To prove that the Fluffy Economist is a listening blog, I've decided to write the following in response to (justified) criticisms that this blog 'does not contain any economics at all'. The Accidental Economist has published a thorough analysis of the UK's productivity problem which I have hamfistedly diverted to a discussion of a Basic Income Guarantee, or Citizen's Basic Income, of which Devel's Kitchen is rather fond.
I was wondering if the government's 'welfare to work' policy - of forcing jobseekers to retrain or have their benefits withdrawn, then shoving them into unwanted jobs - could also be pulling down productivity. Disgruntled workers seem unlikely to perform at their best. Perhaps a more flexible approach such as the US's earned income tax credit or (more radically) a basic income guarantee might assuage this.
Studies of the Negative Income Tax experiments (sort of similar to BIG) suggest that while labour supply decreased, this was mainly due to people taking more time between jobs to find the right one, rather than an outright withdrawal (Widerquist 2004), therefore helping match up problems. Moreover, by vastly reducing poverty, better fed and sheltered workers in low paid jobs would be better able to perform them.
Of course, by guaranteeing people a basic income people lose their reliance on their wages to survive, and so may work less hard to keep their jobs. Mitigating this somewhat, however, is evidence from Pressman (2005) that efforts to reduce poverty bear no correlation to declines in productivity for low skilled workers (in fact the correlation may be even be positive) although this evidence can be only tentatively used in support of BIG as none of the countries surveyed has implemented anything quite as radical. Furthermore, the linking of correlation to causality is always tricky, the most we can say is that conditional income guarantee programs do not seem to have hindered productivity in the past (thereby questioning Okun's famous 'equity-efficiency' trade off).
There is also a good argument that a BIG would increase human capital in the economy and so increase productivity. The NIT experiments showed higher attendance rates in higher education and better test scores in schools. Much of the decrease in labour supply in these experiments (which was substantial) was accounted for by women, both single parents and spouses, presumably to better care for their children - but I'm not sure whether feminists would find this a good or a bad thing. Unfortunately this side of the experiments remains underexamined. The reasoning behind human capital arguments seem sound, but because many of these effects are felt in the long run, and are not directly measurable, empirical evidence is hard to come by.
In sum, productivity performance of the lowest earners in society may have a lot to do with the structure of the benefits system. It seems a BIG could help.
The capital-mobilising deal maker
13 hours ago