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Money for nothing

Could Universal Basic Income cushion the blow of tech-induced job losses? Many think so, but this silver bullet might not be so shiny, writes Paul Bryant for the BVCA Journal

Mar 21, 2019 · 6 min read

Could Universal Basic Income cushion the blow of tech-induced job losses? Many think so, but this silver bullet might not be so shiny, writes Paul Bryant for the BVCA Journal

Some in the tech community, such as Elon Musk, are convinced that automation will wipe out many jobs, and that current social security systems are wholly inadequate. In a televised interview at the World Government Summit 2017 in Dubai, he said: “There will be fewer and fewer jobs that a robot cannot do better. What to do about mass unemployment? It’s going to be a massive social challenge. I think, ultimately, we are going to have to have some sort of Universal Basic Income (UBI). I don’t think we are going to have a choice.”

The UBI idea Musk refers to is a controversial one: a regular cash payment — in developed countries, most proposals are in the range of US$500 to US$1,000 per month — made to everyone, irrespective of income or wealth (so without any means testing); and with no labour market conditions attached, such as prior employment or social security contributions.

Proponents see UBI as a credible policy to avoid the obvious negative consequences of an economy that will operate with far fewer humans.

The jury is still out. Many doomsayer reports of the last few years have cited the findings of a 2013 paper by Carl Benedikt Frey and Michael A. Osborne of the University of Oxford titled The future of employment: how susceptible are jobs to computerisation? They found that advances in technology — in particular machine learning — could be devastating to jobs: “According to our estimate, 47% of total US employment is in the high-risk category, meaning that associated occupations are potentially automatable over some unspecified number of years, perhaps a decade or two.”

However, more recent studies have reached different conclusions. The 2016 OECD paper, The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis, says that Frey and Osborne’s assumption that whole occupations rather than single job-tasks are automated by technology leads to an overestimation of job automatability. It argues that even ‘high-risk’ occupations will often still contain a substantial share of tasks that are hard to automate. The study states: “While Frey and Osborne find that 47% of US jobs are automatable, our corresponding figure is only 9%… The main conclusion from our paper is that automation and digitalisation are unlikely to destroy large numbers of jobs.”

Nick Pearce, Director of The Institute for Policy Research and Professor of Public Policy at the University of Bath, is currently supervising doctoral students working on UBI. He stresses the uncertainty about the future of jobs, saying: “History shows that technology creates as many jobs as it destroys. And to me, it’s not clear that we are suddenly reaching a point where technology advances to such a level that people are not required at all. But the reality is that we simply don’t know the true extent of future job losses and if people displaced from their jobs might go into others.”

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Pearce points out that the UBI ideas being proposed by tech bosses are not new, and that these more recent converts join a somewhat diverse group of supporters of the idea.

In developing countries such as Kenya and India, proponents primarily see UBI as a tool to tackle extreme poverty. Payments tend to be very low compared with developed nation examples (US$15–US$30 per month). According to Dr Luke Martinelli, author of the Institute for Policy Research paper Assessing the Case for a Universal Basic Income in the UK, these studies have had a number of successful outcomes but would, at best, only be partly applicable to developed markets.

Other proponents in developed economies like the UK, mostly from the political left, see it as a potentially attractive alternative to an increasingly unjust welfare system. It is argued that the conditions (such as the obligation to actively seek and accept work) and sanctions for non-compliance (such as a reduction in benefit payments) are dehumanising and demeaning. Existing systems are also criticised for not being successful in helping people get back into work.

And another group — such as proponents of a recent trial in Finland — see it as a potential tool to help unemployed or under-employed people find or increase their work in the modern gig economy. Whereas a more traditional benefit payment — one that is reduced or removed once work is found — can act as a disincentive to work, a guaranteed payment acts as a ‘platform’ that can be built on as people get back into work. It’s about allowing people to retain all of their marginal earnings from smaller, flexible gigs.

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But UBI is not actually being implemented anywhere on a permanent basis. Only relatively small pilot projects exist. And even these are not UBI in its truest form because the payments are not ‘universal’ — they are only made to people who meet certain conditions.

In the developed world, the results have not been encouraging.

The pilot in Finland, started in 2017 with a two-year duration, involved paying a random sample of 2,000 unemployed people €560 per month, without any conditions of having to look for or accept work. The government pulled out before the project ended or results were available. In the same year in Ontario, Canada, a three-year experiment started in which 4,000 randomly selected low-income or unemployed people received an unconditional income of around CA$1,400 per month. The state abandoned the project after less than two years.

More experiments are planned that may shed more light on the potential of UBI. In California, venture investor/incubator Y Combinator is about to fund and launch a five-year pilot involving 3,000 lower-income people. Y Combinator has said: “The goal is to answer a simple, yet bedevilling question: what happens to people’s quality of life and motivation to work when they receive free money, no strings attached?” In California, the city of Stockton is about to launch a small-scale 18-month UBI project with about 100 participants who will each receive US$500 a month. And in Scotland, the Government is about to fund a two-year pilot programme in four local authority areas.

But even if supportive evidence for UBI is found, Pearce highlights a major stumbling block — politics. He says: “It’s very easy to talk about UBI in the abstract, but when you start talking about who is going to pay for it — perhaps through new taxes on companies or the very wealthy — then you start to get into the politics of it. And the politics of UBI tend to be far less explored in academic or even pilot studies. They look at automation, they look at distribution, but they don’t often look at what we academics call the political economy of UBI. It’s a major stumbling block.”

When pressed on how he sees the future of UBI, he says he does see potential, but initially only on a small scale: “If I had to put my money on it, I’d say you should look to the sub-national level. In the developed world, support tends to come from people who are better educated, more liberal, and often in cosmopolitan areas. So it’s likely to be seen first in cities, where you have large populations who would be most politically inclined to support it.”

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