Monday, April 4, 2016

minimum income and employment-tied benefits

The universal minimum income idea seems to be really taking off at least in the highly unrepresentative niche of the internet and population that I inhabit. So I've been thinking more about it, tied into my slow-paced long-term still-evolving ponderings on utilitarianism.

I don't know much about the health care shitshow but one thing that is absolutely clear is that having health insurance so closely tied to employment in the U.S. is an unmitigated disaster. I was convinced of that while I lived there and even more convinced of it now that I see how an alternative system can work in Australia*. The discontinuity in incentives in the U.S. when transitioning from a 39 to 40 hour per week job and the disincentives for self-employment and entrepreneurship are Very Bad**.

The minimum wage has the same problem: it ties the minimal survival income*** to employment. In doing so, it provides this benefit to those lucky enough to have a job in a market with involuntary unemployment (which it plays a role in creating in the first place) and increases the number of people left out entirely. If we're at the point where we agree, as a society, that we're rich enough that it's a worthwhile tradeoff to redistribute income to the lower end so that the overall size of the pie shrinks but no one is left starving (which we are if we have a minimum wage in the first place), then we should do that universally and not make it contingent on employment.

It's a little different from the healthcare situation because the minimum wage applies to all hours worked even if fewer than 40, but the disincentives to freelance and take entrepreneurial risks are even stronger.

If you don't believe in providing a minimum income to everyone, only those who deserve it, for some definition of "deserve", you may object that the minimum wage is about ensuring that labor is fairly compensated rather than providing a minimum income. But what is a fair wage other than the efficient or market wage? One that lets people survive by doing it a certain number of hours per week? If you think that someone's labor should be rewarded with a minimum income even though that labor is not providing the same (market-measured) value to society, why do that by tallying the hours worked for formal employers, (and suffering all the distortions that this system creates)? You should also want to subsidize work done by freelancers and self-employers and entrepreneurs starting not-yet-profitable, or even not-yet-marketable, companies. That's unbelievably hard to define, measure, or enforce, so let's rely on the fact that humans don't just want to sit around watching TV 100% of the time and approximate this minimum-living-for-minimum-effort principle with a universal minimum income. Some people won't put in what you think of as minimum effort, but some will put in a lot more (like those latent entrepreneurs and innovators), so close enough.

Note that this is independent of the number one reason for a universal minimum income, which is that it gets rid of the incentive distortions of extremely high implicit marginal tax rates. Means-testing may be politically attractive but creates the same awful distortions. I do think there will be higher voluntary unemployment (and lower unemployment statistics, i.e. involuntary), and I have more to say about that and some unrelated factors, but I think this point is too important to hide within a longer list, so that'll have to come later.

CORRECTION: I think a universal minimum income would cause many people to become voluntarily unemployed but would also cause many people who are currently un- or under-employed to increase their employment, due to the marginal tax issue, so the net effect could go either way.


*Not to praise every aspect; I'm still strictly speaking about the employment issue.

**Although I also think that that these disincentives are exaggerated in the popular discourse because healthcare isn't thought of as just a less-fungible component of normal compensation. For some reason people seem to like being forced to buy expensive healthcare that they don't want to buy if they have to consciously pay the sticker price****. The tax craziness means the disincentive is very real, but the psychology exaggerates it.

***Some people say things like "Don't worry, it won't affect employment too much because it's not enough money to survive on." I call BS. Of course it will affect employment and it's silly to deny this obvious fact. And $12k, e.g., per year is most definitely enough to survive on when you don't have to live near and commute to a particular job.

****I've had this argument with several people who are perfectly smart enough to understand the economics so I'm convinced the preference is real, not a mistake. I understand it as something similar to a commitment device or a behavioral self-manipulation, akin to joining a gym to force yourself to go so you feel like you're getting your money's worth, even when you fully understand the sunk cost fallacy.