Is Basic Income a Cure for Unemployment in Unionized Economies? A General Equilibrium Analysis

Abstract

This paper deals with the effect of basic income schemes on the equilibrium unemployment rate. It develops a dynamic general equilibrium model of a unionized economy where the budget of the State has to be balanced in each period. Compared to a benchmark situation with an unemployment insurance, it is shown that appropriately defined basic income schemes lower the steady state unemployment rate. Moreover the dynamic adjustment induced by such reforms can be Pareto-improving. Cet articleétudie l'effet d'une allocation universelle sur le taux de chômage d'équilibre. Il présente un modèle dynamique d'équilibre général dans lequel les salaires sont formés par la négociation collective. La contrainte budgétaire de l'Etat est respectéeà chaque période. En comparantà une situation de référence caractérisée par un système d'assurance chômage, on montre qu'à l'état stationnaire le taux de chômage d'équilibre est moinsélevé en présence de formules appropriées d'allocation universelle. En outre, la dynamique d'ajustement suiteà de telles réformes peut entraîner une amélioration au sens de Pareto.

Universal Basic Income versus Unemployment Insurance

“…Similar results were reported by Hansen &İmrohoroglu (1992), Wang & Williamson (1996, 2002, Hopenhayn & Nicolini (1997), and Pallage & Zimmermann (2001). We show here that society, on average, does dislike moral hazard, but not as much as the implicit free riding that comes with UBI in our model economies.…”

Universal Basic Income versus Unemployment Insurance

“…Similar results were reported by Hansen & İmrohoroglu (1992), Wang & Williamson (1996, 2002, Hopenhayn &Nicolini (1997), andZimmermann (2001). We show here that society, on average, does dislike moral hazard, but not as much as the implicit free riding that comes with UBI in our model economies.…”

“…4 Another paper that quantitatively investigates the effects of UBI policies is Van der Linden (2002).…”

Social welfare effects of tax-benefit reform under endogenous participation and unemployment: an ordinal approach

“…In our view, all these elements are crucial for the analysis of tax-benefit reform; other contributions have considered only a subset. For example, Van der Linden (2002) analyzes the introduction of a basic income in a framework with union bargaining, risk-averse workers and exogenous labor supply; Van der Linden (2004) endogenizes the participation decision, but does not capture skill heterogeneity and neglects the dynamic adjustment path. 5…”