed. Indeed, the distribution of education and training in the workforce is more equal than the distribution of income and wealth.

If we look at it from a psychological perspective, we might try applying Maslow’s hierarchy of needs. The people at the bottom of the income scale spend much of their time with basic physiological needs – food, water, warmth, etc. Their next needs according to M, are safety and security.

…A little digression… in the 1990’s I was teaching part time at Queens’ and I published a research report on the social support systems for low income single mothers in ten countries. (No shame if you missed it. The NY Times did too.:) One of the observations was that these mothers managed multiple small subsidies, usually from multiple government or community sources with multiple requirements. Managing all of the requirements was about a half-time job….

Maslow suggests that when people feel secure with physiological needs and personal safety, they will then seek love, esteem, and accomplishment. The Basic Income Canada Network seems to believe this too. So maybe people will use basic income to secure basic needs, and then think in the longer term about their health, their training and occupation.

So why not give it a try?

I definitely do not mean another encapsulated community experiment that just kicks the problem down the political road, as we have done before. I mean let’s give it a try throughout Canada. See what happens. If too many people stay home, then change it.

It is a perfect time to try it out, to keep consumption stimulated as we come out of the pandemic. The chances are good that some of the low end jobs won’t reopen. The retail industry will probably go through a transformation. Some parts of transport and accommodation as well. New kinds of local entrepreneurialism and training will be needed as people seek their own solutions. Basic Income support will help the process.

It is a big national project. Like building a railway. A wonderful legacy for a Prime Minister.

It won’t be easy of course. Perhaps the PM can convince the provinces to collaborate on a national model, either universal or income-tested. But chances are it will be necessary for the federal government to cobble a basic income guarantee together using federal programs, and invite provinces to buy in over time.

In the next episode of this series, I will address some design options in the context of realpolitik. I will also tackle a related and also important topic… What happens when people work but don’t declare their income?

(1)https://macdonaldlaurier.ca/files/pdf/20200519_Economic_recovery_ESSAY_COLLECTION_FWeb.pdf?mc_cid=acbbec0b62&mc_eid=27e009db85

(2)https://www.broadbentinstitute.ca