Basic Income Faculty Journal Series Posted on Thursday, August 16, 2018

A Universal Basic Income (UBI) may affect the labor market. So what?

Eri Noguchi

Eri Noguchi MSW, MPA, PhD, and Chief Operating Officer of the Association to Benefit Children

Arguments surrounding a Universal Basic Income (UBI) often center around its predicted impact on the labor market—whether the introduction of a universal basic income will cause workers to quit their jobs, which in turn will lead to a tight labor market, runaway inflation as demand outpaces supply, and a stagnant economy. It seems plausible that a UBI could result in a tighter labor market, though it would depend in large part on how big the size of the UBI grant is and the specific labor market sector. It seems unlikely, for instance, that workers earning six-digit salaries would quit their jobs en masse once they were paid a guaranteed annual income of $12,000. Let us grant that a UBI would, in fact, result in a tighter labor market. This brief expose asks the question: so what?

Certainly, if the UBI does tighten the labor market, it would not be the single culprit. There are a lot of other forces that have tightened the labor market and put upward pressure on wages in various sectors. But they have been implemented nonetheless because the good that comes from them is thought to override the potential harms of a tighter labor market. One such example is credentialing. In several fields that have become professionalized over the years, in the name of quality assurance, communities have put in place rigorous licensing or certification requirements for practicing certain professions. Clearly, there are reasons why this has been done—you want to know that the doctor who is going to operate on you is someone who has passed a medical licensing exam. But licensing has crept into several professions, and the arguments for needing a board certified physician might not be as clearly applicable to all the various professions for which one must now become credentialed, such as law, real estate, accounting, social work, nursing, architecture, etc. For argument’s sake, let us grant that these licensing and/or certification requirements are necessary. The impact that they have, perhaps intentional, perhaps not, is that they make these professions more exclusive. In other words, more individuals might enter these fields if there were not these rigorous entry hurdles to overcome. Thus, the available labor pool in these fields will shrink, and there will be an upward pressure on wages for the employers of this specific workforce, thereby increasing the costs consumers will face who require these services. And the trend in professional credentialing continues to be on the rise as the general public increasingly demands mechanisms for ensuring quality, led by government or credentialing bodies, to signal that service providers have met a benchmark standard of competence. No matter the original intent, the consequence is that employers of workers in these occupational titles increasingly will have to pay higher wages both to hire them, and to retain them.

“Jobs, jobs jobs!” This popular political rallying cry is a second culprit for a tighter labor market. Politicians so often focus on the necessity of creating more jobs in order to grow the economy. But more jobs results in a higher job-to-worker ratio, which, in turn, puts upward pressure on wages. There has been some coverage in the press about the emergence of a tighter labor market in recent months in certain sectors of the economy that lends credence to this idea (Steinhauer, 2018; Casselman, 2018). [1] More importantly, society aspires to grow the economy in order to create more jobs in order to increase wages for workers—this is the goal, not some negative outcome to be avoided. It is important to point out in the UBI debate that an upward pressure on wages is not, in and of itself, a terrible outcome, and, in fact, may very well be a desirable one. In fact, in the two articles cited above, the reporters point to employers who are getting quite creative in their strategies both to recruit and retain workers, offering benefits such as health insurance, paid time off, and flexible work schedules, and even offering employment opportunities to those who heretofore have found it challenging to find jobs, such as ex-offenders, young people, people with criminal records, people with disabilities, people with shoddy work histories, women, minorities, the formerly homeless, ex-addicts, those with no high school diploma, to name a few. Some employers are increasingly hiring workers who don’t have any prior work experience, let alone any industry-specific work experience, and offering them on-the-job training. In some instances, employers are even offering tuition reimbursement so that workers can go to school or wipe out past tuition debt. If a UBI has a similar effect, perhaps that would not be a catastrophe.

Of course, the UBI detractors would most likely chime in and respond that it is not the upward pressure on wages, per se, that is problematic, but rather the potential that increasing wages could overheat the economy by creating greater demand than supply, which is the principle driver of inflation. Paying higher wages to workers, combined with the infusion of unearned cash (and here the term “unearned” is solely meant to indicate that it is not tied to paid labor) in the form of a universal guaranteed basic income to all citizens regardless of their employment status, would, most likely, move more cash into the hands of those most likely to spend it, for both would disproportionately be allocated to those who find themselves on the lower rungs of the country’s income distribution continuum. And putting more cash in the hands of those most likely to spend it, that is not accompanied by an economy proportionately increasing the production of those goods and services a newly moneyed class is demanding, will most likely place an upward pressure on prices, which, of course, summons fears of inflation.

However, whether or not a UBI causes hyper-inflation to some extent will depend on the level at which it is set. Even the most ardent supporters might agree that giving everyone $100,000 annually will most likely jolt the economy into a tailspin of inflation or even stagflation as production grounds to a near-halt and the country turns to imports to satisfy its demand for goods and services. Hardly any proposals set the proposed UBI levels that high. At minimal levels (the lowest proposal I’ve seen is $2,000 annually), a UBI is unlikely to have much impact at all, other than providing emergency funds to the most destitute. And at a modest level—not too big, not too small—a “Goldilocks” UBI might have great benefits not just generally, but for workers specifically. Such a UBI is most likely to benefit individuals who currently feel trapped in jobs paying minimum wage or lower, or in jobs that are unsafe, or in jobs in which they are mistreated, in addition, of course, to those who are not employed and living on the brink. One additional group of workers who might benefit are the altruistic labor force—those workers who, but for the need to make an adequate wage, would prefer to work in those sectors of the labor market that contribute to the public good but offer minimal compensation, if any. How many more individuals would switch to coaching little league, cleaning public parks, staffing public libraries, feeding the homeless, or creating public art, if only they could afford to do so. Perhaps the more appropriate question to ask, then, is at what level could society reap the positive effects of a UBI without the economy entering into an inflationary tailspin; surely, there is such a level.

[1]. “Worker Shortage is Forcing Restaurants to Get Creative,” Jennifer Steinhauer 4/5/18.;“As Prison Time Shrinks, Prison Time is Less of a Hiring Hurdle,” Ben Casselman 1/13/18.


Eri Noguchi, MSW, MPA, PhD, serves as Association to Benefit Children’s Chief Operating Officer, spearheading programmatic initiatives to meet the needs of low income children and families in New York City, which include early childhood education and mental health services, youth development and supportive housing, and implementation of an evidence-based trauma-informed child welfare program. She also serves as an adjunct assistant professor teaching research methods, program evaluation, and statistics at Columbia University School of Social Work, and a research symposium on poverty and inequality at the Roosevelt House Public Policy Institute at Hunter College. Her research has focused on issues related to poverty and social welfare policies. She is a native New Yorker. In addition, she is a former member of the BIEN Steering Committee, and a current board member of US BIG, Inc.