Why UBI would have less work disincentive than unemployment benefits

 So, I know I wrote recently about how unemployment benefits aren't discouraging work effort, but I still want to provide an argument about why UBI might be a superior to UI benefits in terms of work incentive.

Unemployment benefits are given to people who have lost their jobs through no fault of their own. They are given to people with the expectation that people try to find a new job, and these benefits often require people to be actively looking for a job and to prove they are looking on demand. However, it is still possible to find ways around this and not work, if one chooses to. I'm sure many of us know of anecdotes like this. 

While unemployment benefits generally are less than people make working, with the average benefit being $321 a month (see link above), these benefits are explicitly tied to not working. The second someone finds a job, they are forced off of unemployment and lose it. Right now, people are given an additional UI benefit of $300 a week, bringing that average up to $621 a month. 

Meanwhile, say you have a $10 an hour full time job in a restaurant. Well, that's $400 a week. And many of those jobs are part time. Let me ask this, who, in their right mind, would trade $621 in benefits doing nothing, for $400 working your butt off? There is an inherent perverse incentive to providing benefits contingent on not working. And while I see little scientific evidence it is actively discouraging people from the job market, it very well might encourage people to wait until their benefits run out to work such jobs. And while I have yet to see evidence that is why there is a labor shortage, it makes sense on a purely model based level that this would be highly prohibitive toward getting people to work those jobs. I mean, we're talking a roughly 136% marginal tax rate on working. People are not only merely replacing their income working (which accounts for a 100% marginal tax rate), they're losing working (around 36% of their paychecks). This is no way to run a system.

In order to merely compete with unemployment benefits, employers would need to offer a $15.53 wage. This isn't bad in and of itself. That's the $15 "living wage" we hear so much about. And that's fine. But that's just to have a 100% marginal tax rate on work. In order to actually attract labor and get them off of unemployment, employers need to offer a better job than the wages offered. So say they need to offer 50% better to get workers off of unemployment. That's $951.50 a week, or $23.29 an hour. For low wage work, that's a major shock, and possibly inflationary. Over double most jobs, perhaps triple the minimum wage. If this is an upscale sit down restaurant, that could be fair and justified, but for fast food? Well, if it causes the price of big macs to double everyone is gonna feel that, and that might be a bit excessive.

 Now, as you guys know, within reason, I don't care if people stop working. I don't value work, and seek a post work society. However, shocking the system is dangerous, and could lead to public backlash should a real labor shortage exist, and the safety net being the cause. A bad implementation of an "anti work" safety net could turn the public against us, meaning our cause would be set back decades like it was after the stagflation of the 1970s.

Even without the extra money, $321 a week might be enough to discourage someone from taking a $10 an hour job for $400 a week. They might need to offer $481 instead, which amounts to just over $12 an hour. That's fair more reasonable, but the system was always like that and yet wages were much lower.

Now, to be fair, not everyone on unemployment is gonna be looking for low wage work. And it could be bad if they did. If you were laid off from a much more high paying and prestegious job, accepting work at a fast food joint is a downgrade. People are going to want a job in their old field. If you're making $30 an hour doing HVAC you ain't gonna be wanting to wait tables for $8 an hour. If you're working as a secretary for $15 an hour, you also likely aren't going to take that deal. Not only will you lose benefits, you might never get into your field again. Clearly accepting a low wage job is a matter of desperation for many. So the higher wage earner is going to hold out for the higher paying job, and not settle, even if they otherwise could use a little extra money on the side.

So, how would a UBI be better? Well, I'll tell you how. Everyone gets $1100 a month. This scales with households so some households might get a lot more. But $1100 a month is $250 a week roughly. Everyone would get that. It would be lower than unemployment, but I'm not opposed to eliminating unemployment, my own plan would merely halve the benefits. I'll look at both with and without unemployment here. 

Without unemployment, you earn $250 a week just for existing. If you have a job, you can accept that job for $10 an hour for $400 a week. You would just pay an additional 20% in taxes bringing it down to $320 a week. That still brings you up to $570 a week, or more than doubles your income. This would allow anyone who wants these jobs to fill these jobs. There aren't any perverse benefits to not working. Rather than facing a 100%+ marginal tax rate (or even an 80% marginal tax rate with normal UI benefits), you instead face a mere 20% marginal tax for working. You're left better off.

If you work, you get UBI, if you don't work, you get UBI. It's true the very work shy might never work. Good, let them. But it also means those who would work but are otherwise discouraged from earning extra money and "pulling themselves up by their bootstraps" can work too. Everyone gets what they want. Someone holding out for a better job could also use UBI as a financial cushion and maybe bring in money on the side while looking for a better job in their field. Or not. Whatever they want. Again, no perverse incentives, everyone gets what they want.

If some people still choose not to work under this system, then let the wages meet the demand of the workers. If you want workers to work for you, and they can say no and won't, you should step up your game. But at the same time the government wouldn't be artificially lowering the supply of labor via perverse incentives. 

Now, let's look at it with a lower unemployment benefit. Given my UBI plan would reduce UI benefits by potentially as much as half, the average benefit would now be, say, $160 a week. You would get this on top of your $250 a week UBI, bringing you up to $410. Again, if you choose to take a low wage $10 an hour food service job, you could bring in $400 a week, or $320 after taxes. You would effectively face a marginal tax rate of 60% rather than 20% with just UBI (losing $240 of the $400 earned), but you would also lose a lot less than the 80% with normal unemployment benefits ($320 lost), and much less than the 136% under the "enhanced" benefits ($621 lost). UI still causes a disincentive raising the marginal tax rate, but it's now much lower than if it would be under just unemployment. 

In theory, these changes could relax the labor supply issues we see, where people are actively discouraged from not working because they're being paid generous sums explicitly to sit around looking for jobs. People would instead have a UBI to fall back on no matter what, where if they take a job they don't lose it. This would encourage people who otherwise want to work, to work. It would allow people who don't really want to work to exit the labor force entirely, but I don't see that as a bad thing. Everyone would be able to do what they want, no one would suffer. Employers could attract help back at a lower wage, and workers would be better off between their UBI and wages anyway. The economy seems like it would be more functional, and everyone wins.