A Universal Basic Income Is The Private Sector’s Job, Not The Taxpayer’s

There’s been an unanticipated upside to the pandemic. The shutdown altered our most basic assumptions about the nature of the workplace. Millions of workers, and thousands of employers, discovered that they don’t need lavish, extensive, and centralized offices to get the job done. As it turns out, far more people than anyone expected can work perfectly well at home. Technology made this possible many years ago, but it took a socially enforced period of isolation to prove how effective remote working can be.

 That was the first beneficial reset.

 The second is that wages are going up. We face a worker shortage, even though the economy is surging back to life. This is going to have a lasting effect on what people earn, maybe into the foreseeable future. As relief for laid-off workers, the government provided ample unemployment benefits. An unintended outcome of this subsistence-level income is that workers are reluctant to go back to actual jobs since it would mean a lower income, compared to unemployment. The result: employers are raising wages, trying to incentivize the lazier among us who are smart enough to do the math and wait until wages rise enough to make it worth going back to work. This will end in September, when unemployment benefits cease, but wages are sticky. The uptick in pay will have ripple effects for a while.

 As George Bailey said, when he found himself in a powerful bargaining position in It’s a Wonderful Life, “This is a very interesting situation!”

It’s been a long, long time since workers have had more power than employers when it comes to establishing a wage — workers may not have had this power since the heyday of labor unions.

As CNBC reports, Chipotle is raising wages an average of $15 per hour. Bank of America
is up to a minimum of $25 per hour.

The question is whether employers will take advantage of the coming labor surplus—when everyone floods back into the job market—by offering lower wages and/or freezing wage growth. As the New York Times
puts it: “There’s a big caveat. If the millions of workers who are currently sidelined start searching for jobs, they could flood the market with a new supply of workers, holding back pay.”

Higher wages traditionally are a harbinger of inflation. Inflation is already virulent in the financial markets and especially real estate. It’s seeping into the prices of consumer goods normally used to measure the cost of living. Anyone who shops for food sees it. In the automotive sector, inflation is at around 7 percent now.

However, rising wages are not likely to be a contributing factor. More money chasing a comparative scarcity of goods will push prices higher. But for more products now, productive capacity is, in general, as high as it has ever been in human history and it’s scalable. Nearly everything is commoditized: lower prices and better customer service have become the only way to create a competitive advantage. This downward price pressure is here to stay. If that’s the case, then workers are in a good position to get ahead of the curve, economically—the pandemic has demonstrated how crucial human labor is and how valuable it can be to any company’s ability to earn higher profits.

All of which means we may be at an inflection point where some employers will be forced, against their will, to recognize something quite pleasing: the lavish return on investment they get from paying their people a fair wage. Happy workers are devoted and creative workers who contribute ideas for better products and new ways to delight customers. Those are two sure ways to expand markets and increase revenue. Higher wages are thus an investment in the future, not a cost of doing business.

But so far wage increases are very small — encouraging, but insufficient. Ezra Klein had a smart, but misguided Op Ed in the New York Times recently, a well-argued but partly clueless case for a Universal Basic Income. To narrow income inequality and eliminate poverty in the U.S., he approved of proposals to guarantee around $12,000 each year to every American citizen. It would essentially be Social Security for everyone, not just the retired—a sort of nest egg around which a worker would have more power to choose better work to supplement this foundational income.

It’s a fine idea—making sure everyone has a fair and viable income. But routing money through the government and then back into the pockets of workers is a dismal proposal. A universal basic income is something corporations and most profitable employers should see as their own responsibility—having the government take care of it is essentially to let the private sector off the hook. The pressure should be on every American employer to find a way to pay workers all they need to have a life that gives them a chance for a better future.

Why not have the government take control of this? Look at the numbers from the Government Accountability Office (GOA). In a chart on the second page of the report, the GOA lists various federal programs to help lower income families, from Medicaid to Food Stamps. The chart shows the total budget for the program and the percentage of that budget dedicated to “administrative costs”: salaries of federal workers and other costs rather than funds directed to American citizens who need the help.

Here are the percentages of total budget for a program going to the federal government itself. Medicaid spend 59 percent of its total budget simply to process the payments going to American citizens; the food stamp program devotes an unbelievable 91 percent of its budget to its own administration, and the Child Care Development Fund spends 73 percent of its budget on itself rather than in the form of payments to help provide childcare to workers who require it in order to go to work.

This alone demonstrates why the private sector should take on the responsibility for creating an analog to the Universal Basic Income in the form of higher compensation. It would save taxpayers billions of dollars. Ezra Klein makes a good point: “For the most part, America finds the money to pay for the things it values. In recent decades, and despite deep gridlock in Washington, we have spent trillions of dollars on wars in the Middle East and tax cuts for the wealthy. We have also spent trillions of dollars on health insurance subsidies and coronavirus relief. It is in our power to wipe out poverty. It simply isn’t among our priorities.”

But it should be a priority in the private sector rather than in Washington D.C. All the companies who have embraced stakeholder capitalism have proven that it can be done. Companies like Costco, Home Depot
, Microsoft
, and dozens of others have already established a living wage for all their workers and have enjoyed remarkable returns leading eventually to higher profits. If this kind of sensible business governance could become universal, proposals for a UBI would wither away. People would already be making enough to build a good life without help from Uncle Sam.

In a way, UBI is a taxation on most working people. They will be subsidizing shareholder profits. In other words, businesses pay workers less, so shareholders can make higher profits, while the government makes up the difference between existing wages and fair wages. Taxpayers pay the government to enable the government to do what the private sector should already be doing—paying people what they deserve.

And why are businesses refusing to pay workers a living wage by sharing with them the value of what they produce? Shareholders are only one of the multiple stakeholders crucial to the success of a company. And they aren’t the owners of the company.

This insanity must stop. Not paying workers an incremental share of the value they create is simply bad business—but it’s also bad economics. Having the government and taxpayers step in to essentially boost profits and enable average workers to pay their bills is unfair, inefficient and dumb.

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