Looking at the UBI in economic terms means thinking further than "helicopter money", it is the reform that we need the most.

Photo : Jean-Marc (CC)

In his article, Jean-Daniel Delley (DP 2289) points out that the idea of an unconditional basic income (UBI) is gaining new traction. Indeed, the economic and social crisis resulting from the pandemic has highlighted the need for a minimum income floor.

Unfortunately, the confusion around the concept of a UBI is as widespread as the prejudice and resistance to radical economic and social innovation. The UBI is not social security reform.

It comes before the redistribution of income received by workers and capital holders: it concerns the "primary distribution" or "primary income distribution". It is therefore a reform of the economic system.

At present, employees (CHF 405 billion) and capital holders (CHF 123 billion) share the net value-added created in the production process of goods and services. The UBI introduces a new actor, the population as a whole, to whom part of this value is paid unconditionally.

The balance, i.e. most of the value-added, goes to labour and capital as it does today in order to preserve the incentives for work and investment of savings. The system is therefore efficient.

Better social policy

The impact on social security - whether it will be a substitution or a supplement to earned income - will be affected by the amount set for the UBI. If this amount is high enough, child allowances, training allowances, social assistance, the part of the supplementary benefits guaranteeing a minimum income will become redundant or at least less indispensable.

On the other hand, unemployment insurance will continue to cover loss of earnings, health insurance and care costs - while in-kind benefits will not be affected.

For AHV (and IV) pensioners, the improvement could be remarkable. If the level of the UBI for adults equates the maximum AHV/AVS pension (CHF 2,370 per month), this new unconditional income would replace the first pension pillar.

This substitution would benefit pensioners, since only a portion of them currently receive the maximum pension. In addition, with CHF 2,370 per month, people would be free to choose when to retire.

A UBI for children set at CHF 969 per month - equivalent to the "cost of a child" according to the standards for supplementary benefits - would represent a substantial improvement for families compared to the current family allowances.

Assuming a UBI set at this level, the overall annual cost for a population of 7 million adults and 1.6 million miners would amount to CHF 218 billion, i.e. 31.6% of GDP or 41.3% of net value-added.

Fundamental reform versus "helicopter money"

How can such an expense be financed? The question is poorly framed. No one worries about how salaries and dividends can be financed: obviously through the primary distribution of the monetary value of the goods and services produced!

If part of this value is first distributed as UBI, the other two shares will be reduced accordingly.
But for middle - and low -income households, this would be quite good news.

The UBI is therefore not a form of transitional, all-out distribution of money to deal with a cyclical crisis - in two words, "helicopter money". It is a new paradigm of primary income distribution.

The UBI will not discourage the search for a well-paid job: with the exception of those who are committed to resolutely "alternative" lifestyles, who would miss the chance to improve their standards of living with an additional income to supplement the UBI?

The UBI innovation would help achieve five objectives: reducing inequalities, guaranteeing a minimum income, reducing the negative effects of digitalization (artificial intelligence, robotics, more odd jobs), diversifying work choices and strengthening workers' bargaining power. This is "reform" for the 21st century.

Author: Martino Rossi, economist and ex responsible for social action in Ticino

Source: DOMAINE PUBLIC (FR)