Universal Basic Income: An In-Depth Analysis of Economic Impacts on Inflation, Funding, and Labour (2024)

FAQs

How does universal basic income affect inflation? ›

It's easy to see how the institution of a UBI may fuel inflation. If every individual is granted an unconditional income from the government, then there is money to be spent. Providing massive amounts of money to virtually every individual in the country translates to a massively expanded money supply.

However, while funding UBI through consumption taxes is feasible, this policy leads to lower output, capital, and aggregate labor in the long run. Despite this, there is increased consumption and higher average welfare, as well as a modest rise in the formal sector's share.

Universal Basic Income (UBI) increases poverty.

Universal Basic Income (UBI) takes money from the poor and gives it to everyone, increasing poverty and depriving the poor of much needed targeted support.

The California Guaranteed Income (GI) Pilot Program provides grants to eligible entities that provide a guaranteed income to participants. The CDSS prioritized funding for pilot programs that serve California residents who age out of extended foster care at or after 21 years of age or who are pregnant individuals.

BREATHE is a guaranteed income pilot program that provides 1,000 county residents some breathing room with $1000 a month for three years to help establish financial stability. For those enrolled, it's more than a check; it's a path forward that's changing lives.

Built-In Inflation and Rising Wages

Increased wages would result in higher costs for businesses, which may pass those costs on to consumers. Higher wages also increase consumers' disposable income, increasing the demand for goods that can push prices even higher.

Another study in Stockton, California, found that full-time employment increased because UBI gave people time to apply for better jobs, rather than having to work multiple part-time jobs.

Therefore Yang's UBI would raise federal spending by 56 percent. U.S. federal government revenues for fiscal year 2019 will be about $3.438 trillion. To fund the UBI and not increase the federal budget deficit even further, the federal government would have to increase taxes by 74 percent.

As of 2024, no country has implemented a full UBI system, but two countries—Mongolia and Iran—have had a partial UBI in the past. There have been numerous pilot projects, and the idea is discussed in many countries. Some have labelled UBI as utopian due to its historical origin.

Why won't universal basic income work? ›

Providing guaranteed cash with no spending restrictions is massively expensive, and the public doesn't support the idea. Policymakers should focus on reforms that maximize labor-force participation and make work more worthwhile.

Democratic presidential candidate Andrew Yang made universal basic income (UBI) a key pillar of his 2020 campaign, which helped shine a national spotlight on the issue. UBI proposals vary in size, although Yang's plan would give every American adult $1,000 per month from the federal government.

The analysis of inflation recognizes the potential for UBI to cause inflation but suggests that reported productivity increases may counterbalance this effect.

It treats everyone equally. People with higher incomes pay more taxes than people with lower or no incomes – in both absolute and in relative terms. The minimum subsistence level is guaranteed to everybody, and people with no income receive net transfers.

To pay for a universal basic income, a nation either has to save that money elsewhere or raise it through additional tax revenue, new taxes, or new services.

Inflation affects purchasing power and is inversely related to real income. An increase in inflation decreases purchasing power due to an increase in the price of goods and services. This, in effect, brings down the real income value.

Inflation reduces the spending power of consumers. As prices quickly rise, individuals have less discretionary income and tend to spend less money on splurges or “luxury” products. Price becomes the leading factor in decision-making for many consumers.

“Higher tax rates discourage workers from taking on extra hours, or employers from making productivity-enhancing investments. These effects shrink supply and tend to make inflation worse.”

“Hopefully, before too long, we'll get to a point where pay completely makes up for the lost ground,” said Sarah Foster, economic analyst at Bankrate. “But it's not quite there yet.” The gap between wage growth and inflation is on pace to fully close in the fourth quarter of 2024, according to new Bankrate research.