Panel on Universal Basic Income

Rajiv Sethi

ISI Delhi, December 2016

Rajiv Sethi Universal basic Income ISI December 2016 1/9

Key Issues

Disruptions from globalization and technological progress

Severe, locally concentrated employment and income shocks
Inadequacy of policies to facilitate transition
Rise in inequality and major shifts in social indicators
Gains from trade and immigration diffuse, costs concentrated

Rajiv Sethi Universal basic Income ISI December 2016 2/9

Key Issues

Disruptions from globalization and technological progress

Severe, locally concentrated employment and income shocks
Inadequacy of policies to facilitate transition
Rise in inequality and major shifts in social indicators
Gains from trade and immigration diffuse, costs concentrated
Politics of anger: protectionism, resistance to innovation?
Is a universal basic income a better alternative?

Rajiv Sethi Universal basic Income ISI December 2016 2/9

Disruptions

Some towns reduced to “little more than a relic of American

industrial glory” with abandoned shops, broken windows, homes in
disrepair, street vice (JD Vance)

Rajiv Sethi Universal basic Income ISI December 2016 3/9

Disruptions

Some towns reduced to “little more than a relic of American

industrial glory” with abandoned shops, broken windows, homes in
disrepair, street vice (JD Vance)
Rise in midlife mortality among white Americans without college
degree: “increasing death rates from drug and alcohol poisonings,
suicide, and chronic liver diseases and cirrhosis” (Case/Deaton)

Rajiv Sethi Universal basic Income ISI December 2016 3/9

Disruptions

Some towns reduced to “little more than a relic of American

industrial glory” with abandoned shops, broken windows, homes in
disrepair, street vice (JD Vance)
Rise in midlife mortality among white Americans without college
degree: “increasing death rates from drug and alcohol poisonings,
suicide, and chronic liver diseases and cirrhosis” (Case/Deaton)
Sharp rise in maternal opioid use in rural counties; seven-fold increase
in drug-dependent newborns 2004-2013 (Villapiano et al.)

Rajiv Sethi Universal basic Income ISI December 2016 3/9

Disruptions

Some towns reduced to “little more than a relic of American

industrial glory” with abandoned shops, broken windows, homes in
disrepair, street vice (JD Vance)
Rise in midlife mortality among white Americans without college
degree: “increasing death rates from drug and alcohol poisonings,
suicide, and chronic liver diseases and cirrhosis” (Case/Deaton)
Sharp rise in maternal opioid use in rural counties; seven-fold increase
in drug-dependent newborns 2004-2013 (Villapiano et al.)
White female incarceration rates up 50% since 2000; black rates down
30%; similar but smaller trends for males (Loury/Sethi)

Rajiv Sethi Universal basic Income ISI December 2016 3/9

Disruptions

Some towns reduced to “little more than a relic of American

industrial glory” with abandoned shops, broken windows, homes in
disrepair, street vice (JD Vance)
Rise in midlife mortality among white Americans without college
degree: “increasing death rates from drug and alcohol poisonings,
suicide, and chronic liver diseases and cirrhosis” (Case/Deaton)
Sharp rise in maternal opioid use in rural counties; seven-fold increase
in drug-dependent newborns 2004-2013 (Villapiano et al.)
White female incarceration rates up 50% since 2000; black rates down
30%; similar but smaller trends for males (Loury/Sethi)
Populist backlash, politics of anger (Rodrick)

Rajiv Sethi Universal basic Income ISI December 2016 3/9

Universal Basic Income

Fixed per-capita supplement to other income sources

Different from a guaranteed minimum income or top-up
Universal program (like medicare, social security) not means-tested
Need not carry stigma of welfare
Support spans ideological spectrum (Hayek, Murray)

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Trade and Technology Shocks

China: repeated renewal of MFN status, WTO membership

Rajiv Sethi Universal basic Income ISI December 2016 5/9

Trade and Technology Shocks

China: repeated renewal of MFN status, WTO membership

Technology
Natural language processing (call centers)
Autonomous transport (drivers, auto manufacturers)
Advanced robotics (manufacturing)

Automation of non-routine cognitive and manual work

Large potential gains, but transition path unclear

How can we assess potential of UBI to mitigate effects of such shocks?

Rajiv Sethi Universal basic Income ISI December 2016 5/9

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Annu. Rev. Econ. 2016.8:205-240. Downloaded from www.annualreviews.org
Annu. Rev. Econ. 2016. 8:205–40
First published online as a Review in Advance on
August 8, 2016
The Annual Review of Economics is online at
economics.annualreviews.org
This article’s doi:
10.1146/annurev-economics-080315-015041
Copyright  c 2016 by Annual Reviews.
All rights reserved
JEL codes: E24, F14, F16, J23, J31, L60, O47,
R12, R23
Rajiv Sethi
The China Shock: Learning
from Labor-Market Adjustment
to Large Changes in Trade
David H. Autor,1,2 David Dorn,3,4
and Gordon H. Hanson2,5
1
Department of Economics, Massachusetts Institute of Technology, Cambridge,
Massachusetts 02142; email: dautor@mit.edu
2
The National Bureau of Economic Research, Cambridge, Massachusetts 02138
3
Department of Economics, University of Zurich, CH-8001 Zurich, Switzerland;
email: david.dorn@econ.uzh.ch
4
Centre for Economic and Policy Research, London EC1V 0DX, United Kingdom
5
School of Global Policy and Strategy, University of California, San Diego, La Jolla,
California 92093; email: gohanson@ucsd.edu
Keywords
globalization, labor-market adjustment, local labor markets, inequality
Abstract
China’s emergence as a great economic power has induced an epochal shift
in patterns of world trade. Simultaneously, it has challenged much of the
received empirical wisdom about how labor markets adjust to trade shocks.
Alongside the heralded consumer benefits of expanded trade are substan-
tial adjustment costs and distributional consequences. These impacts are
most visible in the local labor markets in which the industries exposed to
foreign competition are concentrated. Adjustment in local labor markets
is remarkably slow, with wages and labor-force participation rates remain-
ing depressed and unemployment rates remaining elevated for at least a
full decade after the China trade shock commences. Exposed workers ex-
perience greater job churning and reduced lifetime income. At the national
level, employment has fallen in the US industries more exposed to import
competition, as expected, but offsetting employment gains in other indus-
tries have yet to materialize. Better understanding when and where trade is
costly, and how and why it may be beneficial, is a key item on the research
agenda for trade and labor economists.
205
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Universal Basic Income

Potential Effects
Reduced cross-sectional income inequality
Reduced intertemporal income variability for individuals
Increased worker bargaining power
Less uneven geographic distribution of aggregate demand
Real value of payment higher in depressed areas (unlike wages)
Reduced depopulation of depressed areas
What about work incentives?

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Implementation

Design issues
Coverage of minors and contingent on family size and structure?
Use as collateral, seizure by creditors, resolution in bankruptcy?
Alternative: Universal Basic Share?

Rajiv Sethi Universal basic Income ISI December 2016 9/9

Implementation

Design issues
Coverage of minors and contingent on family size and structure?
Use as collateral, seizure by creditors, resolution in bankruptcy?
Alternative: Universal Basic Share?

Coupling with macroprudential goals

Individual accounts at the central bank
Credited with profits from open market operations
Held in escrow based on monetary policy objectives
Elimination of deposit insurance
Net transfers to and from Treasury

Rajiv Sethi Universal basic Income ISI December 2016 9/9

Implementation

Design issues
Coverage of minors and contingent on family size and structure?
Use as collateral, seizure by creditors, resolution in bankruptcy?
Alternative: Universal Basic Share?

Coupling with macroprudential goals

Individual accounts at the central bank
Credited with profits from open market operations
Held in escrow based on monetary policy objectives
Elimination of deposit insurance
Net transfers to and from Treasury

Relevance for India?

Rajiv Sethi Universal basic Income ISI December 2016 9/9