#Morganfoundation’s same #UBI of $11,000 per adult is now triple pledged

Before my two comments disappeared from Gareth Morgan’s Facebook page, I pointed out that his universal basic income of $11,000 per adult is as of last night at least triple pledged.

According to Gareth Morgan’s latest remark in the screenshot, people can use their universal basic income of $11,000 to pay their comprehensive capital tax bill. This new tax is proposed to fill the at least $10 billion gap in the funding of his universal basic income.

This is not possible because his universal basic income is already pledged to at least two other purposes that may use up a good part of the universal basic income of $11,000 per adult that he is proposing.

The first of these pledges is a by-product of adults under the age of 50 not being grandfathered in to the current level of generosity of New Zealand Superannuation – New Zealand’s universal old age pension.

Adults under the age of 50 under the Morgan Foundation’s universal basic income are expected to save part of their universal basic income. This saving is to make up for the $50 per week cut in New Zealand Superannuation when it is replaced by a universal basic income of $11,000 per adult. Gareth Morgan explains

Only people who are today under the age of 50 could be expected to retire under the UBI policy, the policy would not apply to existing superannuitants.

The key question is whether someone aged, say 40 today, would be better or worse off in retirement under the policy. And the answer is if they earn the average wage now, have an average house, they will tend to be neither better nor worse off.

For the 25 years prior to retirement they will receive the UBI on top of their wages. If they save a good portion of it they will have nest egg at retirement which they can use in retirement to supplement the UBI (which is more modest than today’s NZ Super).

In addition to this, the universal basic income makes those on a single parents benefit $150 a week worse off on the basic benefit that is not including lost accommodation supplements and additional child payments. The Morgan Foundation solution is to take part of the universal basic income of the other parent and give it to their children. Gareth Morgan explains again

It is totally feasible that the UBI of both parents could be required to be directed to support the children in the event of separation.

So in addition to the poor and ordinary families saving their universal basic income for as little as 15 years to making up for the $50 per week cut in support for old age pensioners, and the $150 plus cut in income support to single parents on a welfare benefit, the universal basic income also will be used to pay the comprehensive capital tax on the family home.

Somewhere buried in the universal basic income is it is the idea that it replaces existing welfare benefits. However, as most of the universal basic income has been pledged to other purposes such as saving for retirement, supporting children and paying the great big new tax in the family home, it will be very unwise to actually become unemployed, get sick, become a single parent or being invalid on the already meagre universal basic income as Geoff Simmons explains

With an unconditional basic income, most beneficiaries would be no better off than they are now (in fact sole parents would almost certainly receive a lower benefit).

There is a high risk that nothing will be left over from the Morgan foundation’s universal basic income to help you out when you fall in bad times because that universal basic income is already spoken for by your children, your retirement, and a capital tax bill.

Helping people out in times of misfortunes is the purpose of social insurance. The Morgan Foundation’s universal basic income fails this basic test set by Gareth Morgan

…let’s agree on what is a minimum income every adult should have in order to live a dignified life and then see what flows from that. We begin by specifying the income level below which we are not prepared to see anyone having to live.

At very best, and only very best, the Morgan Foundation’s universal basic income leaves some of those for whom social insurance was designed perhaps no worse. There are plenty of commonplace scenarios where individuals and families down on their luck are made much worse by a universal basic income replacing existing welfare benefits and plunged far deeper in poverty and hardship.

 

Average duration of Australian, Canadian and American male unemployment, aged 25 to 54

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Data extracted on 18 Jun 2016 05:02 UTC (GMT) from OECD.Stat.

@BillMaher on Constantly Crying ‘Racist’

@ALeighMP, Lindsay Mitchell v. Susan St. John on family tax credit incidence

There is some feuding in the letters to editor page of the Sunday Star Times today between Lindsay Mitchell and Susan St John about whether employers pocket some of the Working for Families tax credit by reducing the wages they offer.

I have contracted-out my reply on the economic incidence of in-work tax credits to a former ANU economics professor who is now an Australian Labour Party federal MP.

Source: Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms by Andrew Leigh :: SSRN.

There is general agreement such as summarised by the Economist that a significant part of family tax credits goes into the pockets of employers:

An analysis of the EITC published in 2010 by Andrew Leigh of the Australian National University found that most of the benefit of the credit went to workers. Not all of it did though: a 10% increase in the credit was associated with a 5% dip in wages of high-school dropouts. By the same token, a study conducted the following year by Mr Rothstein found that for each dollar spent on tax credits, existing workers’ income rose by $0.73 (although $0.09 of this was because they chose to work more). Employers gained $0.36, as they spent less on wages.

Economists at Britain’s National Institute of Economic and Social Research are conducting a similar study of the British system of tax credits. Childless workers become eligible for the credits at the age of 25. By comparing wages either side of this threshold, they have been able to estimate how much the credits are depressing wages. Their preliminary (and unpublished) results suggest that, of the 76p an hour the government forks out in tax credits for someone on the minimum wage, 72-79% goes to workers.

In work tax credits increases labour supply, which depresses wages except where wages are pressing up against a binding minimum wage. Steve Landsberg has pointed out a paradoxe of a binding minimum wage when there is an earned income tax credit:

If you increase the EITC in a market with an effective minimum wage, you’ll get a whole lot more workers competing for the same limited number of jobs, and this competition must continue until all of the benefits have either been dissipated or transferred to employers, who are now able to demand harder work and offer fewer perquisites.

It’s easier just to tell people to stay away from the Cliff Edge

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The @MarcoRubio theory of elections is spreading to #UBI! Losing badly is winning

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Does @nztreasury @moturesearch understand its own 90-day trials research?

https://twitter.com/moturesearch/status/743595301345333248

Media reporting and Motu’s own tweet on its research contradict its own conclusions about what it found about the introduction of 90-day trial periods for new jobs in New Zealand.

https://twitter.com/moturesearch/status/743563189451841537

Motu’s executive summary is both as bold as the Motu tweet and directly contradicts it

We find no evidence that the ability to use trial periods significantly increases firms’ overall hiring; we estimate the policy effect to be a statistically and economically insignificant 0.8 percent increase in hiring on average across all industries.

However, within the construction and wholesale trade industries, which report high use of trial periods, we estimate a weakly significant 10.3 percent increase in hiring as a result of the policy.

No evidence means no evidence. Not no evidence but we did find some evidence in two large industries – evidence of a 10.3% increase in hiring. That is a large effect.

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Both economic and statistical significance matter. Not only is the effect of 90-day trial periods in the construction and wholesale trades other than zero, 10% is large – a hiring boom. No evidence of any effects on employment of 90 day trial periods means no evidence.

Neither Treasury nor Motu understand their own research and the evidence of large effects in two industries. Can you conclude you have no evidence when you have some evidence, which they did in construction and wholesale trades? There is evidence, there is not no evidence.

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The paper was weak in hypothesis development and in its literature review. It was not clear whether the paper was testing the political hypothesis or the economic hypotheses. Neither were well explained or situated within modern labour economics or labour macroeconomics. If a political hypothesis does not stand up as a question of applied price theory, you cannot test it.

The Motu paper does not remind that graduate textbooks in labour economics show that a wide range of studies have found the predicted negative effects of employment law protections on employment and wages and on investment and the establishment and growth of businesses:

1. Employment law protections make it more costly to both hire and fire workers.

2. The rigour of employment law has no great effect on the rate of unemployment. That being the case, stronger employment laws do not affect unemployment by much.

3. What is very clear is that is more rigourous employment law protections increase the duration of unemployment spells. With fewer people being hired, it takes longer to find a new job.

4. Stronger employment law protections also reduce the number of young people and older workers working age who hold a job.

5. The people who suffer the most from strong employment laws are young people, women and older adults. They are outside looking in on a privileged subsection of insiders in the workforce who have stable, long-term jobs and who change jobs infrequently.

Trial periods are common in OECD countries. There is plenty of evidence that increased job security leads to less employee effort and more absenteeism. Some examples are:

  • Sick leave spiking straight after probation periods ended;
  • Teacher absenteeism increasing after getting tenure after 5-years; and
  • Academic productivity declining after winning tenure.

Jacob (2013) found that the ability to dismiss teachers on probation – those with less than five years’ experience – reduced teacher absences by 10% and reduced frequent absences by 25%.

Studies also show that where workers are recruited on a trial, employers have to pay higher wages. For example, teachers that are employed with less job security, or with longer trial periods are paid more than teachers that quickly secure tenure.

Workers who start on a trial tend to be more productive and quit less often. The reason is that there was a better job match. Workers do not apply for jobs to which they think they will be less suited. By applying for jobs that the worker thinks they will be a better fit, everyone gains in terms of wages, job security and productivity. For more information see

  • Pierre Cahuc and André Zylberberg, The Natural Survival of Work, MIT Press, 2009;
  • Tito Boeri and Jan van Ours, The Economics of Imperfect Labor Markets, MIT Press, 2nd edition (2013);
  • Dale T. Mortensen, “Markets with Search Friction and the DMP Model”, American Economic Review 101, no. 4 (June 2011): 1073-91;
  • Christopher Pissarides. “Equilibrium in the Labor Market with Search Frictions”, American Economic Review 101 (June 2011) 1092-1105;
  • Christopher Pissarides, “Employment Protection”, Labour Economics 8 (2001) 131-159.
  • Eric Brunner and Jennifer Imazeki, “Probation Length and Teachers Salaries: Does Waiting Payoff?” Industrial and Labor Relations Review 64, no. 1 (October 2010): 164-179.
  • Andrea Ichino and Regina T. Riphahn, “The Effect of Employment Protection on Worker Effort – A Comparison of Absenteeism During and After Probation”, Journal of the European Economic Association 3 no. 1 (March 2005), 120-143;
  • Christian Pfeifer “Work Effort During and After Employment Probation: Evidence from German Personnel Data”, Journal of Economics and Statistics (February 2010); and
  • Olsson, Martin “Employment protection and sickness absence”, Labour Economics 16 (April 2009): 208-214.

In the labour market, screening and signalling take the form of probationary periods, promotion ladders, promotion tournaments, incentive pay and the back loading of pay in the form of pension vesting and other prizes and bonds for good performance over a long period.

There is good reasons to have strong priors about how employment regulation will work. Employment law protects a limited segment of the workforce against the risk of losing their job. These are those who have a job and in particular those that have a steady job, a long-term job.

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The impact of the introduction of trial periods on employment will be ambiguous because the lack of a trial period can be undone by wage bargaining.

  • If you have to hire a worker with full legal protections against dismissal, you pay them less because the employer is taking on more of the risk if the job match goes wrong. If they work out, you promote them and pay them more.
  • If you hire a worker on a trial period, they may seek a higher wage to compensate for taking on more of the risks if the job match goes wrong and there is no requirement to work it out rather than just sack them.

The twist in the tail is whether there is a binding minimum wage. If there is a binding minimum wage,  either the legal minimum or in a collective bargaining agreement, the employer cannot reduce the wage offer to offset the hiring risk so fewer are hired.

The introduction of trial periods will affect both wages and employment and employment more in industries that are low pay or often pay the minimum wage. Motu found large effects on hiring in two industries that used trial periods frequently. That vindicates the supporters of the law. 

Motu said that 36% of employers have used trial periods at least once. The average is 36% of employers have used them with up to 50% using them in construction and wholesale trade. That the practice survives in competition for recruits suggested that it has some efficiency value.

The large size of the employment effect in construction and wholesale trades is indeed a little bit surprising. Given that a well-grounded in economic theory hypothesis about the effect of trial period is ambiguous in regard to what will happen to wages and unemployment, a large employment effect is a surprise. If Motu had spent more time explaining employment protection laws and what hypotheses they imply, that surprise would have come to light sooner.

Motu’s research for the remaining New Zealand industries was a bit of an outlier. It should have spent more time explaining how to manage that anomalous status in light of the strong priors impartial spectators are entitled to have on the economics of employment protection laws.

A conflicting study about the effects of any regulation should be no surprise. If there are not conflicting empirical studies, the academics are not working hard enough to win tenure and promotion. Extraordinary claims nonetheless require extraordinary evidence.

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The British motherhood pay penalty starts at about 29

Source: Confronting gender inequality: findings from the LSE commission on gender, inequality and power – LSE Research Online.

James Heckman on the Economics of Human Development

Source: The Economics of Human Development | Institute for Economic Studies, Keio University.

What is a Luddite?

@Noahpinion says 20% losing their jobs is a small price to pay in #fightfor15

https://twitter.com/EconBizFin/status/626687442834300928

Noah Smith is a type of friend that should make poor Americans prefer their republican enemies. At least they are not fanatics. Fanatics never give up. Evil people have other things to do with their dastardly days.

Source: A Higher Minimum Wage Won’t Lead to Armageddon – Bloomberg View.

Describing 1/5th of young people losing their jobs after a doubling of the federal minimum wage to $15 per hour as a small but real effect is a type of callousness that not even Donald Trump could stoop. What is Even Noah Smith admits that large minimum wage increases experiment with the fortunes of young people

We don’t really know what happens when you raise the minimum wage to $15 — but soon, we will know. We will be able to see whether employment rates fall in L.A., Seattle, and San Francisco.

We will be able to see whether people who can’t get work migrate from these cities to cities with lower minimum wages. We will be able to see if employment growth suddenly slows after the enactment of the policy. In other words, federalism will do its job, by allowing cities to act as policy laboratories for the rest of the country. 

These one million young people who may well lose their jobs under a $15 minimum wage are real living people starting out their work in lives in a country with a rather inadequate unemployment benefits especially for the long-term unemployed.

Noah Smith wants to throw them onto the scrapheap through a large increase in the minimum wage because he is too cheap to support a large increase in the earned income tax credit.

If doubling the minimum wage to throw 20% of the workforce out of a job passes the brutal utilitarian calculus of bleeding-heart progressives, why not double everybody’s wages? Show the strength of your conviction about these Kruger–Card minimum wage results which repeal the laws of supply and demand.

https://twitter.com/AlvaroLaParra/status/738776906988822528

The leading reason for empirical research and economic history is to warns us not to repeat the mistakes of the past and not try experiments that are obvious folly. People and the economy should not be used as lab rats as Lucas explains in his short speech “What Economists Do”

I want to understand the connection between the money supply and economic depressions.

One way to demonstrate that I understand this connection–I think the only really convincing way–would be for me to engineer a depression in the United States by manipulating the U.S. money supply.

I think I know how to do this, though I’m not absolutely sure, but a real virtue of the democratic system is that we do not look kindly on people who want to use our lives as a laboratory. So I will try to make my depression somewhere else.

Where European Imperial powers sent their convicts

Thank you kind local government authority.

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Does Child Labor Help Children in Poverty?

A Life Cycle Model of Trans-Atlantic Employment Experiences | Tom Sargent

 

Source: A Life Cycle Model of Trans-Atlantic Employment Experiences | Institute for Economic Studies, Keio University

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