Guaranteed Income as a Replacement for the Welfare State

Abstract

A guaranteed income (GI) that replaces the welfare state is not currently on the political agenda, but it offers the possibility for a grand compromise that could attract a majority political coalition. Any large-scale GI cannot be economically feasible in addition to current welfare programmes. Financial constraints in both Western Europe and the United States require that the money for funding a GI comes from the existing Social Security budgets. Using conservative assumptions, the proposed GI is demonstrably superior to the current system in enabling the elderly to accumulate comfortable retirement incomes. Furthermore, the proposed GI effectively ends involuntary poverty, even assuming minimum-wage jobs and high unemployment. The work disincentive effects of the proposed GI are diminished by a high payback point that begins at US$25,000 of earned income. The proposed GI may be expected to bring about a substantial reduction in extramarital births, and to increase, to an uncertain extent, labour force participation among young males currently outside of the labour force.

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