How a Universal Basic Income, Federal Minimum Wage, or Jobs Guarantee Would Work in the U.S.

22.10.2019 21:39

Fortune.com

All are proposals to tackle economic inequality.

Rising inequality and persistent differences in employment, wages, and wealth, along racial and ethnic lines is a cornerstone of the 2020 presidential race, driving questions about who has access to wealth, a livable wage—and who is getting left behind.

During last week’s Democratic presidential debate, candidates Andrew Yang, Sen. Cory Booker (D-N.J.), and Sen. Bernie Sanders (I-Vt.) got stuck parsing the differences in their various plans to jumpstart the economy and combat rising inequality in America.

Their proposals—a federal jobs guarantee, raising the minimum wage federally, and a universal basic income—all attempt to tackle the same issue: Having a job in America is not a guarantee that you’ll live above the poverty line, and although unemployment is at a low that was last seen in 1969, inequality is at a level not seen since just before the Great Depression.

So, how would these plans work? Here’s what the candidates have proposed.

Universal Basic Income

Yang’s proposal for putting money directly in the pockets of consumers at the tune of $1,000 a month is what he likes to call a “freedom dividend.”

The money would arrive in the bank accounts of every American, no matter their income, taking a “raise all boats” perspective to income levels across the country. The candidate’s idea is that Americans will, in turn, spend their money on “Main Street,” putting money back into local businesses, thus creating jobs, output, and productivity.

The proposal has received some pushback because the plan is unclear and potentially obfuscates the real costs of implementing such an expensive stimulus package.

For instance, the dividend would be funded by a Value Added Tax (VAT), which 168 other countries around the world use, while the U.S. does not. VAT is a tax on consumption during production through a “staged collection process” lauded as an economically neutral tax, charging for materials along the production line that ultimately get passed onto the consumer. Yet economists and advocates say that the VAT is an informal regressive or a flat tax—charging all Americans the same tax rate for a product that disproportionately impacts Americans’ bank account.

The Committee for a Responsible Federal Budget says that Yang’s numbers don’t add up: “In no case does it appear a VAT at half the average European country’s level would be enough to cover a $1,000 per month UBI. Either the VAT would need to be much higher, the UBI much smaller, or other spending cuts and revenue sources would need to be identified.”

Federal Minimum Wage

Candidates who argue that a universal basic income doesn’t take a targeted enough approach to combating inequality—or a labor market that allows Americans to work full time and still live in poverty—favor a minimum wage.

Most Democratic contenders are in favor of a federal minimum wage of $15 per hour, though Yang has said that a universal basic income would reduce the need for one, and Tom Steyer believes in a “living wage,” though he has yet to specify what that means.

A Congressional Budget Office evaluation of the Raise the Wage Act that was passed by the House of Representatives in July said that, if passed, the bill would give 17 million Americans a raise. The Brookings Institution found that an increase could impact up to 35 million workers, making up 29.4% of the American workforce, due to the “spill over” or “ripple” effects of an increase, insulating low-earning, though non-minimum wage employees. Jay Shambaugh of Brookings wrote that, “restoring the real value of the minimum wage and overtime threshold” could help revitalize wage growth.

There’s public support for this approach, as well.

A majority of voters want to raise the federal minimum wage to $15 per hour and more than half of state legislatures have passed wage laws that are above the federal level. About 1 in 9 American workers’ wages leave them in poverty, and both the House bill and the bill introduced in the Senate by Sanders would do away with the tipped minimum wage and the difference in pay floors for disabled workers that essentially institutionalizes discrimination by allowing employers to pay disabled workers less.

Federal Jobs Guarantee

A federal jobs guarantee promises that anyone who wants a job that pays a living wage, with benefits can get one, but the lack of specifics is where the plan gets some criticism: Would the federal government be employing people, or would it be a sort of the bureaucratic LinkedIn, connecting unemployed people to opportunities?

The program would also be expensive to implement, though not necessarily more expensive than universal basic income.

A jobs guarantee has actually been implemented in the U.S. before, so this isn’t so much a new idea as a repurposing of an old one: In the ‘30s and ‘40s FDR’s Works Progress Administration and the Civilian Conservation Corps guaranteed jobs with benefits to Americans who wanted one.

During the debate, Booker and Sanders cited a jobs guarantee as a panacea to potential job losses brought on by automation, though economists believe that a massive restructuring of the labor force through means such as this could protect against a recession, and government work could prioritize infrastructure and public works like schools, community centers, roads and hospitals.

Booker introduced the Federal Jobs Guarantee Development Act in the Senate last year, with Sens. Kamala Harris (D-Calif.) and Elizabeth Warren (D-Mass.) as co-sponsors, to conduct a trial run of what a nationalized program might look like.

The Center for American Progress says that an evergreen public employment program would have the added impact of helping states that can’t afford such programs as well as putting upward pressure on wages, a similar ripple effect to that of a federal minimum wage increase.

This isn’t a “raise all boats” initiative, but specifically one that would help workers who have been shut out of the workforce or unable to find employment. The Center on Budget and Policy Priorities writes that, “The job guarantee could significantly alter the current power dynamics between labor and capital—particularly for low-wage workers and traditionally marginalized groups.”