Minimum income would only keep workers out of the labour market, if history is any guide

NationalPost.com – Full Comment
June 17, 2015.   Raymond Foote

Now that Alberta’s NDP government has unleashed the old chestnut of a guaranteed annual income as the solution to the socialist dream of eradicating poverty through redistribution of income, it may be worthwhile taking a little trip down history lane. Andrew Coyne has provided some of this history in North America, but no recent commentator has noted that the concept of a guaranteed annual income is much older than Canada.

Since the sixties, numerous social scientists have penned a variety of treatises on the impact of employment insurance on work motivation. One frequently cited example is Atlantic Canada where observers have noted the region has sometimes experienced the paradox of both high unemployment rates and labour shortages due to the unanticipated effects of generous seasonal Employment Insurance benefits. As usual in this clash of empiricism and political expedience there have been no definitive conclusions. And so it may remain that there will continue to be near total absence of informed policy analysis in the linkage of money and human motivation at the lower end of the economic continuum. While most of this current discussion has been focused on programs such as employment insurance and the temporary worker program, the guaranteed annual income is about to be lumped into the mix of contrasting opinions.

Pierre Trudeau’s government experiment in a guaranteed annual income in Dauphin, Manitoba and similar experiments in the United States were undertaken many years ago, but these experiments were too short-term to offer many insights on human motivation and economic dependency. Furthermore, there was no sustained attempt to analyze the findings from these social experiments. Fortunately, an 18th century English legislative initiative provides a clearly defined analysis on the impact of long-term guaranteed financial support affecting both human motivation and labour market mobility. While governments and laws may come and go, human motivation remains similar across generations. Consistent with the view that there is very little new under the sun, social support legislation called the Speenhamland Law was initiated in England 1795-1834. The impact of this policy was analyzed by the noted social historian, Karl Polanyi in his book The Great Transformation.

The era in which Speenhamland was initiated comprised the most critical period leading up to the industrial revolution when people were needed to run the growing factories in the urban centers. At that time, however, England was still an agrarian society reliant upon a rural work force to support its agricultural base. Speenhamland provided a basic wage support linked to the price of corn (similar to the current Consumer Price Index) to people living in the rural areas of England “so that no man need fear to starve and that the parish would keep him and his family however little he earned.” In its time, Speenhamland was the equivalent to a guaranteed annual income. The effect of Speenhamland was to greatly increase the level of rural pauperism, or poverty as it would be currently named, pegged to the lowest possible standard of living that could be sustained with the wage subsidy provided to the rural inhabitants.

With the financial support of Speenhamland wage subsidies the population drifted down to a miserable level of rural subsistence but with sufficient money to avoid moving to the available better paying jobs in the cities. Furthermore, rural wage subsidies discouraged rural employers from paying decent wages since their employees were already receiving financial support from the government. The purpose of Speenhamland was to support the agriculture industry dominated by the landed gentry who required low cost labour to sustain their farming enterprises as the source of their wealth.

The Speenhamland program was sufficiently effective in constricting labour mobility as to almost derail the industrial revolution before it had a chance to change the world. Starved of labour to run the factories, it was only the shift of legislative power to the growing population of the cities that made it possible to repeal Speenhamland in 1834. With the elimination of the wage subsidy, people were forced to seek jobs in the growing industries of the cities rather than continue to live in rural poverty. This transformation in socio-economic policy facilitated the growth in labour mobility critical to the creation of the industrial society we now enjoy.

While Speenhamland took place 181 years ago, it demonstrates the impact of legislation enabling a population to reduce its standard of living below that which is consistent with an affluent, productive society.

Based on past experience, the long term impact of a guaranteed minimum income is very likely to discourage people from seeking more productive employment in other more economically vibrant areas. The negative impact of generous seasonal employment insurance benefits is well known and documented by labour market specialists, but their findings are generally viewed as politically unacceptable at the regional level where these benefits are concentrated. More recently, the attractiveness of the temporary worker program for employers who are unable to hire Canadian workers at current wage levels is an extension of the same phenomenon.

Sadly, when policy analysis conflicts with political opportunity, the winner in the debate rarely favors the former. The redistribution of wealth through a guaranteed annual income will inevitably ripple down to a lower labour force participation rate in any region where the program remains in force for an extended period of time. Alberta, if it opts for such a minimum, would have the temporary worker program to take up the slack, assuming that the Alberta government can accommodate the influx of new immigrants seeking to take advantage of their largesse. On the other hand, there may be a bloom of creativity among the vast number of writers and other artists who are currently struggling to make ends meet in the conventional economy. A guaranteed annual income will certainly be welcome in these quarters. And that may not be a bad thing.

Raymond Foote Ph.D is a former university professor and retired auditor with the federal government.

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