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KMID : 1124020180340010193
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Korean Social Security Studies
2018 Volume.34 No. 1 p.193 ~ p.218
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The Effects of Basic Income on Labour Supply
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Yi Gun-Min
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Abstract
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This study analyses the effects of basic income on labour supply using the neoclassical model of labour-leisure choice. In addition, we consider various costs (e.g. transaction cost, opportunity cost) and constraints (e.g. liquidity constraint, care constraint) as well as a minimum level of consumption. The main results are as follows. First, it is expected that the transition from conditional social security (CSS) to full basic income (FBI) will certainly increase the labour supply of existing public assistance recipients. Second, the labour supply effects of the transition in income groups at break-even points would be indeterminate. The labour supply effects depend on the relative size between basic income payments and the tax amounts of non-labour income for basic income payments. Spreading effects, i.e. reducing excessive overworking hours and/or increasing working hours which are now too short, can be expected among these groups. The total effects would be almost zero or slightly positive. Third, it is predicted that the labour supply effects of the above-mentioned transformation in the high-income bracket will also be inconclusive in theory due to the reliance on the relative magnitude between income and substitution effects. In this regard, we highlight that basic income can operate mechanisms to share and mitigate possible risks arising from either scenario. Examining the effects, we find extra advantages of FBI over CSS. The size of the opportunity set in groups below the break-even income level would mostly expand. In particular, existing social assistance recipients’ opportunity sets can expand, and their living standards would rise considerably with a high probability. Although the opportunity set for those in the high-income bracket can decrease slightly or substantially, the above-mentioned expected effects and benefits would considerably exceed any losses for those in the high-income class.
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KEYWORD
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Full Basic Income, Conditional Social Security, Labour Supply, Income Effect, Substitution Effect, Minimum Level of Consumption
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