Basic income, unemployment and job scarcity

The analysis of this paper is entirely concerned with scarce job assets. However, this methodology of granting equal and tradable rights can be transposed to other areas. For instance, the same approach can be adopted if we are concerned with a just distribution of pollution rights. The aim of the analysis performed is to investigate whether there is a relation between unemployment and BI. As a starting point it is assumed that for one reason or the other there is scarcity of jobs. The main question is what workers have to pay to appropriate (scarce) jobs assets. Hamminga's proposal to deal with scarcity of jobs is to give each member of the labour force an equal and tradable right to these scarce job assets. It is shown that such a Labour Right system is equivalent with a BI scheme, with the only difference that in the former the level of employment (or participation rate) is exogenous and the 'tax rate' endogenous, whereas under the BI scheme it is the other way around. The equivalence consists in that the price of Labour Rights and the level of the unemployment benefit corresponds to the proportional tax rate and the level of BI respectively. In other words, the single proportional tax rate of a BI scheme can be considered as what workers have to pay to appropriate scarce job assets (and, with unequal talents, for meeting the redistributional objective). Both schemes allow that some people voluntarily abstain from doing paid work, in return for a financial compensation, an unemployment benefit or a BI. Starting from no scarcity of jobs at all, the level of the unemployment benefit or BI varies positively with the degree of scarcity of jobs until the maximum value is reached. The overall participation rate corresponding with the maximum value of the unemployment benefit or BI is rather low, certainty when compared with the average preference to do paid work. There is, however, no reason to choose for the maximum sustainable BI. Under equality of talents, the government can simply choose the level of employment which it deems feasible, and let the market in Labour Rights determine the level of the unemployment benefit. Under the BI scheme, the government can set the proportional tax rate (and the level of B) at the level at which the labour market clears. The bottom line of the analysis is that the level of BI varies positively with the level of unemployment: more severe scarcity of jobs requires a higher tax rate (and hence a higher BI) to adjust the total labour supply downwards to the number of jobs available. The level of the BI also varies positively with the average preference to work. The logic behind this is that, given the tax rate, more people voluntarily choose to work if the average preference towards work is higher. So in a society with a strong work ethic it is possible to have a high BI as well as a high level of employment.