Nova workboard

a blog from young economists at Nova SBE

A basic income: The pros & cons

In recent years, many countries have conducted a widespread debate about considering to introduce a basic income. In this context, we can think about the petition in Germany, the citizen’s initiative in Spain (2015) and the world’s first basic income referendum in Switzerland (2015). Other advocates of the basic income in recent history are the former Greek Minister of Finance Yanis Varoufakis and the London Based RSA (2015). However, despite the many debates on the topic, no country has yet implemented the system but rather rejected it. So what is a basic income all about?

By definition, a basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It resembles to a minimum income guarantee already applied in many European countries but it distinguishes itself in 3 ways. First, it is paid regardless any other source of income. Secondly, it is paid out to individuals rather than households and lastly, it is paid to an individual without any commitment from the individual of having a job or looking for a place to work. This all sounds like too good to be true but what are the real economic and social rationales behind the idea? I will try to provide a brief overview.

The first benefit one can describe is the enhancement of liberty of an individual described by one of the most famous advocates of the basic income, Philippe van Parijs . In his paper, he starts with the argument of people working out of economic compulsion. In this sense, this limits the liberty of an individual. By introducing the basic income, individuals will have alternatives besides being forced into unpleasant work, which will consequently increase their freedom. A second advantage of the basic income can be described as a potential reduction of poverty. Indeed, a basic income can allow the poorest to obtain an income and hence abandon their lives in poverty. Third, the basic income may induce people to invest in theirselves by for example getting an education which may lead to them getting higher earning jobs and thus resulting in a stimulation of overall economic welfare. Ofcourse, these are all theoretical assumptions and are yet to be proven.

Whenever there are pros, cons will exist. Indeed, a first drawback of an introduction of a basic income could be a strong decrease in motivation towards working. Individuals may feel they earn enough and may consequently miss the incentive to look for a job or even continue their jobs. Second, financing such a basic income will require huge amounts of funds which governments in many countries may lack without even taking into account the costs that will arise when restructuring the existing taxation, pension and social insurance systems. Third, demographical problems such as immigration escalation should be taken into account with because people from country Y, without the basic income policy will surely want to benefit from country’s X basic income and hence move to country X.

In sum, just like any other government intervention, the basic income has its pros and cons. The answer to the question of which one outweighs the other yet remains debatable. There will always be people in favor of introducing the basic income and people opposed to it. But in recent history, the swiss referendum has shown us that the latter may exceed the first by a significant percentage (76,9 % opposed). The concept may sound interesting in theory, but can and will be difficult to implement in practice.

Vincent Caudron

Advertisements

Author: studentnovasbe

Master student in Nova Sbe

Comments are closed.