Guaranteed annual income could affect job creation, wages

After years in obscurity, the idea of a guaranteed annual income is suddenly back on the national agenda.

Federal Families, Children and Social Development Minister Jean-Yves Duclos, an economist by training, in February said a guaranteed income has merit as a policy to consider. The province of Quebec is looking into it, and Ontario has shown interest as well. The mayors of Calgary and Edmonton are keen on seeing it implemented in their cities. Countless journalists have offered their opinions on the topic.

This is not a new idea. It can be traced back at least to late 18th century England. Even Napoleon is said to have been an advocate. Closer to home, the city of Dauphin, Man., in the 1970s saw the implementation of an experimental four-year program with relative success (the Mincome program).

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A guaranteed annual income is one of those rare policies that enjoys the support of economists and policy activists from both ends of the political spectrum. It can be found, albeit in different form, in the writings of both Milton Friedman, on the right, and of John Kenneth Galbraith, on the left. In Canada, it has been addressed by a number of federal and provincial reports and commissions over the last 50 years.

How such a program would work is difficult to address at this time, as there are a number of variations, and no one has yet offered any specific details. But in its most general application, the program would aim at offering every Canadian (or every Canadian household) a basic, guaranteed income, regardless of employment status.

Advocates on the right often point to the myriad existing programs that can be complicated, in both design and implementation. One advantage of an annual guaranteed income, they argue, is its simplicity and the reduction in government red tape. In some versions of the plan, all social programs are eliminated and replaced with a single system guaranteeing Canadians a minimum income. There would be no need for employment insurance or welfare, or even, one can imagine, child benefits and old age security. The aim here is to reduce the size of the social welfare state.

Advocates on the left, however, argue that such a plan would go a long way in further alleviating poverty in Canada. Basic income can also reduce inequality, and can have a non-negligible effect on growth by boosting incomes and consumption. Moreover, it will go a long way toward addressing gender issues, as poverty often affects women disproportionately. There could still be a need for some social welfare programs, however, such as job training or mental health services, and the level of income would have to be generous enough to allow for more than subsistence living.

Yet the policy is not above criticism, especially from the Keynesian left. While progressive activists may appreciate the program, a number of progressive economists have questioned the need for it on the basis of a number of perverse effects.

The biggest criticism from this perspective is that the policy is seen as a way for the government to abdicate its responsibility to create full-time and long-lasting employment. After all, with everyone receiving a minimum income, the government may no longer see job creation as a priority. Already, governments are not actively promoting full employment as a desirable policy, and the urgency of creating well-paying jobs may diminish under a guaranteed income scheme. Moreover, jobs are unequivocally better paid, such that households would be far better off with a job than with a guaranteed income. In the end, pursuing a job-growth/full employment policy is a better option, and one that may also be more economical in the long run.

A guaranteed income scheme is also less friendly to unions, which get their strength from unionization rates and from low unemployment. Many studies have shown the importance of unions in securing higher wages; an emphasis on an income guarantee as opposed to job growth places unions at a great disadvantage.

Diminishing further the power of unions could lead to the further erosion of the wages of working Canadians. Already in the past two decades, wages have not kept up with productivity gains; workers have fallen behind. By abdicating job creation, this discrepancy between wage gains and productivity growth will widen, placing working Canadians at a great disadvantage.

Finally, the details of such a policy can always be manipulated and subject to political interference. What would stop a new government from lowering the basic benefit level in the name of austerity?

These are just some of the issues, but there some additional ones to consider, such as perverse labour market effects, both from the workers' perspective and from the point of view of firms. These need to be further discussed.

In the end, a guaranteed annual income is not an end in itself. It should not be viewed as a replacement for a full employment policy. If the purpose is to reduce inequality and poverty, there are other solutions: bringing real changes to the tax system, getting tougher on fiscal havens, introducing inheritance taxes and of course, jobs, jobs, jobs.

Louis-Philippe Rochon is an associate professor at Laurentian University and co-editor of the Review of Keynesian Economics.