What can governments do when jobs run out?
Discussions on India’s economy focus on the ease of doing business, addressing the deficit in education and skills and recapitalisation of banks to unlock investment. But as automation makes more jobs redundant, policymakers cannot put off discussing universal basic income as an option, even if it is expensive.analysis Updated: Dec 29, 2016 12:26 IST
Martin Ford writes in the Rise of the Robots: Technology and the Threat of a Jobless Future that around 47% of total employment in the US, around 64 million jobs, have the potential to be automated perhaps within a decade or two. Europe is already facing a crisis of jobs. Youth unemployment in Italy stands around 36% while it is nearly 44% in Spain. Thanks to offshoring and automation, we are seeing a polarisation in the labour market that is split between low-wage service jobs and highly-paid top end with middle class jobs disappearing everywhere. India has a mass of low-paying jobs (which masks the problem); its pace of job creation pales in comparison with the millions entering the workforce each year and, according to the World Bank, 69% of jobs in India are threatened by automation. Education and skill training no longer guarantee jobs as the tech landscape is changing and making jobs scarce.
Governments need to wise up to the political implications of the lack of opportunities in their economies. There is also the wider crisis of capitalism to contend with; a lack of jobs naturally means a decline in the number of consumers for goods and services, a fact compounded by the millions who retire each year and spend less as their savings deplete. Ford writes that “if automation eliminates a substantial fraction of the jobs that consumers rely on, or if wages are driven so low that very few people have significant discretionary income, then it is difficult to see how a modern mass-market economy could continue to thrive”.
One way of managing social tensions, he argues, is for governments to implement a guaranteed minimum income for all citizens. Also known as a universal basic income (UBI) or a guaranteed basic income, the idea of an income for all has been around for years – it was backed by the Left and even libertarian thinkers like Milton Friedman and Friedrich Hayek and is beginning to gain traction again among economists.
Proponents like Ford feel that a cash boost via a universal basic income mitigates the political problem of creating jobs and it provides disposable income that can be used to pay for goods and services, which companies depend on. The idea appeals to some conservatives because (a) it boosts the economy, (b) it is easier to administer and (c) it can potentially downsize the bureaucracy which currently manages a range of welfare programmes.
Universal basic income has been criticised and reckoned as unfeasible on two grounds. One is that it reduces beneficiaries’ incentive to work and encourages delinquency and, two, that it would be too expensive to implement in mass societies.
There are good counterarguments to both these contentions. Studies have shown additional income does not really reduce the incentive to work. Chris Hughes, a co-founder of Facebook and a backer of UBI, points to research which shows that people in the US used cash transfers for mostly housing and food costs and that less than 1% of the money was spent on alcohol or drugs. The Freakonomics radio show this year discussed UBI and referred to an income transfer experiment in the town of Dauphin, Canada, which was implemented in the 1970s but not properly evaluated owing to lack of funding. Research subsequently showed that in poor families that received up to $15,000 a year, hospitalisation rates fell, high-school completion rates increased (as families chose to keep boys in schools rather than press them to work); those with full-time jobs did not reduce the number of hours they worked and women spent more time with their new-borns and paced their return to jobs.
Implementing basic income is, of course, expensive. Ford calculates that an unconditional $10,000 basic income for all adults in the US would cost around $2 trillion. This cost, according to him, can be offset to an extent by reducing or eliminating numerous federal and state anti-poverty programmes – but it would still require around $1 trillion in new revenue. Ford says that governments will need to tax businesses a lot more, rather put this burden on workers and employees who already pay for existing welfare programs. He writes “if you accept the argument that our [US] economy is likely to become ever less labour-intensive over time, then it follows logically that we ought to shift our taxation scheme away from labour and toward capital”.
These discussions in the developed world seem far removed from India as the costs seem prohibitive and as the country grapples with more foundational issues like ease of doing business, addressing education and skill deficits and kick-starting investments while banks are stuck with bad loans. But given high poverty levels and the anger among youth that will inevitably rise following failure to find rewarding jobs, policymakers will need to serious consider basic income, or at least some form of it.
Tadit Kundu reviewed the debate among economists about the scope of implementing universal basic income in India. The idea has the support of prominent experts like Pranab Bardhan and Jean Dreze. Bardhan says that a basic income of Rs. 10,000 per year – about three quarters of the official poverty line – would entail a cost equivalent to 10% of GDP, far more than the 4.2% that the government spends on explicit subsidies. He writes that discontinuing some or all of the subsidies (including tax exemptions for the corporate sector) while retaining expenditures on health, education and rural and urban development programmes can secure a reasonable basic income for all. Kundu points to research which shows poor families in Madhya Pradesh which received unconditional cash transfers ended doing more labour and work (not less). There was also a shift from casual wage labour to more self-employed farming and business activity and there was also reduction in migration caused by distress.
Ideas such as universal basic income are yet to be mainstreamed in India. But as developed countries increasingly warm to the idea (Finland is set to implement its version in 2017), policymakers may find it difficult to avoid discussing guaranteed minimum income.
The views expressed are personal.Twitter: @SushilAaron