This week, as U.S. President Barack Obama raised the minimum wage for some federal workers and Ontario did the same for everyone, pundits wondered what good the increases would really accomplish – least of all the working poor. At the same time, debate has been rekindled around another apparent miracle poverty-ending scheme: the guaranteed annual income.
Here’s how it works: The government gives people with little or no income a basic living wage, clawing it back as they earn wages on their own. Evidence suggests that this would cut poverty, curb health-care costs and raise high-school graduation rates. Food banks and welfare would become redundant. It has been embraced by proponents on the left and the right, but is mostly shunned by major political parties.
The concept was famously road-tested in a 1970s experiment in Winnipeg and Dauphin, Man., then mothballed. Why? The Globe and Mail asked University of Manitoba economist Wayne Simpson.
Can you explain the concept of a guaranteed annual income and why it’s worth talking about?
The guaranteed annual income came out of the American notion of the negative income tax. The idea was to offer people a guaranteed amount of money to address household poverty. As people earned more income, the benefit would be reduced. The simplicity of it is valuable because it integrates with the modern tax system. When you reach a certain point, instead of paying taxes, you receive benefits. So it’s a negative tax. In some sense, we already have a guaranteed income and it’s called social assistance, which is provincially regulated. The difference is that this is an income transfer delivered through the tax system.
Wouldn’t a guaranteed income exacerbate skills shortages and discourage people from working?
This was always one of the questions. But the results suggested that work disincentive effects were relatively small. This was not as serious a problem as some had thought it would be.
What else did we learn from the Manitoba experiment?
Not a lot, because the experiment was mothballed after it was completed in 1979. There is some later research on the Dauphin experiment, which found some positive effects on health and education. There was also some work done on marital stability. The danger is if you don’t get the design right, couples may be better off separate than together.
How would you get from where we are to a guaranteed annual income?
That’s a messy question. The provinces would have to be brought on board, without making it look like the federal government is intruding on their rights and responsibilities. That’s a trickier question than it was in the 1970s. The provinces are more inclined to exert their authority now.
Why does the concept hold appeal for both the left and the right?
The concern on the left is that they want to see something done about poverty because they think it matters a lot. The concern on the right is the same, but they think a guaranteed income would deal with poverty in a fashion that doesn’t intrude unnecessarily on free markets, including labour markets. And you end up with a more efficient delivery mechanism that reduces the cost of government.
With income inequality back at the centre of the national debate, will this concept gain traction?
I am really skeptical. It has to replace social assistance. And social assistance is a provincial matter, enshrined in the constitution. The provinces would have to be bribed to come on board. That kind of additional money might be hard to come by.
What about a basic income for everyone, such as the proposal being put to Swiss voters in a referendum?
The problem is that it’s quite expensive for what it accomplishes in terms of poverty, simply because it doesn’t claw back. It doesn’t say, “You only get this if you’re poor.”
Is Canada ready for another experiment?
We did these experiments at a time when there was a lot of concern about poverty and nothing much came of it. So I’m not sure it’s time for another one. These things are expensive. You’re talking about hundreds of millions of dollars. I don’t think we need any more answers. A guaranteed annual income would be effective if we could find a way to introduce it. The 1960s was the era of grand program designs and we seem bogged down since then. Maybe a time will come when this will come back on the table.
This interview has been edited and condensed.Report Typo/Error