Monday, November 24, 2014

Universal Basic Income vs. Unemployment Insurance: Which is the Better Safety Net?

A universal basic income (UBI) and unemployment insurance (UI) are two possible forms of social insurance for an economy in which job loss is a significant risk. Which works better? How generous should either program be? Would a combination of the two be best of all? These are the questions that Alice Fabre, St├ęphane Pallage, and Christian Zimmermann (FPZ) address in a recent working paper from the Research Division of the St. Louis Fed.

The answers that the authors give to these questions will disappoint UBI supporters:
  • When compared head-to-head, UI is a better social safety net than a UBI.
  • In an economy with no unemployment insurance, a UBI would be better than nothing, but the optimal level would be quite low, about $2,000 per person per year for the United States.
  • No combination of UI and a UBI is superior to UI alone.
Skeptics are likely to seize on these findings, but in my view, they do not support a blanket rejection of a UBI. Instead, as I will explain, they highlight how important it is for UBI proponents to pay attention to details of financing and program design. >>>Read more

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