Because pandemic benefits mean problems for universal grassroots income

The writer is editor-in-chief of MoneyWeek

Let’s say you’re unemployed and someone offers you $ 15 an hour to work a 40-hour week as a shift manager at McDonald’s in the United States. That will give you $ 600 a week. It’s not a fortune. It’s not even horrible. So all other things being equal, if you need work you’ll probably take it. But what if someone else offers you a little over $ 600 a week if you don’t take it? $ 650 maybe – to stay home instead. My guess is you he might think twice.

This could be part of the explanation behind the problems that American companies are assuming for the time being. For much of the past 18 months The American government it has not only imposed unequivocal stimulus controls on the general population but has also proposed huge unemployment benefits. People have been able to claim more and for longer than ever (39 weeks rather than 26 weeks). The average weekly unemployment benefit across the country is now well over $ 600, with some states paying more than $ 700.

The numbers aren’t as good as they were in the first part of the pandemic, when the average replacement rate (the percentage of your income replaced by job loss) went from a 48 percent pre-pandemic to 145 percent. one hundred. But it offers a reason why many people decide, as the Intertemporal Economy puts it, that “the expected income from employment is less than government transfers and the value of free time.”

This can be particularly the case when you add in the pandemic savings cushion that families have built – money that allows them to wait their time before re-entering the market. There can also be a short-term wealth effect here: if the price of your home grows by 10 percent, you may feel less financial pressure in the long run. Note well that a slightly higher percentage of Americans said they feel more financially secure in 2020 than in 2019.

The numbers show the result of all this – a lack of supply in the labor market. April employment numbers were shown 75 percent fewer people turning to employment that most analysts expected. This can’t be placed at the door of demand – there are a lot of vacancies. There are other issues as well – think about health issues (who wants to leave home without vaccinations?) And child care issues (not all schools in the United States are open). That’s all right (there’s a reason why 60 percent of job seekers want it to be far away). But the last two points certainly come into play only for many families because of increased benefits and pandemic savings.

All of this has been difficult to measure during the pandemic. But there is a whole body of research that suggests that the more you pay people to work the less they work, and we’ll find out soon if this holds a good coronavirus post. As Capital Economics points out, some U.S. states have opted out of the strengthened Federal Programs (“incentives matter,” says the Montana governor), which could explain a recent “faster decline in jobless claims.”

All of this might seem obvious. But it’s a problem for those who believe in a universal base income (UBI) – and who think the pandemic should be the catalyst that accelerates its introduction in developed countries. The basic premise of UBI is that if you can find the money to give everyone an unconditional income not tested by the means to cover all their basic needs, they will become happier, healthier, more productive and – crucially – less likely to be. unemployed.

It’s a great idea. But beyond the very obvious cost issue, it comes with a problem: there have been very few experiments, none of which have produced evidence that it works. The only national randomized controlled trial conducted so far was in Finland a few years ago. There was a clear finding: those who obtained the baseline income were much happier than those in the control group. This is not surprising – it’s hard to imagine free money making many people less happy. In any case on the subject of employment there was no clear conclusion.

You could argue that a “true UBI” has never been proven: most experiments and promises are more about offering a guaranteed minimum income to a limited number of people. Take a look at the Scottish Government’s recent mention of a minimum income of £ 37,000 if it secures an independent Scotland. And you could argue that when it comes to free money, the time scale could make a big difference. If you know you get a $ 600 free a month for three months, you can choose to put your feet up. If you know it’s going to last forever, you’re definitely more likely to come up with a long-term career plan.

What you can’t do is argue that we have more evidence now that a UBI would be good for employment than we did two years ago. Some fans might say it doesn’t matter: there’s a thread that thinks automation will destroy the job market, making UBI just a facilitator of a better pastime.

But if that’s your argument, you need to make sure you’re right on the job. Because one thing the pandemic has taught us is that if you tell people the kind of financial support that allows them to retire from their jobs, a good number of them will probably. And that doesn’t help anyone in the long run. Just ask 44 percent of small American businesses who say they can’t find anyone to take the jobs they offer.

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