BC Basic Income Panel

Research Papers

Labour

Does a Universal Basic Income Reduce Labour Supply for All Groups? Evidence from Canada’s Negative Income Tax Experiment

Chris Riddell (University of Waterloo), Craig Riddell (University of British Columbia)

We investigate the labour supply effects of the Canadian negative income tax (NIT) experiment known as MINCOME. The North American NIT experiments have received considerable attention in recent years given the renewed interest in a universal basic income. However, while many papers exist on the U.S. NITs, the Canadian NIT experimental literature consists of a single study. We are unable to replaicate the results of that study and question the validity of its conclusions. Our reassessment yields very different results compared to what is currently believed about MINCOME’s labour supply impacts. We find large and statistically significant adverse effects on labour supply for women from two-headed households, but no compelling evidence of a movement out of the labour force. Our point estimates on hours worked for this group are similar to those found in the Seattle-Denver NIT study that offered more generous treatment plans, and the reduction is higher relative to baseline annual hours than U.S. NIT evidence. Conversely, for single parents (90% single mothers) we find large positive treatment effects on hours worked and on the likelihood of working. The single-parent results, which are robust to two different data sources and differences in sample construction, differ from previous NIT evidence in both countries, although are consistent with standard labour supply theory. Finally, we find no significant impact on either the intensive or extensive margin for men in two-headed families. Overall, our results for the Canadian experiment suggest that the guaranteed income benefit reduced hours for women from two-headed households and increased both movement into the labour force as well as hours worked for single parents—impacts that indicate a guaranteed income with NIT features can have offsetting positive and negative work incentive effects.

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Earnings Supplementation for British Columbia: Pros, Cons, and Structure

Gillian Petit (University of Calgary), Jonathan Rhys Kesselman (Simon Fraser University)

This paper provides background on key issues for the reform of earnings supplement (ES) programs in B.C.: motivation, policy history, and structure of existing and potential provisions. ES programs offer benefits that are linked to an individual’s earnings, as distinguished from programs that offer cash transfers that are unconditional on work or earnings. Thus, the motivations for the ES benefit structure are related to views about reciprocity, self-respect, and social participation and contribution. As a consequence, ES programs have garnered wide support across the political spectrum. The paper describes the ES benefit structure, its parameters, and its operational aspects. The federal Canada Workers Benefit (CWB) is the only ES program currently available for B.C. residents. Options for reform or enhancement of the CWB for B.C. workers are surveyed and assessed at a qualitative level: cost-free reconfiguration of the CWB, provincial top-ups to the CWB, and the institution of a B.C. scheme funded and operated by the province.

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Labour Supply Issues Related to a Basic Income and Income Assistance

David Green (University of British Columbia)

In this paper, I assess the various claims made about how a basic income (BI) would affect paid work. Proponents of a BI argue that a BI would reduce the welfare wall and make it easier for people with low income to choose to work. Opponents tend to be concerned that a BI could induce a large-scale withdrawal from paid work and/or a reduction in the hours that people work with potentially problematic consequences for the productivity of the economy.

In the first section, I discussion of the theoretical issues related to a BI and work, pointing out that both proponents and opponents could be right in different ways at the same time. In that discussion, it also becomes evident that the extent of expected effects hinge critically on the impacts of a switch to a BI on the effective tax rates that people face. In the second section, I review the evidence from Milligan (2020) on the size and relevance of these tax rates. This highlights the extent of the problem and where we expect to see effects. However, the ultimate impacts on labour supply depend on how people react to the changes in effective tax rates. Those reactions show up in estimates of labour supply elasticities. In the third section, I review evidence on those elasticities. The labour supply estimates obtained from a variety of sources tend to point to quite low elasticities for both men and women in recent years (i.e., both would show only modest responses to wage and income changes associated with introducing a BI).

I use the labour supply elasticity estimates in combination with data from the 2016 Census to form estimates of effects of a basic income with a $20,000 guarantee and a 50% tax back rate. I do this in two exercises: one focused on those on IA for whom the basic income would lower the welfare wall; and one focused on workers.

Overall, based on estimates in various related literatures and an exercise using those estimates in conjunction with census data for B.C., a shift to a generous basic income scheme would likely have limited impacts on total hours worked in the economy. It would also likely have small effects in drawing IA recipients into work through lowering the welfare wall. At the same time, there are some groups—notably those without children—for whom predicted hours reductions are somewhat larger. Concerns for those groups could be mitigated by implementing a wage or earnings subsidy in conjunction with the basic income. But the key conclusion is that hours impacts are likely not large enough for them to be the main factor in deciding on whether to adopt a basic income.

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Reforms to Earnings Supplement Programs in British Columbia: Making Work Pay for Low-Income Workers

Gillian Petit (University of Calgary), Jonathan Rhys Kesselman (Simon Fraser University)

Some individuals work nearly full-time and most-year at low wages but remain poor. An effective way to assist the “working poor” is to supplement their earnings, which lifts them from poverty by rewarding their work. This paper explores how an earnings supplement program for British Columbia could serve this goal. Through quantitative simulations we explore alternative approaches, such as a cost-neutral reconfiguration of the federal Canada Workers Benefit and a provincial top-up to the CWB. These exercises provide insight into the trade-offs in benefits, costs, and poverty impacts of varying the structure and parameters of programs focused on B.C. We find that a cost-neutral reconfiguration of the CWB for B.C. has limited impact on poverty rates for childless singles, while increasing poverty rates for other family types. In contrast, a combination of CWB reconfiguration with a provincial CWB top-up targeted at low-earning childless single workers could significantly improve outcomes for that group. At a cost to the province of $400 million, this scheme could reduce the numbers of such workers in poverty by 18,000 while raising the incomes of many more of the working poor. Such a program could be administered simply by the Canada Revenue Agency as an add-on to the CWB.

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Self-Employment and British Columbia’s Poverty Reduction Strategy

John Lester (University of Calgary)

The main purpose of this paper is to assess whether self-employment raises any special issues for B.C.’s poverty reduction strategy. While the incidence of low income is higher in self-employment than in paid work, the underlying causes of low-income are similar for both types of work arrangements, so initiatives targeted at the self-employed are not necessary. However, the self-employed do not appear to be as well served as paid workers by existing active labour market policies. Self-employment does not have any substantial advantage over paid work as a pathway out of poverty, so a policy tilt in favour of self-employment is not warranted for that reason. However, since self-employment is a last-resort option for some, reducing barriers to entry would have a favourable effect on poverty. The increase in the minimum wage will, even in the best of circumstances, reduce total hours worked in the low-wage sector. This is likely to increase the propensity to enter self-employment, which would put downward pressure on earnings relative to paid workers. This paper also assesses how a Basic Income Guarantee (BIG) would affect self-employment. Implementation of a BIG is likely to result, all else being equal, in a lower level of necessity-driven self-employment. The impact on opportunity-driven entry is likely to be small, and it could be negative or positive. Implementing a BIG is therefore unlikely to make a substantial contribution to preparing for a new or emerging economy by encouraging entrepreneurship.

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Trends in the Labour Market and Their Implications for a Basic Income: Short Summary

David Green (University of British Columbia)

One of the main arguments that has been advanced in favour of a basic income is that we are going through a technology-driven transition that involves more precarious work and that will end with our economy having either very little paid work as we know it or having a preponderance of precarious jobs (low wage, low stability, low worker control). If that is the case, it is argued, then we need to look for ways to redistribute the production of the economy that is not related to work – either directly, through wages, or indirectly, through work related benefits such as employment insurance. In this paper, I investigate this claim using both empirical evidence and an appeal to economic theory. I examine trends in work elements that characterize precarious work, such as the proportion of work that is part time, short tenure, or in self-employment as well as work arrangements that relate to worker control over their workplace, such as unionization rates and the proportion of employment in sectors characterized by “fissured” work. In addition, I examine patterns of employment, polarization, inequality, and changes in the share of income going to labour. A picture emerges from these investigations of a labour market in which the precariousness of jobs increased in the 1980s and early 1990s while elements of work that relate to worker control and respect such as unionization follow a declining path that continues until the mid-2000s. In a similar vein, the theoretical discussions point to a plausible future with increased inequality. Thus the right question appears not to be, is the basic income the right tool for a jobless future? but, is it the right tool for a persistent set of problems reaching back well into the past?

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