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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Why Wage Subsidies Are Superior to Unconditional Income Support



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Should the goal of anti-poverty policy be, as Columbia University political scientist Chris Blattman suggests, to purchase a better life for poor people through the use of cash transfers, or should it be to help poor people become less poor by helping them raise their earning potential, as the Campaign for Boring Development (CBD) argues? While Blattman and the CBD are both focused on the developing world, their disagreement is relevant to poverty-fighting efforts in the United States, where a growing number of policy intellectuals, on the left but also among libertarians, favor an unconditional basic income (UBI) on the grounds that it is an efficient means of redistribution and it is free of paternalism.

The trouble with a basic income in an affluent market democracy like the United States is that while it might help the most motivated poor people with the strongest social networks to raise their earning potential by giving them the resources they need to invest in their human capital, or to reduce the cognitive load caused by scarcities of various kinds (e.g., when you have very little, you have to devote considerable time and effort to making minor life decisions, which can make it hard to think long-term), it might also reduce the incentive for other poor people, who live in isolated neighborhoods or regions, or who are disconnected from the world of work, to do the same. Such is the peril of any one-size-fits-all social policy. The thornier question is whether the benefits, to poor people who are not trapped in workless families and neighborhoods and who despite their poverty already have the noncognitive skills and the cultural and social resources that are the prerequisites for upward mobility, outweigh the potential harms.

In making the case against an unconditional basic income, Brink Lindsey recently observed that the negative income tax experiments of the 1960s and 1970s appear to have reduced labor supply. Moreover, he gathered evidence concerning the link between employment and well-being: 

study using German panel data examined changes in reported life satisfaction after marriage, divorce, birth of a child, death of a spouse, layoff, and unemployment. All had predictable effects in the short term, but for five of the six the effect generally wore off with time: the joy of having a new baby subsided, while the pain of a loved one’s death gradually faded. The exception was unemployment: even after five years, the researchers found little evidence of adaptation.

Evidence even more directly on point comes from the experience of welfare reform – specifically, the imposition of work requirements on recipients of public assistance. Interestingly, studies of the economic consequences of reform showed little or no change in recipients’ material well-being. But a pair of studies found a positive impact on single mothers’ happiness as a result of moving off welfare and finding work.

Among supporters of an unconditional basic income, and in particular those who favor it on anti-paternalist grounds, it is commonplace to argue that employment is not the only way for people to lead meaningful, challenging lives. Yet Lindsey finds that for most adults, paid employment is the surest route to the sense of purpose and membership that all humans need to flourish. 

Consider the most recent results from the American Time Use Survey, compiled annually by the Bureau of Labor Statistics. In 2013, employed men averaged 6.43 hours a day on work and related activities (like commuting). So how did men without jobs fill up all that free time? Well, compared to employed men they spent 19 extra minutes a day on housework, 11 more minutes on socializing, 9 more minutes on exercise and recreation, 8 more minutes on childcare, and 6 more minutes on organizational, civic, and religious activities. The really dramatic differences in time use, though, came in two areas: jobless men spent an extra hour sleeping (for a total of 9.25 hours a day!) and two extra hours watching TV (4.05 hours a day!). The evidence is quite clear: people who don’t work can’t be counted on to fill that void with other forms of productive, engaged, goal-oriented activity.

The case for an employment-conditional earnings subsidy is far stronger than the case for a UBI. Notice that that while there is a danger that a UBI will benefit the poor people who already have the prerequisites for upward mobility while harming those who do not, the same can’t be said of a wage subsidies, which benefit poor people in both categories: by raising the incomes of the working poor, who raise their earning potential by gaining work experience, and by drawing the non-working poor into paid employment, which in turn will tend to reduce their social and economic isolation.

In other words, while a UBI is a policy that will make poverty more tolerable, wage subsidies have the potential to, over time, make poverty less pervasive. 



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