Panel Paper:
The Labor Supply Effects of an Unconditional Basic Income
Tuesday, June 14, 2016
:
12:30 PM
Clement House, 2nd Floor, Room 06 (London School of Economics)
*Names in bold indicate Presenter
The literature on the unconditional basic income includes various designs and methods of implementation, but its essential and controversial quality is the omission of a work requirement. The universal nature of basic income invites its common critique: does it disincentivize work? If so, by what magnitude? We attempt to answer these questions using a structural model of the United States labor market.
Basic income programs have been gaining significant traction in global policy debates. In the United States basic income policies have garnered support from both the political left and the right: championed as a universal social safety net on the left and an individualized, efficient answer to traditional welfare state policies on the libertarian right. We compare the labor supply effects of various possible basic income thresholds by employing a structural model defined over a subset of discrete hours. To our knowledge, we are the first to use this method to simulate the labor force effects of an unconditional basic income in the United States.
Specifically, we use data drawn from the Current Population Survey (CPS) for 2013 to construct our labor supply models. We follow the method outlined in Creedy and Kalb (2006) and established by several others who have modeled the effects of policy changes on labor supply. We use a mixed logit model to estimate the parameter coefficients of the specified utility functions. We use the labor supply observed in the baseline scenario to calibrate the error terms of the utility equation. Then we impose this calibrated structure on the data after the basic income is implemented and new utilities are estimated to compute a probability distribution of hours worked for each individual. This directly reveals changes in the choice of whether or not to work and how much to work.
We find imposing a basic income does reduce average hours worked, but the magnitude of this effect varies across single and married men and women. Our preliminary results reveal virtually no changes in the choice of whether or not to work. We do find individuals are likely to work somewhat fewer overtime hours and some move to 30 hours part time, however, very few choose to move to 15 hours of work. This might be because choosing 15 hours of work could result in the loss of benefits provided by employers.
