Tuesday, June 06, 2017

Universal Basic Income and a National Merit Lottery

In the argument against income inequality, what is often overlooked is the value that comes from unequal incomes, which lead to labor market equilibrium. Jobs that require more skill, a longer training period, or less-pleasant working conditions need to offer higher salaries to attract talent. If we were to level the income playing field, so to speak, we would create labor market disequilibrium.

Thus, a problem with Universal Basic Income (UBI) proposals is that they would empty the ranks of the low-skilled employees. Now, usually UBI is presented as a response to this emptying instead of a cause of it; given that Artificial Intelligence (AI) is turning some workers into zero marginal productivity (ZMP) workers, and given that ZMP workers can't sustain life if their wage equals the value of their marginal product, UBI becomes a basic human right. But the chances that we will select a UBI level such that all ZMP workers are sustained in life but no workers with positive marginal products are attracted to the doll is unlikely.

So how can we structure a UBI proposal to still allow for higher-skill trades to attract workers without driving income inequality? What if we coupled a UBI with a merit lottery? The gains from the higher-skill trades will be distributed randomly to members of those trades such that the expected value of their lifetime earnings is still higher and thus attracts the necessary higher-skill workers, but the unpredictable nature of when a worker receives these gains will couple with a lifetime consumption smoothing to produce a less-spendy upper class. They get their income like before, but it doesn't translate into as many possessions, so they a more-modest lifestyle. And since all the psychological harm of being lower class comes from the visual differences between you and the upper class, having a more-restrained upper class spending pattern should help reduce the harm of income inequality.

What are the rich people going to do with that money if they aren't going to spend it? Why, save it for the years the odds aren't in their favor. And more saving equals more investment, which, in a country with ever-mentioned crumbling infrastructure, should be music to our ears.

So how would the merit lottery work? Employers have to buy entries to the lottery for their employees, and the way salaries would rise to attract entry would be that employers would offer more entries, which would increase your expected value of taking the job. The employers are willing to pay more to gain another lottery entry because the skills are more valuable to them now. Lower-skilled workers are sitting at home watching the lottery with an entry or two, and higher-skilled workers are watching the lottery with a TV tray covered with tickets like an old lady with a gambling addiction. If no other benefit comes from it, it will be fun to subvert the typical class behavior of lower-class people having lots of lottery tickets and upper-class people never noticing the lottery at all.

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