Tuesday, 17 May 2016

The Case for Mincome



The Case for Mincome


I'd like to take some time today to briefly lay out a case for some form of minimum income - or "mincome" - in Canada.

I don't expect this to be a long post, but I'll lay it out as follows: First, I'll briefly describe what a minimum income is, then I'll explain why Canada should have one, then I will try to answer some possible objections to mincome, and finally I'll describe what I think a reasonable Canadian mincome could look like.



What is a Minimum Income?


As you might already have guessed, a minimum income, henceforth "mincome", is a guaranteed income paid out to all (or almost all) residents of a given jurisdiction by government agencies.

A mincome has two simple varieties:
  • First, a guaranteed mininum income, in which residents are guaranteed a minimum income of some value. If their income equals or exceeds the threshold, they receive no support from the government; otherwise, they do, to top up their income to the guaranteed level.
  • Second, a basic income, in which residents are given some amount of money unconditionally, regardless of their current income levels.

It's my understanding that mincome is usually proposed as a replacement for other forms of social services (welfare, unemployment insurance, etc.), since there's less need for means-tested income supports.

In my argument for a mincome, I am here going to argue for a basic income variant, rather than a guaranteed income variant.


Why Have A Mincome?

Why ought Canada have a mincome?

First, it reduces poverty and its deleterious effects. Poverty in Canada is strongly correlated with a number of ill health outcomes: type 2 diabetes, heart disease, obesity, mental illness, drug abuse, and the like. The reason for this is fairly simple: the stresses of finding sufficient funds to secure food and shelter, the low availability of healthy foods at low income levels, the lack of time for moderate exercise or rest due to the time demands of low-income work and travel, all contribute to an overall state where one's health becomes a secondary concern.

Poverty is also something of a trap: people in poverty don't have the means or time to access education that would increase their earning potential, nor to develop good habits that reduce the effects of hyperbolic discounting (which, when your income is really low, is one of the prime factors keeping you in the trap).

A mincome, by giving people at least some unconditional income, alleviates some of these effects. With a mincome, you might only need to, say, work one minimum-wage job, leaving you more time to get an education, take care of your health, and acquire and prepare healthier meals.

Second, it is a big boost to families. An experiment in mincome in Manitoba in the 1970s was found to have only two substantial changes in the labour force: new mothers and adolescents. The former were able to spend more time with their children; the latter were able to spend more time on their education. (Indeed, analysis of the data gathered during the experiment found an increase in secondary school graduation as teens were no longer obliged to find work to support their families.) These are desirable outcomes.

Third, it reduces costs of administering social programs. Social service programs require a certain degree of administrative overhead: you have to pay people and house them in buildings to run the programs, make sure cheques are going out, monitor recipients for compliance on any conditions, and so on. The more different social service programs you have, the more administrative overhead you're dealing with.

A single mincome (with some supplementary income supports administered under the same program) would provide efficiencies by eliminating overhead: you need fewer people to administer the program, you need fewer people to confirm compliance or watch out for fraud, and you need less infrastructure to support them.

What's more, the reduced incidence of negative health outcomes also reduces the burden of healthcare spending.

Fourth, it reduces the deleterious effects of wage dependency. When your income is, in effect, at the mercy of others (because your only income is a wage or salary), you are often in a position where you have to accept hostile work environments, subpar work safety situations, and the like. Existing social supports are unable to remedy these problems because you usually aren't eligible for them if you leave work of your own volition. With an unconditional mincome, you have more opportunity to do so and find better conditions.

Analysis of the Manitoba mincome experiment found reduced hospital visits for the duration of the program, including work-related injuries. When you can walk away from unsafe or hostile environments without overly jeopardizing your finances, you're in a much better position to expect or demand safer environments.

Fifth, it could provide a valuable infusion of capital to young citizens. Assuming a mincome is granted even to children, it would be fair to say that they would not have unlimited access to their income: in the first place, what does a newborn need with a mincome, and in the second place, children need to be trained to have a solid appreciation for what money can do for them.

If instead mincome payments to children under a given age threshold is paid into a trust fund, they could have a large balance made available to them upon reaching age of majority. This gives them better potential to acquire capital early, or invest in their education, or make expensive but valuable purchases (in a country the size of Canada, with its tendency to have sprawling city designs, an automobile would be a suitable purchase, even if it doesn't qualify as an investment asset as such).


Objections to Mincome

The most common objections to a mincome are as follows:

The first objection is that it could still cost too much. A mincome that was set at the poverty line could be quite expensive. This Wikipedia article on the topic calculates that a mincome equivalent paid to all US residents, if set at a level designed to more or less eliminate poverty, would cost the entire US federal government budget, or near enough to make no difference.

By way of comparison, Canada has in the order of 35-36 million people. Canada doesn't have a set "poverty line" as such, so for the sake of argument let's assume a "poverty eliminating income" is, say, $12,000 annually. Taking the higher population number for simplicity, Canada would pay out $ 432 billion per year in mincome. Statistics Canada reports spending from all levels of government (federal and provincial/territorial) was about $ 560 billion in 2009. Even with increases over time, then, a high mincome would eat up an enormous portion of government budgeting.

To answer that objection, I would argue that a mincome doesn't have to be set at that high a level. This blogger, for instance, calculated that a basic income of around $ 6,000 would be entirely satisfactory. Further, because government revenue and spending outstrips population growth over time, the share of government spending dedicated to a mincome would decrease over time as well, making it less onerous.

The second objection is that it could create disincentives to work. Per this objection, with some minimum income, economic growth would suffer because of people dropping out of participating in the labour force.

To answer that objection, I would first point out the Manitoba experiment, which found minimal declines in labour force participation, particularly among primary wage-earners. Second, I would point out that unless the mincome was extremely high, if people want "Nice Things" they have to get additional income to acquire them, a handy incentive in an affluent society such as Canada to stay in the labour force. Third, at least in my view, it's not a bad thing if the labour supply decreases, because this creates an upward pressure on wages, particularly at the lower end of the wage spectrum (where labour force participation would be most likely to decline), and on productivity growth (because if you have to pay people more, you'll want to find ways to get more value out of them). Productivity growth is one of the drivers of economic growth and increased wealth, so adding an incentive to boost productivity is ultimately a winning situation.

The third objection is to ask why should we have a mincome in the first place? This is part and parcel with objections against social spending generally. Whether as a matter of general applicability (i.e. arguing that governments should spend less, or even nothing, on social services across the board), or in specific cases (governments shouldn't "coddle the poor" or what have you), this objection is against the idea of a mincome, period. You've probably seen people complain about their tax dollars subsidizing "lazy" welfare recipients, or the like.

To answer that objection, I would first point out that simply by existing in this country, residents create a "bundle of demand" for goods and services - in short, they provide an opportunity for someone to make money providing those goods and services. Given that, a mincome helps keep economies afloat because people can afford necessary goods and services. Second, I would go on to say "so what if some people become lazy?" The economy will grow whether you spend your days playing video games in between shifts at the local cinema or fast-food joint, or whether you spend your days in between shifts attending classes at law school. The difference is who is ultimately benefiting from the growth. And presuming you're an "industrious hard-working citizen [1]", you're going to benefit more in the long run, so what do you have to complain about?

A related line of argument objecting to social spending is that it decreases the incentive to "contribute meaningfully to society" through work. Apart from the questionable assumption that most low-wage work "contributes meaningfully to society" ("Canada is a better place because you flip burgers here at Burger Joint, Joey"), I should point out that market-based societies (which we traditionally call "capitalist") don't really depend on people making career or life decisions on the basis of what's best for society - instead, we we expect them to make decisions based on what's best for themselves [2]. We then use both market and regulatory mechanisms to ensure that the net output of all these decisions and actions ends up benefiting society in the end.


What Would a Canadian Mincome Look Like?

So now I should like to review what I think a Canadian mincome could look like:

It should be a basic income. A guaranteed income creates perverse incentives, in a manner similar to means-tested welfare, because you are losing tax-free income (the guaranteed income portion) and replacing it with taxed income. You're also replacing income you just get with income you have to work for. Below certain wage levels, what's the point? By contrast, an unconditional basic income doesn't penalize you for working or otherwise increasing your income. As I have noted elsewhere, most people aspire to having Nice Things, and to get them they will need an income beyond the mincome.

It should be available to citizens and permanent residents. Anyone who is basically going to live in Canada for most of their lives should benefit. Payments could be suspended to citizens living out-of-country for extended periods.

It should be unconditional. The basic mincome should not have any means testing or other conditions attached.

It could have top ups, though only a few. There are, so far as I can see, four reasons to top up a mincome: disability, dependents, regional cost of living, and being Indigenous. If you want to keep things simple, you may want to avoid them, because each top up increases the need to have people checking compliance, increases the possibility of error or fraud, and increases the possibility of partisan disagreement over the program. [3]

It could be funded by multiple levels of government. The federal government and provinces could work out some funding formula to equitably work out who is paying for what. Personally, I would envision the federal government paying, say, all of the basic mincome plus any top-up for dependents, similar to the child benefit monies paid out currently, and to Indigenous residents, while the provinces handle any other top-ups in the program. But any configuration that the federal and provincial governments can agree on is fine. I would also think the federal government would provide funding and the provinces would administer the program.

It would replace all other forms of social spending outside of health care. Simplifying the social security apparatus is in my view one of the selling points of a mincome. As a recipient, you get a cheque (or direct deposit payment) from the government once a month or every two weeks, and if you are eligible for a top-up you deal with a single agency to sort it out. Along the same vein, a single government agency in each province administers and monitors the program, and the federal government just cuts a cheque to the provinces (as it were).

Minors benefit from birth. As I noted previously, mincome paid out to minors would not just be paid out to them starting at birth: newborns and small children don't really need the money. Instead, the mincome is divided into payments into a trust fund (or similar financial vehicle) and direct payments to the recipients based on their age: at first, all the mincome goes into the trust fund, and at various age thresholds (which I would expect economists and child psychologists to help establish), increasing amounts of the mincome are provided directly to the recipients. As a starting point, I would consider a 75% trust/25% income split at age 12, a 50/50 split at age 14, a 25% trust/75% income split at age 16, and a 100% income provision at age 18 - along with release of all monies in the trust fund. Minors receiving mincome would be encouraged (or expected) to take financial literacy courses.

(Parenthetically, you could argue that mincome to minors could be diverted, in whole or in part, to their guardians in lieu of providing a top-up for dependents; this is an attractive position but I would ultimately argue against it because of the enormous benefit of having a solid chunk of seed money provided to people to start out their adult lives.)


Conclusion

So there you have it: a brief case for a mincome in Canada.

(It's worth noting that some form of mincome has been proposed or supported by people across the ideological spectrum, for many of the reasons I have outlined above; the difference is usually in the implementation or perhaps the final numbers involved.)


Notes

[1] Usually you would see the word "taxpayer"; I detest the reduction of the scope of what it means to be a citizen to remitting money to the government in the form of taxes, so I avoid that word, preferring "citizen" instead. Go back.

[2] This is basically the whole point of living in a market-driven society. This creates some clash with our expectations with how people will behave in their capacity as citizens, but I don't see this clash being important with respect to how people develop their careers. Go back.

[3] As much as I'm unsympathetic to many arguments against social services, you need broad-based support to keep such programs running, so I'd rather have a mincome that most everyone can get aboard with (even if they do so a bit grudgingly). Go back.

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