Would a UBI Reduce Work Incentives? Some Answers from Econ 101

More than half of all college students (in the US) take a basic economics course. A lot of them hate it. The course is full of graphs and charts. That would be bad enough, but what makes it worse is that the graphs in a typical Econ 101 textbook are about boring stuff — whether a farmer should grow beans or peas, whether a student should eat pizza or burritos for lunch. Who cares?

But, what if we put those Econ 101 tools to work on something we do care about — something like a Universal Basic Income? Then things could get interesting. Read on to see how we can use some basic econ graphs to answer one of the most frequently asked questions about basic income: Would a UBI reduce work incentives?

How our welfare system kills work incentives

We can begin by showing how our current welfare system kills work incentives. Welfare as we know it is based on means testing. The concept of means testing, as applied to programs like SNAP, TANF, and Medicaid, is that if you are really poor, the government gives you benefits, but if you try to work and get ahead on your own, the government takes your benefits away. Not surprisingly, that is not the way to encourage work.

Rather than go through the incentive effects of existing programs one by one (I’ve done that elsewhere)…