[The Editors' Verdict] The Paradox of Basic Income

Published 22 Dec.2020 14:40(KST)

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

Andrew Yang, the 2020 Democratic presidential candidate in the United States, ran on a platform of universal basic income. He proposed giving every adult $1,000 per month unconditionally. His basic income plan, amounting to $2.8 trillion annually, is roughly equivalent to the combined amount the U.S. federal government spends each year on Social Security, medical support for the elderly, and aid for low-income groups. The COVID-19 pandemic led to widespread support for his proposal across both progressive and conservative lines. The anxiety about the future captured people’s hearts.

Guy Standing, a UK-born author of "The Precariat" (a portmanteau of precarious and proletariat), argues that considering the positive effects of basic income on social justice, freedom, and security, criticisms that it promotes laziness and undermines work ethics are unfounded.

The initial interest in basic income stemmed from the global economic slowdown, which caused stagnation in workers’ wage growth and made it difficult to improve living standards. Moreover, concerns that the digital technological revolution would jeopardize many workers’ livelihoods also played a role.

However, on the other hand, there is doubt about whether it is possible to devise realistic alternatives that align with the purpose of basic income. First, the tax burden on taxpayers is too heavy, and the amount paid to everyone is insufficient. One of the criticisms Andrew Yang faced was that $1,000 per month is not enough for those without means, so why should those who have means also receive it?

Furthermore, as Guy Standing also pointed out, if the purpose of basic income is to protect workers in a rentier capitalist economy, the government should first correct new forms of employment models such as platform labor. Additionally, the introduction of basic income could reduce the supply of socially essential labor.

Finland experimented with basic income for two years starting in 2017. However, since the experiment aimed to test whether basic income could be an alternative to strict existing employment policies, it was paid to the unemployed. Under the current system, when claiming unemployment benefits, one must meet stringent requirements such as vocational training for reemployment. The 2,000 participants receiving a monthly basic income of 560 euros were not subject to the regulatory requirements of existing employment policies that provide similar benefits. According to the experiment’s results, no significant difference in employment was found due to basic income.

If Finland’s experiment had been permanent, the results would have been clearly different. Whether basic income is temporary or permanent has different implications for employment. Research analyzing the economic ripple effects of permanent basic income introduction using a general equilibrium model reveals pitfalls that can arise when basic income is advocated as a common good. Not only the increased government budget due to basic income introduction but also the specific methods of financing it inevitably affect economic activities such as employment and consumption, as well as decisions at the national economic level.

Recently, domestic scholars have also analyzed and published the ripple effects of introducing basic income in Korea, but like previous overseas studies, the findings are not favorable. While basic income performs an insurance function against income loss, it causes a reduction in labor supply and a decline in work incentives during the financing process. It also results in decreased capital accumulation, slowing both production and consumption activities. Paradoxically, income distribution worsens, and social welfare levels also decline. Despite social discussions on basic income, this is why governments around the world must be cautious.