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The Welfare State and Social Wealth Funds

The social dividend provided by a social wealth fund is not about unemployment or welfare at all. It is a socialist answer to the question of what to do about capital’s share of the national income.

Workers decorating chocolates at the Meltis factory in Bedford, November 24, 1936. William Vanderson / Fox Photos / Getty

When I ask what topic people might want to read about, Andrew Yang’s universal basic income (UBI) and the usual job guarantee (JG) questions come up frequently. Here I try to offer a bit of a fresh take on it by trying to explain UBI and JG within the context of regular welfare state design and, to a lesser degree, within the context of socialist theory.

Cash Welfare State

Welfare states generally consist of services (childcare, education, health care) provided in-kind and cash provided to certain categories of people. Here I only want to talk about the cash welfare state because that’s the one relevant to UBI and JG.

A well-designed cash welfare state initially observes that there are three age groups in society: children, working-age adults, and elderly people. The first and last are not expected to work and so they should receive a cash benefit: child allowance for children and old-age pension for adults. These age-based payments are the easiest part of the welfare state because eligibility is clear and the only thing you need to fight about are the benefit formulas.

Once you’ve removed children and elderly people from the picture, you still have working-age adults (eighteen to sixty-four) to deal with. At any given time, a large majority of working-age adults are indeed working and receiving a wage. But some are not. This age group presents some issues because people disagree about what categories of people should be working and about how to determine whether someone falls into a given category (e.g., whether they are disabled or not).

In general, the people in this age group who are not working fall into four categories: disabled people, students, home caregivers, and the unemployed. According to the more lenient welfare perspective, people in these categories should all receive cash welfare and the category boundaries should be drawn generously. Thus, disabled people should receive a disability pension, students should receive various student benefits (tuition subsidy, living grant, subsidized loan), caregivers should receive paid leave and caregiver allowances, and unemployed people should receive unemployment checks.

The risk of this lenient approach is that less people are employed at any given time than a stricter approach that did not provide benefits for some of the categories or that construed the boundaries of those categories more narrowly. As a proponent of the lenient approach, I find this risk mostly overblown empirically because working-age employment rates are not lower in countries with more generous welfare systems. I also find the risk to be overblown as a normative matter: slightly higher economic output is not worth the pain caused by a stingy welfare state.

For Most, JG Is About Unemployment

The job guarantee, which provides unemployed people benefits equal to the minimum wage provided they work forty hours a week doing tasks assigned to them by the welfare office, is a fairly straightforward version of the workfare approach to unemployment benefits.

In general, unemployment systems consist of money and active labor market policies (ALMP) that transition people back into employment.

Like the cash welfare framework discussed above, ALMP regimes can also be understood as sitting on a spectrum ranging from lenient to strict. Lenient regimes generally consist of optional training, education, job search assistance, and so on. Stricter regimes require the unemployed to do specific activation tasks like submit a certain number of applications or attend a certain number of hours of training, with the strictest ALMP regimes requiring individuals to work for their benefits, also known as “workfare.”

In general, the lenient ALMP regimes are more favored by the Left while the stricter ones are more favored by the Right. For instance, in Finland, the last conservative government adopted stricter ALMP requirements for those receiving basic unemployment allowance while the new center-left government has promised to undo those requirements. In Australia, Work For The Dole was established by a right-wing government while the Labor Party signaled ahead of the prior election that it would get rid of it.

Job guarantee proposals thus slot into the regular welfare state framework as a basic unemployment allowance with strict ALMP requirements. The top advocates of the JG, like Randy Wray, argue that the strict ALMP requirements are useful because they encourage people to actively seek regular employment more than they would under lenient ALMP regimes.

For Most, UBI Is Also About Unemployment

Although UBI discussions are a bit more topically expansive, the truth is that UBI is also really about unemployment benefits. This is why it gets brought up so much alongside discussions of automation-induced unemployment.

UBI is conceptually about unemployment because the other things its advocates talk about are contingent features of our current system that could be changed. For instance, UBI advocates who fixate on means-testing (i.e., benefit programs that use income tests for eligibility) are right that the United States currently relies heavily on means-testing, but wrong to think that UBI is the only way to get rid of means-testing. We can see how wrong this is in the categorical eligibility approach discussed above, which does not use means-testing.

So the actual idea of UBI, as discussed by most of its advocates, is to create a basic unemployment allowance with no ALMP that is paid to both employed and unemployed people. From there various details come in about how to finance it that can change the implications of the program, but this is really its basic thrust: unemployment benefits for all, including the employed.

In a sense then, UBI and JG are just opposite ways of removing the “benefit trap” inherent in unemployment benefits. The benefit trap refers to the fact that people who are on unemployment benefits lose those benefits when they become employed, potentially discouraging them from taking a job.

JG solves the benefit trap problem by making unemployment just as work-intensive as employment. This removes the possibility of idly receiving unemployment benefits, which means, in Wray’s words, that you no longer need to make “employment preferable to idleness” to get unemployed people to take up work.

UBI solves the benefit trap problem by making benefits the same for employed people and unemployed people. This removes the loss of benefits that comes from taking up work, which also tilts the balance somewhat away from idleness and towards employment.

Put simply, JG solves the unemployment benefit trap by making employed and unemployed people work the same hours while UBI solves it by making employed and unemployed people receive the same welfare benefits.

In my view, both JG and UBI are inferior ways of treating unemployed people. Instead, I favor a rather conventional approach of giving unemployed people money based on their prior earnings (or a basic amount if they have no prior earnings) and optional ALMP. This seems to work pretty well and, for as much as people worry about the unemployment benefit trap, the truth seems to be that it doesn’t matter that much, meaning you can have a nice high-income economy even with an apparently severe unemployment benefits trap.

The Socialist UBI

In some of the more niche areas of the discourse, the UBI discussion gets muddled because there is a long-standing socialist proposal called the “social dividend” that is similar to a UBI in the sense that it provides all working-age people (or sometimes even more than that) a cash benefit. However, the social dividend is not about unemployment or really welfare at all. Instead, it is one of the socialist answers to the question of what to do about capital’s share of the national income.

In a capitalist economy, around 30 percent of the net national income flows out to the owners of assets, which is overwhelmingly skewed towards the top of society. Socialists think this arrangement is bad for a number of reasons and propose that this piece of the national income be distributed differently.

There are many options for how to distribute it differently, but one common proposal is to simply distribute it to everyone in society. That is, rather than having a capitalist class own almost all the assets and receive all of the capital income, we should instead have society as a whole own almost all the assets and receive all of the capital income through a social dividend paid to each member of society.

This social dividend approach (which I’ve called a “universal basic dividend” in a nod to the UBI discourse) is what I advocate in my paper Social Wealth Fund for America.