Good Economics for Hard Times
Page 36
The alternative to targeting is self-targeting. India’s National Rural Employment Guarantee Act (NREGA) is the largest of these self-targeted programs (and perhaps some sort of model for the federal job guarantee proposed in the United States). Every rural family is entitled to a hundred days of work per year at the official minimum wage, which is higher in most places than the actual wage. There is no official screening, but there is the requirement to work, usually on construction sites, which screens out anybody with something better to do than stand in the sun for eight hours a day.
The program is popular with the poor. So popular that the Modi government decided not to fight with it head-on after winning India’s 2014 election, despite having campaigned against it. One advantage of a workfare program like NREGA is that it substitutes, at least partly, for a minimum wage in places where minimum wage cannot be enforced. Workers can use the NREGA wage to bargain with private-sector employers, and there is evidence they do.41 Moreover, one study found that private employment actually went up, even though salaries went up. By colluding to pay too little, employers were actually reducing the number of jobs, perhaps because some people were unable or unwilling to work for very little money.
The main sticking point with any workfare program is that someone has to create millions of jobs. In India, this is meant to be the responsibility of the village governments (the panchayats). But there is a lot of mistrust between the central authorities and the village governments, with each side, often with some reason, accusing the other of corruption. The result is the kind of red tape and inefficiency that often arises when there is a lot of emphasis on fighting corruption. Approving a project proposal and getting work going takes several months and quite some effort by the head of the panchayat. This means the program is unable to respond effectively to sudden changes in need, say, an unexpected drought. It also means that if you happen to live in a village where the panchayat leadership has decided these projects are too much trouble, you are out of luck. In Bihar, India’s poorest state, less than half of those who want work through NREGA get it.42
The program ends up being rather prone to corruption because the very people involved in monitoring the program can use their power to block payments and extract bribes. Cutting the number of layers of bureaucrats involved in the monitoring of the program reduced the wealth of the median NREGA functionaries by 14 percent.43 And even when people get work, it often takes months to get paid.
All of this suggests there are many very good reasons to consider moving to a UBI in many developing countries. The problem of course is money. Most developing countries need to tax more, but that won’t change quickly. Initially, most of the money will have to come from shutting down other programs, including some of the big and popular ones such as power subsidies. Cutting the number of programs potentially has the added advantage of concentrating the limited government capacity on just a few things. The government of India has hundreds of programs on its books. Many of these have essentially no funding, but they have an office dedicated to them and some staff who accomplish very little. Manish Sisodia, the deputy chief minister in the Delhi government, once joked that when he came to power there was a line item in the budget for opium purchases. He discovered this was the remnant of a long-defunct program to help opium-addicted refugees from Afghanistan who had settled in Delhi.
Any universal income that governments of poor countries can afford will be ultra basic. Hence UUBI. The Economic Survey of India proposed something like that in 2017. It estimated that an annual transfer of Rs 7,620 ($430 at PPP) to 75 percent of India’s population would push all but India’s absolute poorest above the 2011–2012 poverty line. Rs 7,620 is very little even by Indian standards (less than what several economists have proposed for an Indian UBI), but perhaps enough to survive on. The survey puts the cost of such a scheme at 4.9 percent of India’s GDP. In 2014–2015, India’s major fertilizer, petroleum, and food subsidies cost 2.07 percent of GDP, while the ten largest central welfare schemes cost 1.38 percent, so cutting these existing programs entirely would pay for about two-thirds of the UUBI.44
This proposal assumes it would be fairly easy to exclude 25 percent of people from the program. It may indeed be possible to introduce a mild form of self-selection. Requiring each beneficiary to visit an ATM every week and put their biometric ID into the system, whether or not they take out the money, would have the dual advantage of eliminating ghost claimants and making it too much of a hassle for the wealthy to want to claim the benefit. There should be fallback options that allow the disabled to get their money, or in case the technology malfunctions (as it often does, particularly for manual workers whose fingerprints get erased by working). But with the right framing (“come and get some extra money when you need it”), a mild requirement like having to visit an ATM once a week could potentially discourage at least 25 percent of the population to draw the transfer at any given time, while making sure those who really need it still get it.
While we are in favor of a UUBI based on what we know so far, there is no data yet on its long-term impact. Most of our evidence is from relatively short-lived interventions. We cannot be sure how people will react to being assured a basic income forever. When the novelty of the extra income wears off, will they go back to being discouraged and work less, or aspire higher and try harder? What will be the long-term impact on their families of being assured an income? This is what a large-scale RCT of a UBI in Kenya Abhijit is involved in will hopefully find out. In forty-four villages, every adult has been guaranteed $0.75 per day for twelve years. In eighty villages, every adult will receive the transfer for two years. In seventy-one villages, every adult will receive one onetime payment of $500 per adult. Finally, in a hundred more villages, no one is guaranteed any income, but data will be regularly collected. In total, almost fifteen thousand households are involved in the experiment. We will start seeing results in early 2020.
We can, however, already see long-term evidence from the conditional cash transfers that have been in place for many years in several countries. These programs started in the 1990s, and those who were children at the time are now young adults. There seems to be an enduring positive effect on their welfare. For example, in Indonesia, in 2007, the government introduced PKH, a conditional cash transfer program in 438 subdistricts across Indonesia (randomly selected from a pool of 736 subdistricts) to a total of about 700,000 households. The program had the standard features of most conditional cash transfer programs: households received a monthly transfer if they sent their children to school and obtained preventive care. Villages enrolled into the program in 2007 continue to receive the benefits even today, but due to bureaucratic inertia, the government never expanded the program to the control villages. Comparing treated and control villages shows some large persistent gains on health and education; there is a dramatic increase in births attended by a health professional and a halving of the number of children not in school. Over time, the program also affected the stock of human capital; there has been a reduction of 23 percent in the number of stunted children, and school completion increased. However, despite these gains in human capital and the transfers themselves, households are not measurably richer. This is an important warning about the long-term effects of purely financial transfers. It may be the case that the sums of money the governments can afford are too small to make a real difference to incomes (and the cost of large transfers is too much for the system to bear).45
Given all this, the best combination may be a UUBI everyone can access when they need it and larger transfers targeted to the very poor and linked to preventive care and children’s education. The conditions for receiving transfers do not need to be very strictly enforced. In Morocco, we saw that a “labeled cash transfer,” which merely encouraged the use of money to help with education costs but without enforcement, seems to have been just as effective at changing behavior as a traditional conditional cash transfer program.46 Similarly, the PKH program in Indonesia did n
ot strictly enforce conditionalities. In this sense, it also was a “labeled cash transfer.” This lowers administrative costs and avoids excluding the most fragile families. Targeting can also be done relatively cheaply, by focusing on poor regions and relying on some identification by community leaders and readily available data. There will be errors. But as long as we are willing to be liberal in the application of the tests (so that those who need help don’t get thrown out, even at the cost of giving it to some people who do not need it), and as long as the UUBI is there to provide a minimum, we might get the best of both worlds.
UBI FOR THE USA?
Welfare policy in the United States (and in most other rich countries) also needs a reset. There are too many angry people who feel that for too long things have not been going their way. And there is no immediate sign things will sort themselves out. So is UBI the answer for the United States?
If voters are persuaded government is on the right track, they may be less resistant to paying the increase in taxes necessary to fund it. According to a Pew Research Center study,47 61 percent of Americans are in favor of a government policy offering all Americans a guaranteed income that would meet their basic needs in case robots become capable of doing most human jobs. Among Democrats, 77 percent are in favor. Among Republicans, 38 percent are in favor. Sixty-five percent of Democrats (but only 30 percent of Republicans) say the government has a responsibility to help displaced workers, even if it involves raising taxes. Given this level of support and the fact that the United States is undertaxed by global standards, one can imagine taxes going up from 26 percent to 31.2 percent of GDP. This would allow every American to get $3,000 per year.48 For a family of four, this would be $12,000 per year, half the poverty line. It is not a fortune, but is a significant amount of money for anyone in the poorest third. If it is financed by a tax on capital, and the share of capital in the economy grows because of automation, UBI could become more generous over time. In Europe, there is less space for taxes to be raised, but a whole range of social transfers (housing, income support, etc.) could be collapsed into a single payment with few restrictions on how it could be spent. This is in effect what was tried out in Finland in 2017 and 2018, where 2,000 unemployed workers were randomized to get a UBI replacing all traditional assistance programs (housing, employment assistance, etc.). The remaining 173,222 formed the control group. Early results suggest UBI recipients are happier. There is no difference in earnings between the two groups, perhaps consistent with everything we have seen until now.49
But would a UBI really make the left-behind people feel that much less angry? Many proponents of UBI, but not the poor, seem to see it as a way to buy off those who will be made unproductive by the new economy and won’t be able to find work. If they had the UBI, they would be content to stop looking for work and do something else instead. But everything we know so far seems to say this is very unlikely. We asked those who responded to our survey this question: “Do you think that if there was a universal basic income of $13,000 a year (with no strings attached) you would stop working or stop looking for work?” Eighty-seven percent said they would not.50 All the evidence scattered through this book suggests most people actually want to work, not just because they need the money; work brings with it a sense of purpose, belonging, and dignity.
In 2015, the Rand Corporation conducted an in-depth survey of the working conditions of about three thousand Americans.51 Those surveyed were asked how often their work provides them with the following: “satisfaction of work well done,” “feeling of doing useful work,” “sense of personal accomplishment,” “opportunity to make positive impact on community/society,” “opportunities to fully use talents,” and “goals to aspire to.” They found four out of five US workers reported their job provides at least one of these sources of meaning always or most of the time.
Around the same time, the Pew Research Center collected data on Americans’ satisfaction with their job and asked respondents whether they felt their job gave them a sense of identity.52 About half (51 percent) of employed Americans said they got a sense of identity from their job, while the other half (47 percent) said their job is just what they do for a living.
It is not entirely clear how the numbers from these two studies fit together, but there is no question many people care about having a job in a way that goes beyond just getting paid. However, it is the workers with more education and those who earn more who tend to see their job as part of their identity; only 37 percent of those who make $30,000 per year or less report getting a sense of identity from their job. There are also some significant differences by industry. For example, 62 percent of adults working in the healthcare industry and 70 percent of those working in education say they get a sense of identity from their job, compared with 42 percent of people working in hospitality and 36 percent in retail or wholesale trade.
People think in terms of good jobs and bad jobs, or at least meaningful jobs and less meaningful jobs. Better-paid jobs are on average better jobs, but what you do matters as well. People may resist having to move from the job they love to a job they perceive as worthless, even if their income would be more or less unchanged. And, in fact, people do not really land on their feet when they lose a job they have had for many years. Many studies have found that, on average, displaced workers never fully recover in terms of earnings after a mass layoff. On average, the jobs they find are less well paid, less stable, and do not have the same benefits.53
This is probably partly related to the fact, which we discussed in chapter 2, that labor markets are a lot about finding the right match between employers and employees; finding an employer who trusts and values you and whom you trust and value is a matter of luck. Once you find one, it is natural to try to stay, leading to a more stable and rewarding career, both economically and otherwise. Once you lose that connection, it is hard to reestablish it, especially if you are older and set in your ways.
This explains something rather remarkable and frightening. A study found that when workers with long tenure get fired during mass layoffs, they are more likely to die in the years immediately afterward.54 Losing a job seems to literally give people heart attacks. The estimated impact of job displacement on the mortality rate goes down over time but does not go back to zero, as more long-run problems like alcoholism, depression, pain, and addiction set in. Overall, the study found that workers displaced in middle age lost between one and one and a half years of life expectancy.
Transitions are costly in ways most economic analysis ignores. As economists, we worry about the income loss and the time and effort involved in finding a new job, but the cost of losing the job itself appears nowhere in our models. It is probably no surprise that UBI, an idea economists instinctively gravitate toward, also ignores it. It imagines a world in which laid-off workers see themselves as freed from the obligation of working. Young retirees living off UBI find new meaning in their lives, working at home, volunteering in their communities, taking up crafts, or exploring the world. Unfortunately, evidence suggests that it is actually difficult for people to find meaning outside the structure of their work. Since the start of the American Time Use Survey (ATUS) in the 1960s, time spent on leisure activities has increased quite a bit, both for men and women.55 For young men, a sizeable part of this time, since 2004, has been devoted to video games.56 For all the other groups, the bulk of this time has been absorbed by watching television. In 2017, men spent on average five and a half hours per day on leisure activities (including browsing the internet, watching TV, socializing, and volunteering), and women five hours. Watching TV was the leisure activity occupying the most time (2.8 hours per day). Socializing outside the home came a distant second at thirty-eight minutes.57 During the Great Recession, when time spent on work outside the home declined, television and sleep took up half the slack.58
But apparently watching television and sleeping do not necessarily make us happy. Daniel Kahneman and Alan Krueger showed, using surveys where they asked peop
le to reconstruct their day and how they felt about each moment, that among leisure activities, watching TV, using the computer, and napping gave the least immediate pleasure and the least sense of achievement. Socializing is one of the most pleasurable activities.59
It seems that it is very hard for people to individually figure out how to build meaning into their lives. Most of us need the discipline provided by a structured work environment, to which we then add significance or meaning. This is something that comes up when individuals worry about automation. In the Pew Research Center survey, 64 percent of respondents said they expect people will have a hard time finding things to do with their lives if forced to compete with advanced robots and computers for jobs.60 Indeed, people who have more time on their hands (retirees, the unemployed, those outside the labor force) are if anything less likely to volunteer than those employed full time.61 Volunteering is something we do on top of our regular activities, not instead of them.
In other words, if we are right that the real crisis in rich countries is that many people who used to think of themselves as the middle class have lost the sense of self-worth they used to derive from their jobs, UBI is not the answer. The reason we have different answers to the question in rich and poor countries is twofold. First, UBI is easy, and many poor countries lack the governance capacity to run more complicated programs. This is not true of the United States, and even less true of France or Japan.