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Editorial
Growing
inequality
In
July, the Joseph Rowntree Foundation published the results
of two research projects on inequality.
In
their report Poverty, wealth and place in Britain 1968
to 2005, Danny Dorling et al find that already wealthy
areas have become disproportionately wealthier and that
there is evidence of increasing polarization, with both
poor and wealthy households becoming more geographically
segregated from the rest of society.
In
their report Public attitudes to economic inequality
Michael Orton and Karen Rowlingson reveal substantial public
disquiet about growing levels of inequality, and particular
unease about the levels of higher incomes. They also find
a contradiction: fewer people support redistribution than
see the income and wealth gaps as too wide. This suggests
that, rather than redistributing income and wealth, we need
to find a different way of distributing them in the first
place.
A Citizen's Income funded by a carbon tax would be such
an appropriate initial distribution as the revenue would
be raised from energy producers and the payment made equally
to every citizen. The Citizen's Income would provide a higher
proportionate net income increase for poorer households
than for wealthier ones and would therefore redress both
income inequality overall and, by reducing the number of
poor households and increasing the number of average income
households, would reduce the geographical segregation of
poor and wealthy households.
The reports are available at www.jrf.org.uk.
Employment
incentives
Two
further reports from the Joseph Rowntree Foundation noted
in our News section reveal the weak employment incentives
experienced by many families, and particularly those for
taking employment of a few hours a week.
An
article in this edition of the Citizen's Income Newsletter
provides a graphic expression of the reason. The only conclusion
to draw is that only by removing poor families, and particularly
lone parent families, from means-tested benefits and tax
credits, shall we be able to provide them with the necessary
incentives.
Many
such families suffer marginal withdrawal rates of 85% and
above. Government consistently resists an income tax rate
of 50% for high earners, reckoning that higher than 40%
will impose a disincentive effect. A little consistency
might not come amiss here.
News
The
Institute for Public Policy Research has published
its report It's All About You: Citizen-centred welfare
(edited by Jim Bennett and Graeme Cooke, September 2007)
(available at www.ippr.org/publicationsandreports).
'We propose moving towards a single income replacement benefit
for people of working age. The benefit would be based on
a single set of rules, paid at a standard basic rate and
remain the same over time (so there would be no higher,
long-term rates). It would replace Jobseeker's Allowance
(JSA), Incapacity Benefit (IB) and Income Support (IS) and
could also incorporate Carer's Allowance. There are a range
of advantages to this proposal and they deal with some of
the problems of the current benefits (and particularly the
links between them). … The problems associated with
moving between benefits would disappear. There would be
no risk to a person's benefit if they tried going to work
because the benefit would be the same before and after a
period in work. Importantly, there would be no financial
gain to be made from claiming one benefit over another or
from remaining in receipt of benefit for a long period.'
The system would be simple to administer and easy to understand,
and it would reduce stigma. The report suggests that the
individual and not the household should be the benefit unit,
and that a non-means-tested benefit should be paid for 12
weeks and a means-tested benefit thereafter.
The
Institute for Fiscal Studies has published a report,
Pensioner Poverty over the Next Decade: What Role for
Tax and Benefit Reform? By simulating the future pensioner
population and its known and likely sources of income, the
researchers find that generally incomes of people over 65
will rise, with most of the growth coming from employment
income as people remain in the labour market for longer.
The report recommends that the Basic State Pension should
be made universal as this would reduce pensioner poverty
considerably.
The
Joseph Rowntree Foundation has published two reports
on similar themes. Lone parents and 'mini-jobs',
by Kate Bell, Mike Brewer and David Phillips, finds that
2.5m people have 'mini-jobs' of less than 16 hours per week,
but that the financial incentives for lone parents to work
in mini-jobs are weak. The authors suggest that the amount
that lone parents can earn before benefits are withdrawn
should be increased. This would 'encourage almost all lone
parents to do mini-jobs, and many to work in jobs with longer
hours. It would particularly benefit lone parents with the
weakest incentives to earn and those on the lowest incomes'.
The impact of tax credits on mothers' employment,
by Yekaterina Chzhen and Sue Middleton, finds that 'the
estimated employment rates of lone parents who were receiving
child tax credit were around 11 percentage points lower
than those of eligible non-recipients with similar characteristics;
the employment rate of mothers in couple families (i.e.
with partners) who were getting child tax credit was 8 percentage
points lower, on average, than that of comparable non-recipients;
child tax credit decreased the probability of moving into
work for women who had not been working in 2002-03 and were
not in receipt of working tax credit ... ; lone parents
receiving working tax credit worked around four hours fewer,
on average, than comparable non-recipients'. (Quotations
are taken from the summaries of the reports in the Joseph
Rowntree Foundation's Findings series).
The
12th International Congress of the Basic Income Earth
Network (BIEN) will be held on the 20th and 21st June
2008 in Dublin. The theme of this Congress is Inequality
and Development in a Globalised Economy - The Basic Income
Option. Plenary sessions will feature invited speakers
and there will be parallel workshops with volunteered papers.
Proposals for papers, workshops etc. are invited. See www.basicincome.org.
Major themes include:
- Why
Basic Income provides a key part of the answer to the
challenges posed on issues such as inequality and development
in the emerging globalised world.
- How
a Basic Income system can be achieved - politically, institutionally
and technically.
- The
way forward if Basic Income approaches and systems are
to become a reality in the foreseeable future.
All
proposals should be emailed to papers@basicincomeireland.com.
The
Seventh Congress of the U.S. Basic Income Guarantee Network,
What next: framing a big discussion for the next election
and beyond, will take place from the 7th to the 9th
March 2008 at the Boston Park Plaza Hotel, Boston. Featured
Speakers: Philippe Van Parijs, Sean Healy, Brigid Reynolds,
Yannick Vanderborght, and Senator Eduardo Suplicy. Scholars,
activists and others are invited to propose papers and to
organize panel discussions, and anyone interested should
submit either an abstract of their paper or a panel proposal
to the chair of the organizing committee, Michael A. Lewis:
mlewis@notes.cc.sunysb.edu.
The
Organisation for Economic Co-operation and Development
(OECD) has published a report on its longterm research
project, Babies and Bosses: reconciling work and family
life: a synthesis of findings from OECD countries (http://www.oecd.org)
'Finding a suitable work/family life balance is a challenge
that all parents face. Many parents and children in OECD
countries are happy with their existing work and care outcomes,
while many others feel seriously constrained in one way
or another. Some people would like to have (more) children,
but do not see how they could match that commitment with
their employment situation. Other parents are happy with
the number of children in their family, but would like to
work more. Yet other parents who are happy with their family
situation, may wish to work at different hours, or reduce
hours worked to spend more time with their children, but
do not because they cannot afford to take a pay cut, or
because they do not want to put their career prospects at
risk. …. Financial incentives to work are important.
Tax/benefit systems should be designed to give both parents
strong financial incentives to work.'
The
New Policy Institute has produced its tenth annual
report of indicators of poverty and social exclusion in
the United Kingdom, Monitoring poverty and social exclusion
2007, which provides a comprehensive analysis of trends
and differences between groups. It concludes that the strategy
against poverty and social exclusion pursued since the late
1990s is now largely exhausted, and that overall poverty
levels in 2005/06 were the same as in 2002/03. Half of the
children in poverty are still in working families, the number
of children in working families where earnings and Child
Benefit are insufficient for them to escape poverty goes
on rising, and overall earnings inequalities are widening.
(http://www.jrf.org.uk/knowledge/findings/socialpolicy/2164.asp)
Conference
reports
A
report of the Centre for the Study of Social Justice conference
Towards a Basic Income Society? At the University
of Oxford, 26-27 October 2007
On
26 and 27 October, the Centre for the Study of Social Justice
at Oxford University (with support from the Department of
Politics and International Relations and the Public Policy
Unit at Oxford as well as the Association for Legal and
Social Philosophy) held a two-day conference on basic income.
The conference brought together an audience of 15 invited
speakers and 60 delegates to discuss a number of issues
surrounding the idea of 'the basic income society'. The
organizers of this conference, David Casassas (University
of Oxford), Jurgen De Wispelaere (Trinity College Dublin)
and Stuart White (University of Oxford) explicitly wanted
to explore the notion of a basic income society, its likely
form and limitations, and how pathways towards its achievement
could be conceived. To this effect they invited a number
of speakers who are sympathetic to both the strengths and
limitations of basic income.
The
first day of the conference comprised a round table debating
the normative justification of basic income schemes from
a republican perspective. So a central question was 'How
does a basic income contribute to us being free citizens?'
Building on recent work in republican political theory,
David Casassas (University of Oxford), Daniel Raventós
(University of Barcelona), Carole Pateman (University of
Cardiff/UCLA), Stuart White (University of Oxford) and Karl
Widerquist (University of Reading) discussed various aspects
of republican political thought and whether this perspective
can offer a robust philosophical justification for the basic
income society. Casassas and Raventós outlined a
strong republican case for basic income, with Pateman, White
and Widerquist introducing critical remarks. Most of the
contributions of the round table have been published in
Basic Income Studies.
The
second day of the conference offered a set of panels discussing
the normative justification and political feasibility of
the basic income society. In his introductory lecture, Tony
Fitzpatrick (University of Nottingham) offered an assessment
of the current state of the basic income debate a decade
after the publication of his book Freedom and Security.
Fitzpatrick identified both theoretical and practical challenges
that basic income advocates must engage with when advancing
the debate. (See Tony Fitzpatrick's article on page 5 of
this Newsletter.)
The
next panel offered two papers discussing the ideal of the
basic income society. Bill Jordan (University of Plymouth)
challenged the strong individualist focus of much of the
basic income debate, suggesting that advocates and researchers
instead should be more concerned with social value (and
the ways in which it can be promoted) if basic income is
to deliver on its promises in terms of emancipation and
freedom. José Antonio Noguera (Universitat Autònoma
de Barcelona) then questioned the very idea of a basic income
society, arguing that basic income advocates should not
overstate the role and importance of these policies in current
welfare arrangements. In her invited commentary, Louise
Haagh engaged with both papers, offering an account of basic
income from an institutional point of view.
After
lunch the conference moved from the ideal of the basic income
society to examining some aspects of the political feasibility
of basic income schemes, and how these insights might impact
on the form of the proposed basic income society. The first
contribution by David Purdy (University of Manchester) posed
the question whether basic income could be viable, taking
into account the dynamics of basic income schemes once introduced.
Purdy suggested this question must be assessed in a way
that allows basic income proponents to engage with social
institutions as well as existing social forces, but was
adamant that, when properly analysed basic income will prove
viable. In the second contribution Jurgen De Wispelaere
(Trinity College Dublin) suggested that a governance perspective
might offer important insights on the design of basic income
schemes. He focussed much of his presentation on outlining
a governance dilemma in which basic income designs trade-off
effectiveness and political legitimacy, and that must be
resolved before basic income can become a genuinely feasible
policy. In his invited commentary, Yannick Vanderborght
(Facultés Universitaires St.Louis, Brussels) offered
some critical comments on both papers. The conference ended
with a round table with the main participants of the second
day, giving the audience another opportunity to engage with
the speakers.
David
Casassas
A
report on the Foundation for Law, Justice and Society conference
on Income Support.
On
Wednesday 10 October, the Foundation for Law, Justice and
Society (FLJS), in association with the Centre for Socio-Legal
Studies, Oxford University, hosted a Keynote Address by
Amitai Etzioni on Guaranteed Basic Income (GBI). The lecture
opened the Foundation's two-day conference on 'The Contract
for Income Support and Pensions in the Modern Welfare State',
attended by an international panel of government officials,
policymakers, academics, economists, and political scientists.
Professor Etzioni, a former Senior Advisor to the White
House and President of the American Sociological Association,
speaking to an audience at Rhodes House, Oxford, argued
that everyone should be entitled to a guaranteed basic income
'as a reflection of our basic humanity'.
From
his standpoint as founder of the Communitarian Network,
he outlined his proposal for a GBI that is not means tested
and not contingent on people's ability to work. Etzioni
argued that we are not complete human beings when deprived
of lasting, meaningful human relationships, and that we
have basic obligations toward one another that GBI can help
to engender. A basic income, he went on to say, would allow
for a stakeholder society that would mitigate the dependence
of the disempowered and foster mutual respect.
John
Adams, FLJS Chairman, opened the conference the following
day as part of the Foundation's programme on the Social
Contract, which aims to examine the reciprocal rights and
obligations between the citizens and the state in modern
liberal society.
The
first speaker, Professor Peter Edelman, drawing on his experience
as a servant in all three branches of US government, challenged
the idea that welfare causes dependency, and called for
an expanded conception of the social contract from a commitment
to end poverty to a determination to achieve a living income
for everyone. Dalmer Hoskins, the newly appointed Chief
Officer for Strategic Planning of the US Social Security
Administration, corroborated this perspective of American
welfare, attacking the 'myth' of the US pension policy and
the US healthcare system that is 'spinning out of control'.
Various
alternatives were explored, including the Swedish model
for merging welfare with the social contract to produce
a system of income support which verges on a basic income,
albeit one that is slightly means-tested. Avia Spivak, former
deputy governor of the Bank of Israel, examined the increased
economic risks caused by ageing populations through case
studies of Sweden and Chile, and Jef van Langendonck proposed
a global welfare fund to which governments would contribute,
enforced by international trade agreements.
Professors
Lucy Williams and Charles Mills offered feminist and racial
critiques of the precepts underlying social contract theory,
arguing that it obscures the roots of poverty by 'naturalising'
it, thereby ignoring the imbalance of assets and opportunity
inherent in most societies. The conference concluded with
an assessment of the feasibility of GBI by the sociologist
Michael Opielka, and Professor Charles Murray's proposal
for GBI as a replacement for the welfare state.
Phil
Dines, phil.dines@fljs.org
Main
article
Eight
Challenges for Basic Income
By
Tony Fitzpatrick
This
is a revised version of a lecture given to the 'Towards
a Basic Income Society?' conference held at the Centre for
the Study of Social Justice (University of Oxford) on 26/27th
October 2007.
When
I was invited to address this conference, the task that
I was set involved outlining the main challenges facing
the Basic Income debate and the main limitations of the
BI community in meeting them. I am more capable of addressing
the former than the latter, as a brief autobiography will
explain.
BI
was the subject of my PhD (1992-95). So by the time of its
eventual publication, as Freedom & Security in
1999, I had basically spent 6/7 years on the same subject.
As I pursued other interests, my work on BI became largely
confined to book reviews and article refereeing, though
it continued to appear in the background or in the margins
of my publications. Essentially, I really only came back
to the debate in 2007. In other words, I say the following
as an old friend but also as something of an outsider.
I
have tried to update my knowledge of the literature I missed
during those 8 years, and failed. To a large extent this
failure was because I encountered a literature far wider
and deeper than that which I met in the early 1990s. This
makes the debate harder to summarise than was the case 10
to 15 years ago. I suspect anyone approaching the subject
the way I did in my PhD would now have a far harder job.
Perhaps
the biggest change between then and now lies in the global
scale of the debate. I was initially sceptical when I heard
that the Basic Income European Network (BIEN) had changed
its name to the Basic Income Earth Network; it seemed like
a desperate attempt to preserve a beloved acronym. But my
scepticism has since faded. So whereas in the mid-1990s
the debate centred upon the UK, Netherlands, Belgium, Ireland,
Canada and Brazil, today the list would be much longer.
Challenge
no. 1, then, derives from the opportunity which this
expanding interest brings. How do we disseminate information
and coordinate efforts effectively about worldwide debates
and developments?
It
seems to me that the BI community has done an admirable
job of archiving and documenting these developments. BIEN
genuinely offers a resource that captures ongoing developments
and literatures, either in full or at least as signposts
that the eager researcher can follow.
Delving
back into the debate has made it clear what challenge
no. 2 is: with BI continuing to hover at the peripheries
of many policy and reform agendas (having made a clear breakthrough
only in Brazil and Alaska; though there seem to be some
interesting developments in Mexico) the challenge is to
continue to debate ideas and design proposals without any
guarantee of success. How to maintain enthusiasm when many
(or most?) in government are indifferent or dismissive?;
how to translate casual interest/support into something
more? The difficulty here is to return again and again to
some fundamental questions, in the hope that we are providing
resources that future political reformers will be able to
draw upon.
My
revisiting of the debate, then, immediately threw up a series
of familiar questions. Can an unconditional income be justified?
What type of BI scheme is desirable? What type of BI scheme
is most realistic? What would the impact of BI be for poverty,
class inequalities, gender inequalities, labour market participation,
participative citizenship, etc.? How does BI compare to
other reform proposals? I won't go through all of these,
but I do have a few observations.
In
the early 90s I came across many people who would simply
deny categorically that BI, and the unconditional principle
in general, could be justified. The BI community is to be
congratulated for making that kind of knee-jerk response
harder to sustain. Even those who wish to reject it have
to treat the principle seriously. This is perhaps because
15 years ago or more we were tapping effectively into fundamental
philosophies, debates and schools of thought where discussion
is always ongoing, and to some extent irresolvable. The
unconditional principle has its roots in many of these fundamental
ideas and so can hardly be dismissed. It was no surprise,
then, that familiar themes reappeared during my reading,
including: liberty, citizenship, common good, justice, equality,
efficiency, pragmatism.
What
perhaps exists now is greater clarity over what, for me,
is central; namely, the 'exploitation/reciprocity' arguments
lurking within several of these debates. When do we exploit
more? Is a BI something for nothing? Do I exploit you because
your labour pays for my BI? Or, do I enable you to earn
more, through your labour, by yielding up to you that part
of our commonly owned resources to which I am entitled as
a right? It seems to me that over the last eight years two
features of the debate have been highlighted as crucial.
Imagine the following vignette.
If
the past inhabitants of a desert island have left us all
a treasure trove of fish then the following possible scenarios
pertain:
- I
decline to work and so forfeit my share;
- You
refuse to let me starve to death and so feed me out of
humanity;
- You
refuse to let me starve to death and so encourage and
eventually force me to work in order to avoid your being
exploited;
- I
decline to work but yield my (inalienable) share to you
so that, because you now possess more fish than you otherwise
would, you are required to provide a BI equivalent to
me in return.
Those
who support conditionality often present 2 and 3 as the
only alternatives, a contrast which easily gives the edge
to 3 (since 2 seems merely a matter of charity). However,
the most fruitful discussions have centred around the plausibility
(or otherwise) of 4. And this still seems to me to be the
case.
As
well as addressing the reasonableness of 4, my recent work
has also returned to a second key part of the unconditionality
debate, namely (a) the extent to which we have control over
the institutional contexts that shape our lives; (b) the
extent to which we can and should have such control; (c)
the meaning of 'we'; and (d) the means of effecting such
control. These are obviously big questions, with many insisting
that a satisfactory answer involves guaranteeing access
to a labour market characterised by meaningful jobs and
decent wages. For others, such reliance on labour market
participation can never be perfect, requiring some form
of compensatory justice, and therefore a BI; for others,
such reliance already locks people into a form of social
membership which, while important, should not necessarily
predominate, so a BI is justified as an extra-market income
that gives people greater control over when and why they
enter into relations of the wage contract. Over the last
10 to 15 years it seems to me that there has been some mutual
respect and indeed rapprochement between these two perspectives
(certainly in 1992 trade unions were very dismissive). But
arguably more is needed.
In
any event it has always seemed to me that those committed
to a principle of unconditional provision know what a hard
sell it is and are prepared to accept a gradual, experimental,
evolutionary process of change. In short, it is not a matter
of having to resolve this first question (can an unconditional
income be justified?) before we can move on to the others
I mentioned earlier. Any sportsperson will confirm that
sport requires a kind of multiple vision: you need to know
where the ball is now and where you want it to go.
On
this business of an 'experimental, evolutionary process
of change' I was interested to see the extent to which the
North American experiments with Negative Income Tax (NIT),
30 to 40 years ago, were still being argued over. When I
looked at the available literature 15 years ago the debate
seemed to be moribund and whenever I mentioned NIT to people
outside the BI debate many tended to roll their eyes or
else scratch their heads trying to remember this thing from
the 1960s/70s. 'Oh, yes, wasn't it proved that NIT would
help create a lazy, promiscuous underclass?' For, by the
1990s, most of the left were content to ignore what looked
like another form of means-testing, one associated with
Milton Friedman to boot; and the right had achieved a hegemony
whose appetite for large-scale reform, especially after
the events of the 1980s, had diminished.
So, I think those who have wanted to revisit the lessons
of the experiments are correct to assert both that computer
simulations can get us only so far and that we need hard,
scientific data on some of the main BI schemes. Of course,
there is no guarantee that new experiments will evade the
political distortions, media misunderstandings and popular
misconceptions which affect the legacy of the NIT experiments.
Such experiments introduce new problems and margins of error.
But these are at least problems we can triangulate with
simulations and other forms of statistical data to reach
a richer view of what a BI would imply for labour market
participation, etc.
Persuading
governments and parties of the need for such research seems
to me to constitute challenge no. 3 and, difficult
as that effort is (within UK politics at least), it was
nowhere on the agenda 15 or so years ago.
So
this 'multiple vision' that I have just described seems
to me very much in evidence still. A kind of utopian pragmatism,
we might call it. In the 1990s, such utopian pragmatism
seemed somehow marginal. When I moved to Edinburgh University
in 1992, Thatcherism was still the dominant reference point
and the opposition was split between those defending social
insurance (an improved Beveridge approach) and those who
were pushing for a partial reconciliation with the neoliberal
revolution. The Commission for Social Justice 1 was not
Blairism in short trousers - its prescriptions could
have pushed us in other directions; but its language of
'investors vs. levellers' did clear a path for Blairite
social democrats. In short, no one saw much of a role for
a BI reform.
(I
appreciate that Participation Income was given a partial
thumbs-up by the CSJ, due to the efforts of Tony Atkinson
and Ruth Lister; but I also recall meeting a very young
researcher for Arthur Andersen - who had been commissioned
by the CSJ to assess BI - who pretty much confirmed to me
privately that BI was off the agenda.
Fifteen
years later and political circumstances have changed substantially.
The centre ground resembles the population of the world
trying to squeeze on to the Isle of Wight. The optimist
in me sees openness to change; the pessimist in me wants
to beat the optimist up for being too naïve.
Before
proceeding, then, this is challenge no. 4. How do
we keep up with political changes (when the nature and implications
of those changes are hotly contested by everyone) and continue
to demonstrate the potential relevance of BI? Let me take
UK social democracy as my examplar.
Within
the Labour Party, recent thinking on child poverty has been
influenced by reports from Lisa Harker and David Freud.
2 Both support a greater degree of employment and employability,
personalisation, outreach and flexibility in the interactions
between benefit clients and providers. Both, in other words,
are in tune with the welfare-to-work agenda. Harker, however,
is happy to represent hers as a 'welfarist welfare-to-work'
position because she is sensitive to the need to respect
the autonomy of claimants. Freud's position is more 'workfarist
welfare-to-work'. He adopts a language which is very much,
'We the taxpayer proclaim these truths to be self-evident.
We won't pay for these benefit-claiming malingerers any
more.' He expects that most people on Incapacity Benefit
can be transferred off. So whereas Harker is also willing
to underline the drawbacks of a work-first approach and
the damaging impact of income/wealth inequalities, the government
is more comfortable with continuing to stress Freud's emphasis
upon claimants' obligations. It is in this context that
other, welcome noises about the need to simplify the benefit
system need to be seen.
Take
Freud's outline of a Single Working Age Benefit:
The
SWAB would provide an income for anyone who is legitimately
resident in the UK and is both willing and able to work
(or is exempted from the latter criterion because of illness,
disability or caring responsibilities…). It would,
therefore, replace Income Support, Jobseeker's Allowance
and the planned Employment and Support Allowance, and
the need for any linking rules for people moving between
them.
The
SWAB has been represented by the Citizen's Income Trust
as nine-tenths of the way to a BI. In an administrative
sense this may be correct, but the principle of conditionality
is reinforced by the Freud report and so the remaining one-tenth
may be insurmountable without reference to a greater range
of political and moral arguments.
That
doesn't mean we shouldn't welcome SWAB if something like
it were implemented - far from it - but we should not lose
sight of other objectives: those that look beyond employment
and beyond an ethic where the social/economic inclusion
of the poorest means ignoring social/economic inclusion
of the wealthiest (the 'undeserving rich', in other words).
Challenge
no. 5, then, is not only to keep up with developments
in welfare/political thinking but to continue to present
political ideologies, perhaps centre-left social democracy
in particular, with alternatives to mainstream thinking.
For
instance, some influential people within the BI debate have
attempted a reformulation of welfare policies and social
democracy. Post-productivism has been promoted by those
such as Robert Goodin who has defined it as combining 'temporal
adequacy' (people having more available time and greater
control over the use of their time) and 'minimal conditionality'
(people receiving a minimum income as a citizenship right
rather than as a result of state and/or market compulsion).
In these terms, mainstream thinking corresponds to what
I would call 'productivism'. I won't labour the idea here,
but by productivism I basically mean a social culture in
which economic growth is seen as the instrument of
social change, progress, and problem-solving. In terms of
contemporary social democracy, the continued emphasis is
likely to be upon employment, minimum wages, wage-supplements,
and welfare conditionality. Given the (modest) successes
of New Labour, questioning this approach can make you seem
somewhat messianic to political 'insiders'. For this kind
of 'productivist' social democracy SWAB, or something resembling
it, might be as far as we get to a BI, the goal here being
primarily one of labour market insertion and reward for
labour market effort.
My
own humble efforts have defined post-productivism as that
which would ensure that production more clearly and substantially
serves the ecological and emotional values without which
labour, productivity, growth, and therefore affluence, cannot
thrive. Only that form of economic growth which demonstrably
enhances emotional and ecological sources of wealth should
be supported. We need to 'restock' the socio-ecological
sources of affluence more urgently than most governments
have admitted, scaling down our preferences to a level which
our societies and ecosystems can accommodate. This means
putting less reliance upon commodities and exchange-value
and more upon the ways in which people can be of mutual
service.
I
often present myself with the thought, 'well, doesn't this
emphasis on mutuality and mutual service contradict BI'?
Wouldn't an unconditional income encourage people to conceive
of others as givers rather than participants in social schemes
of cooperation?
No
doubt there are some BI systems of which this might be true
but it has long been my view that the significance of BI
alters markedly depending upon the social, political and
economic context. To some this assertion may seem strange.
If we introduced a BI of £100 per week, per person,
then surely we can and should say something about its impact
on household income, various groups, etc. But with any possible
reform, especially something as untried as BI, we are dealing
with so many variables: social relations, institutional
interactions, and knock-on effects - that we have to think
of it as part of a package of measures.
Therefore,
I've never been happy with the phrase 'Basic Income society'.
However important, BI would only ever be one element in
a complex institutional matrix of support, provision and
social relations. So, my own response to challenge no. 5
is to propose that what we need is a greater hybridisation
of welfare provision: the idea that wages become one of
a number of ways through which people exchange value with
one another.
On
a more general level of principle it means rethinking, recombining,
and reconciling the principles of unconditionality and conditionality.
The 'something-for-nothing' society that BI is accused of
wanting to 'recreate' (and can the advocates of 'active
welfare' tell us exactly when that kind of society existed?)
is in fact a bizarre caricature of the 'nothing-for-something'
realities that the worst kind of workfare and activation
programmes have produced. If we genuinely wish a 'something-for-something'
society then it seems to me that an underlying layer of
unconditional provision is warranted. You can't expect people
to climb a ladder if you knock away the bottom rungs. The
argument for BI is that it puts greater power into the hands
of people themselves, as does employers paying people salaries
rather than in-kind vouchers. ('Salary' is one of those
words which has radically changed its meaning. It derives
from the Roman practice of doling out salt to soldiers,
an in-kind payment). If we are genuinely concerned about
active citizenship then perhaps we ought to recreate something
closer to the Roman practice for wage-earners too! Those
who defend conditionality are intellectually obligated to
support a more honest version than currently prevails, so
that, for example, instead of obsessing about the usual
suspects, we force the undeserving rich to work too. But
at the moment we are stuck in no-man's-land, receiving the
best neither of unconditionality nor of conditionality.
In
any event challenge no. 6 leads on from no. 5: the
challenge for BI advocates is to think against what is 'common
sense' or 'public opinion'. I put these in commas because
we can all think of how these phrases are used to serve
a particular agenda. They are constructions that we need
to crack open and reconfigure if we are to speak to the
politics of the future. This does not mean that 'common
sense' and 'public opinion' are illusions/myths to be manipulated
by the cynical, it means that they are fields of interpretative
meaning and political struggle upon which different versions
of common sense and public opinion clash and compete. For
the anti-BI person it is obvious that BI violates an ethic
of desert; for the BI advocate it is clear that this ethic
is violated all the time and that a BI is needed partly
as compensation for that failure and partly to reorder the
distribution of primary social resources so that genuine
effort can be underpinned by income security.
Rising
to challenge no. 6 therefore requires us to meet challenge
no. 7: the need to read and respond to contemporary
social changes.
To
some extent this is about globalisation, a concept that
was barely creeping on to the agenda in the early to mid
1990s but which has since exploded. At that time two questions
cropped up: could a substantial BI be implemented given
the global mobility of capital, and should a residence test
be attached to BI? Both of these questions remain relevant.
The first explains why some people prefer to discuss BI
as a regional, and even global, proposal rather than merely
a national one. What has altered is the extent to which
BI is seen as a potential staging-post to a socialist society.
Such analyses are less in evidence now.
It
is the second question which has gained in resonance given
the endless hair-wrenching panics about migration that have
characterised the UK (among other west European countries)
in recent years. At its crudest these are worries about
welfare tourism - though the evidence for such tourism is
slender. But the notion that migrants have to assimilate
and integrate (in contrast to some multicultural moral/cultural
relativism that supposedly dominates our thinking) has become
a debate impossible to avoid.
It
would be easy to characterise BI as unfair to indigenous
populations. If my entitlement as a citizen of 40 years
is the same as yours when you have been here 40 days, then
won't that feed into paranoia about being exploited by outsiders?
Does this mean there is a trade-off between BI and migration?
If so, in which direction should this take us? Can BI only
become economically feasible and politically credible if
inward migration is restricted? Or do the benefits of migration
mean that BI is a non-starter?
We could support the idea of unrestricted mobility. Perhaps
there is no significant distinction between moving from
Mali to London and moving from London to Birmingham. We
might favour BI as that which facilitates such open migration
(by reducing the costs of relocation and occupational transition,
for instance) while retaining the social protections of
state welfare that some feel open migration would threaten.
But
if open migration remains a tough sell for the foreseeable
future then an alternative is to stress (1) that access
to basic welfare services is required in order for everyone
to perform the tasks of social participation that we demand
from one another, but (2) that properly designed social
insurance facilitates solidarities, civic participation
and interaction, without marking out either minority communities
or recent arrivals as problem populations. A BI (along with
health and education entitlements) could constitute the
welfare floor from which upward steps of contributory insurance
might lead.
In
addition to such debates, it strikes me that the changes
we have been experiencing over the last couple of decades
have been deeply paradoxical. These include the following
'currents':
- autonomy
and governance
- active
citizenship and prohibitive paternalism
- greater
mobility and surveillance
- information
highways and identity scans
- market
competition and social re-regulation
- individualism
and legislative hyperactivity
- decentralisation
and micro-management
What
these paradoxes point to is ambivalence over the meaning
and implications of choice. (Something could also be said
about care in this context, but I will leave this to one
side.) The marketisation of society and social risks has
engendered economic and cultural fragmentation, such that
contemporary social policies are characterised less by interventions
intended to reduce socio-economic inequalities and more
by attempts to control the exercise of choice. This is a
kind of 'situational engineering' through which the possibilities
of action are manipulated. The freedom to earn, consume,
possess and exchange is always accompanied by a demand that
we earn, consume, possess and exchange responsibly. Choice
thus becomes both an impulse to be realised and a liberation
that must be reined in if it is not to create social breakdown.
It
seems to me that BI debates have to find a way of harnessing
choice while disentangling it from the possessive individualism
which gives rise both to free market cultures that skew
the meaning of freedom and to social re-regulations that
are excessively prohibitive. In simple terms this means
thinking again about paternalism.
That
was the aim of a recent article of mine in which I thought
about how we can combine the best that stakeholder grants
have to offer with those that BI has to offer. Proponents
of asset-based welfare argue that people should be entitled
to a considerable stock of assets, of material resources
or their equivalent. Commentators disagree over how that
stock should be manifested. Some see a role for the provision
of capital grants that could either be used for whatever
purposes the recipient sees fit, or which could be attached
to circumscribed activities (education, house buying, or
business start-ups). I have argued that the distinction
between BI and capital grants, while real, has been overstated.
We can imagine, for instance, a system whereby BI's income
stream could be converted into grant-like 'pools' of financial
resources that could be used for education, etc., or which
could be used to fund employment sabbaticals.
Whatever
the persuasiveness of such ideas I suspect we need to continue
to propose them in order to meet challenge no. 8, a challenge
for ourselves: to plough on, encouraging, navigating and
utilising the BI community's diversity. We need to continue
to establish the practicality and respectability of BI,
its consistency with established practices, and to argue
for ways in which the mainstream needs to change. This requires
us to adopt the stance I referred to earlier: one of multiple
vision, of utopian realism, of radical pragmatism.
Notes
1
Social Justice: Strategies for National Renewal,
the report of the Commission on Social Justice (Vintage,
1994)
2
Lisa Harker, Delivering on Child Poverty: What would
it take? (Department for Work and Pensions, 2006); David
Freud, Reducing dependency, increasing opportunity: options
for the future of welfare to work (Department for Work
and Pensions, 2007)
Reviews
Peter
A Kemp (ed.), Housing allowances in comparative perspective,
The Policy Press, Bristol, 2007, 340pp, hardback,
1 86134 754 1, £65, and Richard Groves, Alan
Murie and Christopher Watson (eds), Housing and the new
welfare state: Perspectives from East Asia and Europe,
Ashgate, Aldershot, 2007, 224pp, hardback,
0 7546 4440 8, £55.
These
two books look at the various systems for subsidising rents
and home ownership in different countries. Kemp looks at
Europe, North America, Australia and New Zealand. Groves
looks at the East Asian 'tiger' countries with one chapter
comparing these countries' systems with the UK and Europe.
Most
of the chapters in each book are written by a researcher
or expert from the country concerned, and both books are
by their very nature highly detailed and technical. However,
either book would be invaluable for somebody who needs a
decent international overview.
It is very difficult to summarise either book, short of
saying that the various systems are wildly different, with
different underlying aims and outcomes. It is fair to say,
however, that no country seems to have found the 'best'
way of ensuring that even low income households have access
to a reasonable standard of housing at a reasonable overall
cost, despite a considerable amount of chopping and changing
within most of the countries.
The
reviewer is only familiar with Housing Benefit in the UK
(and to a lesser extent, Germany) so it is instructive to
compare the chapter in each book that looks at the UK.
Kemp look at the UK in Chapter 6. He gives a brief overview
of our benefits system, repeating the government's claim
that 'The tax credit for people with low earnings ... and
a national minimum wage were both introduced to help make
work pay'. As an aside, it is of course the position of
the Citizen's Income Trust that the best way of making work
pay is to reduce the marginal withdrawal rate.
Kemp
traces the history of housing benefit, rent controls, and
subsidies for home-ownership in the tax and welfare system
from 1915 onwards. Particularly interesting is his point
that 'the means tested [non-contributory] assistance scheme
was more generous that the [contributory] insurance scheme.
National Insurance recipients with high rent were able to
top up their incomes by applying for National Assistance
to cover the difference'. Also telling is 'The way in which
Housing Benefit is calculated is relatively simple. Tenants
whose income is more than the social assistance benefit
rates are entitled to a Housing Benefit payments that is
equal to their eligible rent minus 65% of the difference
between their net income and the social assistance benefit
rates'. Kemp does not mention until later on that the eligibility
criteria for and way in which Council Tax Benefit is calculated
are very similar, and that this is withdrawn at a further
20% of a claimants income above the same basic benefit levels.
Kemp
points out that 'Housing Benefit ... is also an important
contributor to their landlords' rental income stream ...
cuts in Housing Benefit will consequently have an adverse
impact, not only on direct recipients but also indirectly
on their landlords ... For this reason, landlords and the
banks that lend mortgages to them have been very wary or
critical of proposals to cut or reform Housing Benefit.'
Kemp
also goes into some detail on the new scheme of a Local
Housing Allowance for private tenants and the first evaluations
of pilot areas, concluding that 'the evidence so far suggests
that the LHA represents an important, but not particularly
marked, improvement on the previous Housing Benefit scheme
for private tenants'.
Groves takes a briefer and more general look at 'Housing
in the British welfare state' in Chapter 8.
Groves
takes a wider view than Kemp and also looks at the way in
which successive governments have reduced the generosity
of old age pensions and encouraged older people to finance
their retirement by equity release schemes, which he says
quite rightly is relying on the 'lottery of the market'.
He also explains Thatcher's 'Right to buy' and the current
government's ideas on asset-based welfare. ('Right to buy'
is now known as 'Choice to own').
Groves looks at state support for housing in Singapore,
Hong Kong, South Korea, Japan, China and Taiwan. The main
emphasis in these countries seem to be encouraging home
ownership, via compulsory savings schemes and subsidies
rather than subsidising poorer tenants.
Of
the two books, Kemp provides the far better overview in
Chapter 1. Groves' first chapter seems to consist largely
of a summary of other research into housing and welfare,
using expressions such as 'decommodification' and 'corporatist
or egalitarian redistributive models', 'welfare states emerge
as a result of universal physiological forces, technological
determinism or as a consequence of industrialisation'. Kemp,
on the other hand, takes much greater pains to put 'Housing
allowance in context'.
In
summary, both books are lovingly researched and meticulously
presented, each chapter is a goldmine of information into
the various systems, their costs, advantages and pitfalls,
however neither book comes to a conclusion as to what the
best system might be. Readers of either book will still
have to make up their own minds!
Mark
Wadsworth
John
Creedy and Cath Sleeman, The Distributional Effects of
Indirect Taxes: Models and applications from New Zealand,
Edward Elgar, Cheltenham, 2006, xiii + 261
pp., hardback, 1 84720 042 7, £65.
The
New Zealand Goods and Services Tax (GST) has no exemptions
and is imposed at a single rate; but there are also excise
taxes on alcohol, tobacco and petrol, and these have created
rebate debate.
This
book assumes that households will consume less of goods
when tax on them increases. This means that a tax on a commodity
will potentially distort a consumer's expenditure pattern,
thus creating a marginal cost, an inefficiency for that
consumer, and an economic burden greater than the tax paid.
The
authors recognize that taxation is not simply a way of raising
revenue for the Government and that other social policy
factors are relevant, such as the environmental impact of
carbon tax (a tax on carbon dioxide emissions), and in this
area the authors find that an increase in carbon tax causes
only a small effect on family after-tax income, an ambiguous
distribution pattern, and no large distributional effects.
The marginal welfare cost is low, and thus the tax is relatively
efficient. On taking a variety of factors into account (such
as the relative fuel use efficiency of different industries),
the authors conclude that reductions in carbon dioxide emissions
are possible without too much distributional effect and
without costing too much.
This
book is impressive in the care taken to take account of
as many factors as possible and in the detail offered to
the reader. Conclusions are carefully drawn, and what frequently
emerges is a rather complex picture. For instance, the welfare
effects of a petrol excise tax increase are
'found
to vary considerably among demographic groups, reflecting
the different variations in budget shares with total expenditure'
(p.65).
In
general
'overall
measures of social welfare over all households, allowing
for the combined effect of equity and efficiency, were
found to increase by only one half of one per cent when
all excises are removed. The results therefore offer little
support for the view that excises are highly regressive
and inefficient. Any policy decision in this context must
of course also combine these findings with perceived or
measured effects of excises on the environment and health
levels' (p.189).
Also
impressive is the care taken over the different parts of
the analytical method. For instance, much care is taken
over the relative advantages of different equivalence scales
(which count a two-adult household as less than two adults
in terms of the welfare benefits of a given net household
income); and over inequality aversion (because for both
individuals and households equality is a differentially
valued good).
Whilst
some of the authors' assumptions could be challenged (such
as those relating to expenditure preferences), this is a
serious attempt to evaluate actual and possible policy changes
whilst taking into account a wide variety of factors.
A
similar approach needs to be taken in the field of income
taxation in relation to changes in employment patterns consequent
upon changes in the structure of the taxation system or
in tax levels. Just as we ought not to ignore expenditure
pattern changes when indirect taxes change, so we should
not ignore labour market changes when income taxes (and
tax credits and welfare benefits) change.
This
book offers an example to follow.
Caroline
Glendinning and Peter A. Kemp, Cash and Care: Policy challenges
in the welfare state, Policy Press, 2006,
xii + 322 pp, pbk, 1 86134 856 8, £22.99.
The
distinction between cash benefits and care has begun to
break down as people with disabilities are now being given
cash to enable them to pay for personal assistants. Similarly,
parents are now being more firmly encouraged to enter or
remain in the labour market, and after-school and breakfast
clubs and government subsidies for childcare are becoming
a normal part of a child's life. In a parallel development,
residential care is becoming a more normal option for elderly
family members as family members remain in the labour market
rather than give up their jobs to look after elderly parents.
The
chapters of this book started life as conference papers,
and in a short review it is impossible to discuss in depth
the content of all nineteen of them; but of particular interest
to readers of this Newsletter will be Jane Lewis's summary
of changes in the family, the labour market and the welfare
state (pp.12ff), Jan Pahl's discussion concerning to whom
benefits should be paid (pp.58ff), Pernille Hohnen's chapter
on individualisation and marketisation as policy trends
(pp.79ff), Hilary Arksey and Peter Kemp on carers and employment
in a work-focused welfare state (pp.111ff), Caroline Glendinning
on different ways of paying carers (pp.127ff), Jane Millar
on work and welfare for lone mothers (which identifies lack
of income security during the transition from benefits to
employment as a problem) (pp.171ff), and Jenny Morris on
the funding of independent living for people with disabilities
(pp.235ff).
The
overwhelming impression given by the papers is of rapid
change: in the ways in which we as a society organise care
for vulnerable groups, in employment patterns, in our expectations
of parents, and in parents' expectations of themselves.
What is required is income security in the midst of all
this change. Whilst tax credits looked like an answer, they
have in fact become part of the problem (pp.177ff). Child
Benefit, however, gets a good press (pp.59, 177), particularly
in relation to its role in contributing to income security
for women.
Hans-Werner
Sinn et al, Redesigning the Welfare State: Germany's
Current Agenda for an Activating Social Assistance,
Edward Elgar, Cheltenham, 2006, xi + 204 pp., hardback,
1 84720 077 X, £55.
This
careful and detailed study of the German welfare state from
the Ifo Institute for Economic Research in Munich correctly
locates the current European welfare state crisis as a symptom
of a globalization which, by bringing workers from elsewhere
to compete with Europe's low-skill workers, and by moving
manufacturing industry to countries with lower wages, increases
unemployment amongst low-skill workers in developed countries
and puts pressure on welfare budgets.
This book charts the growth of unemployment amongst low-wage,
low-skill workers in Germany, and describes the current
German benefits systems as
'providing
a [fairly high] general minimum level of income that strongly
discourages benefit recipients from taking up work ….
Welfare recipients are therefore condemned to remain inactive,
and it is virtually impossible for them to free themselves
based on their own capabilities and resources. This is
completely at odds with the philosophy of a market economy'
(p.4).
The
authors propose a system related to 'income potential and
a willingness to earn income' (p.4) composed of a 'wage
tax credit'. This, they say, coheres with a policy which
seeks redistribution and also leaves 'the willingness of
citizens to work affected as little as possible' (p.39).
The inspiration for the tax credit proposal is current US,
UK and French policy (pp.48ff).
Germany's
current reforms are evaluated in relation to the Institute's
proposal, and the comparison reveals that marginal deduction
rates would be generally lower with the Ifo scheme, though
still high at 80% for a variety of family types and across
a broad range of incomes. Such continuing high marginal
withdrawal rates should surely be a concern, as should be
the complex administrative systems relating to tax credit
schemes. The authors really ought to have paid some attention
to UK experience of administrative errors and low take-up
of tax credits.
Tax
credits don't, of course, enable a welfare system to escape
from the problems of means-tested benefits. Tax credits
are themselves means-tested. They might increase take-home
pay for the lowest earners, but, because they are withdrawn
as earned income rises, they push the problem further up
the incomes spectrum by imposing a plateau so that, in the
British system, many family types must earn £20,000
p.a. or more before they can escape high withdrawal rates.
UK
Child Tax Credits get a section of the text to themselves
(pp.54ff), but Child Benefit does not. This is a pity, for
anyone wanting to reduce both means-testing and the difficulties
many families face if workers take low-paid jobs, really
ought to be studying the UK's Child Benefit, as the graph
on p.57 shows.
A
reform of Germany's welfare state, or of any other welfare
state, undertaken by providing a non-mean-tested income
floor, would increase the system's efficiency and would
reduce poverty. Such a reform would cohere with precisely
the kind of social policy which the authors of this book
want to see evolve. We very much hope to see another book
exploring this possible reform of Germany's welfare state.
Tim
Robinson, Work, Leisure and the Environment, Edward
Elgar, 2006, x + 136 pp, hbk, 1 84720 103 4, £39.95.
The
preface sums up the argument of this campaigning book:
This
book is about a fundamental flaw in contemporary market
economies that causes individuals to voluntarily work
and consume too much while enjoying too little leisure.
In working and consuming too much they are placing unreasonable
and unsustainable demands on the environment. Furthermore,
as the arguments in this book explain, unless the fundamental
flaw is acknowledged and acted upon, humankind faces ever
increasing environmental disamenity. This is because the
characteristics of the fundamental flaw mean that the
current problems of overwork and consequent environmental
degradation reinforce each other leading us further and
further away from the optimum. Over time, the extent to
which work is excessive in relation to leisure grows continually
along with the extent of environmental degradation. This
is the outcome of the vicious circle of overwork and over
consumption (p.ix).
The
first chapter argues for an economic approach to this problem
on the basis of a correlation between high levels of output
per capita and high levels of environmental degradation
per capita. The second chapter suggests that decreased unpleasantness
of work, increased incomes, declining quality of life (leading
to the pursuit of higher incomes in an attempt to rectify
this for the individual) and the transfer of work effort
from years of low productivity to years of high productivity
have caused an increase in work hours. And the third chapter
suggests that another important and often neglected factor
is that to shift work from the home to the workplace increases
externalities such as pollution and carbon emissions and
thus shifts negative externalities from the home to the
public realm. If we translate externalities of both work
effort and increased consumption into an unhappiness alongside
the happiness we receive from the income earned at work
and the unhappiness derived from the disbenefits of work,
then net happiness reaches zero at fewer work hours per
week than if we ignore such externality unhappiness. Ignoring
this externality unhappiness is the 'fundamental flaw' in
the free market economic model which Robinson thinks we
need to do something about by taking this externality into
account and working fewer hours to ameliorate it and its
attendant unhappiness.
Chapter
4 adds consideration of a limited information market failure
to that of externalities. Chapter 5 offers a measurement
of the excessive work effort we experience using a General
Progress Indicator rather than Gross Domestic Product to
measure wellbeing. Chapter 6 studies cumulative effects
and international differences; and chapter 7 offers policies
to tackle the fundamental flaw: working hours legislation,
education, and taxation. The aim: to reduce work hours and
thus improve quality of life.
The
problem, which Robinson recognises, is that the fundamental
flaw and its solution are not intuitive until they are explained
and the penny drops.
The
same is true, of course, for current problems relating to
income maintenance and a Citzien's Income as their solution.
Neri
Salvadori and Carlo Panico (eds), Classical, Neoclassical
and Keynesian Views on Growth and Distribution, Edward
Elgar, Cheltenham, 2006, xxii+318pp, hardback, 1 84542 309
7, £69.95
The
accumulation of capital is the only true engine of economic
growth, for it 'leads to an improvement in the productive
capacity of labour' (Adam Smith, quoted in Renato Balducci's
chapter, p.3).
Beginning
with Ricardo and Smith, the authors of these thorough and
mathematically expressed chapters chart the history of economists'
understandings of growth (understood here as growth of national
product measured in financial terms) and distribution (again,
understood in financial terms). So we travel via Smith (ch.1)
and Ricardo (chs. 1, 2 and 3) to Marx (ch.4) to the neoclassical
(chs. 5 to 8) and Keynesian (chs. 9 to 13) economists of
the latter half of the twentieth century, though the fact
that Keynesian and neoclassical effects can be found together
(cf. p.184) suggests that not too much notice should be
taken of the attempt to divide chapters into different schools
of thought. Of particular interest is evidence of more nuanced
models among neoclassical and Keynesian theorists. For instance,
in chapter 6, Mario Pomini concludes that political and
social mechanisms condition accumulation and growth and
that 'the debate has reopened on the most appropriate economic
policy measure for stimulating and sustaining economic growth,
a much richer and more complex process than traditional
[neoclassical] theory was prepared to admit, in which the
public operator can perform a key role' (p.143); and in
chapter 12 Antonio Agata shows that within post-Keynesian
theory 'the economy can be stuck in an underemployment or
overemployment steady state and that there is no automatic
mechanism driving the economy toward a steady state with
full employment, even if nominal prices and real wages are
perfectly flexible' (p.281).
Such
loosening of theoretical boundaries in the context of a
complex ideological, fiscal and financial world should encourage
welfare economists of all persuasions to loosen their own
boundaries, to ask about detail and practicality, and to
seek usable theory wherever it might be found.
While
this book is designed for readers comfortable with mathematical
expression of economic theory, its conclusions will be of
interest to anyone interested in economic growth and distribution.
Research
note
The
utility - or otherwise - of being employed for a few hours
a week
by Malcolm Torry
This
short article employs the concepts of 'utility' or 'indifference'
curves to evaluate a change from the current tax and benefits
system to a Citizen's Income for likely effects on employment
incentives.
Utility
curves
Hours
not spent in paid employment ('leisure') are useful to us
(they have utility), and consumer goods, and thus earned
income, also have utility. Each combination of leisure and
earned income will yield utility, or satisfaction, which
can be pictured as a series of curves on a graph:
Figure
1
If,
at the three combinations of leisure and earned income at
a, b, and c, we regard ourselves as having equal levels
of utility, then we can draw the 'indifference curve' U1
along which our utility is constant. The curve at U2 represents
a similar series of points of equal utility, all at a higher
level of utility than those on U1.
For
a given wage rate w, we can draw a line (a 'budget constraint')
showing what our earned income will be for each hour worked,
i.e., for each hour subtracted from our leisure.
Figure
2
The
combinations of earned income and leisure represented by
points to the right of the budget line are unobtainable,
so our utility will be maximized where a utility curve is
at a tangent to the budget constraint (as this is the highest
utility available to us under the circumstances):
Figure
3
Now
suppose that on all earnings up to the amount y0 tax is
charged at rate t, then the wage rate net of tax will be
w(1-t) per hour between for the first y0/w hours of employment
per week (i.e., between (168 - y0/w) and 168 hours of leisure):
Figure
4
The
person whose utility was previously maximized at a high
number of hours of employment (a low number of hours of
leisure) now has utility maximized at a lower number of
hours of employment (a high number of hours of leisure,
and possibly at 0 hours of employment). This is true for
workers on low wages, but the reverse can be true for those
on high wages, leading to a phenomenon known as the 'the
backward-bending supply curve of labour'.
We
are in the fortunate position in the UK of the Department
for Work and Pensions having calculated budget constraints
for different types of family in its Tax Benefit Model Tables
http://www.dwp.gov.uk/asd/asd1/TBMT_2007.pdf
If
we translate the income levels used in the tables into hours
employed at the National Minimum Wage then we can create
graphs showing net income against hours employed - so now
the horizontal axis is reversed and labelled 'hours worked
per week', and the budget constraint has a positive slope
rather than the negative slope generated by a horizontal
axis showing leisure hours (see figure 5). Notional utility
curves can now be drawn - again, reversed (see figure 6):
The existing tax and benefits system
Putting
housing-related benefits to one side, in 2006 the net income
of a single earner aged 25 or over after income tax, national
insurance contributions, income support/jobseeker's allowance
and working tax credits was as shown by the line marked
'existing system'.
Figure
5
The chart clearly reveals a poverty trap, particularly if
the person is employed for only a few hours a week. Between
0 hours and 12 hours per week earnings make almost no difference
to net income. If someone has a general preference for leisure
rather than for income then, as figure 6 shows, utility
could be maximized at either or both 0 hours of employment
and at 16 hours of employment, and isn't much less at any
number of hours between 0 and 16 hours. Thus a poverty trap
creates a considerable disincentive to increase the number
of hours worked.
Figure
6
A
Citizen's Income
The
graph line marked 'Citizen's Income scheme' in figure 5
shows the effect of the following Citizen's Income:
Figure
7
| Age |
Weekly
CI |
2006-7
rates |
| 0
to 18 |
£34 |
Income
Support for 16-17 year olds |
| | 
