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2004-05-21

Raw and meandering post about poverty prevention 

Is it true that all politicians of the social-democrats believe that much more money should be spent on „active labour market policies“, such as training-programmes for the unemployed and various financial incentives to companies who hire unemployed people, whereas only some politicians of the greens share this belief, while others believe that rising unemployment is a fact to live with, which should be addressed by a generous ‘basic income’ policy that provides a living for everyone, including people without a job? And if there is such a difference between these parties, who is right and who is wrong?

To me it seems that unfortunately both approaches have serious drawbacks.

There are plenty of anecdotes about the inefficiency of obligatory training schemes mandated by the unemployment agency on its clients. For example, while IT is certainly a dynamic element of the economy, it is questionable whether a six weeks course on using a PC, a word-processor, a spread-sheet, email, and a web-browser will make somebody with little prior formal education much more employable. Even after the course, the person may be under-qualified for jobs where such skills are sought. Another cluster of anecdotes concerns trainings that are unnecessary, such as courses on how to write a job application that are mandated on unemployed academics.

Equally, if a company only hires a certain person because of a financial incentive, it will likely lay this person off as soon as it can, or otherwise assign tasks to that employee which do not provide new qualifications, and which lead into another dead end of the job market. On the positive side, I do believe that for many individuals who have been unemployed for a significant amount of time, any kind of normal employment will provide a boost of morale.

The basic income approach is partly motivated by such criticisms of active labour market policies. It may be more honest, cost-effective and humane to make a direct payout to people who are without a job for structural reasons of the economy, and at the same time stop the old pseudo-Marxist rhetoric that paid work is the only way of life that can generate meaning for the individual. Note that the European concept of minimum income is different from the minimum wage systems in place today: under the basic income approach the state would make up for the shortfall of any salary received, such as from marginal employment contracts, below a certain basic income level. Hence for employers there would not be any direct additional costs. In order to be humane, such a basic income must be high enough that one can live from it without hardship – for these reasons, numbers are usually given which are significantly higher than the minimum unemployment benefits. In Austria the amount of EUR 1000 per month is often mentioned.

In a second step, the basic income approach is then often reinterpreted as a tool of social engineering: not only people who cannot find a job, but also those who choose not to look for one should receive the basic income. Many tax-payers wince at the injustice it would be to pay from their work salaries for the cosy lifestyle of those who prefer EUR 1000 from the state, so this interpretation of basic income may never come close to finding a popular majority. However this reading could be excluded in a practical implementation of the approach.

But the problem persists that a generous basic income provides a disincentive to accept paid work. This may do damage to work productivity at the lower end of the salary scale, where income from paid work would be only marginally higher than the guaranteed basic income alternative.

On the other hand, basic income provides a strong incentive to be part of the system that grants it. This is where my most serious concern about it hooks in, namely the effects of basic income policy on immigration issues. The higher the level of basic income, the stricter would be the division between those who can rely on it and those who cannot. If any resident of Austria would have access to basic income, the current residents would have a strong incentive to prevent immigration, since new immigrants entering the system would make the already threatening tax-burden associated with it even heavier. Reciprocally, there would be a strong incentive to migrate to Austria for welfare tourism. If – and that would seem to be the more likely outcome – only people who have resided and worked in Austria for a certain amount of time would qualify, then the unsecured residents outside of the system would likely squeeze out the people inside the system from low-paying jobs, thus increasing the number of people on state subsidy, and thereby raising the cost of the system further as well as increasing unemployment among people in the system. Again, immigration would be economically undesirable.

..as I was left somewhat confused by these musings, I did a bit of research about a proposal from a group of Austrian political scientists led by Emmerich Talos [in German], which is called ‘need-oriented basic security’ (Bedarfsorientierte Grundsicherung, the title of a book edited by Talos et al., 2003). It represents a variant of a basic income model that excludes people with savings as well as those who are not willing to work. It also proposes a relatively low level of basic income, apparently around EUR 650. To achieve the selectiveness, the proposal relies on the mechanisms of the existing social policy network and its agencies, which means that one cannot expect cost savings from reduced administration (this is in an open break with the so-called ‘neo-liberal’ models of basic income – a term I wasn’t familiar with in my ignorance). Residents who do not hold the citizenship should get access to this system after some years. I also learnt [in German] that the number of people in Austria who receive ‘emergency aid’ (Notstandshilfe, the subsidy of around EUR 600 one can receive permanently once unemployment benefit expires after twelve months) is about one percent of the population, and that there is allegedly wide-spread concern in the social policy community that the current level of emergency aid is too low to prevent a slide into poverty.

From what I’ve read, it seems that the ‘need-oriented basic security’ model is superior to the ‘basic income’ model of the greens because it would be less disruptive to the labour market, but it is a disadvantage that it maintains the normative emphasis on paid work. I also have some problems with the fact that people who have savings are excluded – this seems to be a disincentive for people to make their own provisions for difficult times.

While my opinions about this issue are rather unstable these days, I’ll try to conclude like this:

There are two main reasons why state support for the poor is an important issue: One, because every society should pay special attention to its weakest members, and two, because it seems that economic changes are occurring which will push more people into structural unemployment or force them into low-paid work from which they cannot escape easily.

There are two goals which social policy with a domestic focus should support: One, a return to paid work as a normative goal, two, a life free of poverty even when that is not possible.

There is one additional goal which arises from social policy that is concerned about trans-national welfare: To enable economic migration that does not create political conflict through social frictions at the lower end of the domestic wealth scale.

There is one goal associated with the desire to establish an economic system in Europe in which both the richer and the poorer countries profit from collaboration.

To support all these goals, basic income security should be provided on two alternative tracks, among which clients can choose freely:

Back-to-work track. This would grantt access to training and placement programs of ‘active labour market policy’, for an indefinite amount of time. Clearly, the type of training program will have to be sensitive to the client’s profile and may also change as the duration of unemployment is getting longer and longer. There will be material support in the form of (rather limited) financial support, and support with unavoidable living costs such as rent.

Basic income track. This would grant less access to training and placement programs, while it still requires readiness to take up paid work from the individual. But during the period of unemployment, it provides a somewhat more generous level of material support than the back-to-work track (since costs associated with the program are lower; however, total expense for each client on the back-to-work program should be higher than for the basic income track). There should be some subsidy for programs structuring the daily life of clients, to prevent meaning deficits – but clients would still have to enrol to these programs and meet some of the costs themselves.

Both programs should contain a significant loan component that must be paid back (at a relatively low monthly rate) when the client returns to normal employment. The amount to be repaid should be higher on the basic income track.

Immigrants should initially not have access to either of these programs. Access to the back-to-work track should commence at reduced levels (something like 25% after 3 years, 50% after 6 years, 75% after 9 years); access to the basic income track should be limited to citizens.

What about EU citizens from other countries? Obviously, they could not be discriminated against. What should help to prevent intra-EU welfare tourism here is the loan aspect; the concept of moving to a foreign country to live comfortably on a loan which one has to repay if one ever were to take up employment again seems not very inviting.

Usual disclaimers. I’m by no means an expert on these questions. Still, I’d be curious to know whether anybody has similar (or completely different) intuitions about these matters.


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