About

Reader in Economics at the Department of Economics, University of Sheffield.

I use empirical techniques to learn more about labour market behaviour and outcomes, and to explore the impact of labour markets on individual and household well-being. Some topics I have looked at recently include: training and wages, minimum wages, paid holidays and working time, income and deprivation, the gender wage gap, pension saving behaviour, and the link between housework and wages.

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My Bohemian Life

 Here's my translation of Ma Bohême by Arthur Rimbaud, written 1870:

My Bohemian Life

I went out with my hands in holey pockets,
My coat as well was pretty near to perfect,
Beneath the sky oh Muse I was your slave!
And oh what splendid loves I dreamed of there!

My only breeches had a gaping hole,
I was a dreamy Tom Thumb leaving trails
Of rhymes. And sleeping at the Great Bear inn
Those stars of mine were swishing in the sky.

I listened to them sat at the roadside
On fine September evenings I felt drops
Of dew on my forehead like a strong wine.

Rhyming in the midst of fantastic shadows,
Like lyres, I tugged on the elastic laces
Of my wounded shoes, one foot close to my heart!

The original:

Ma Bohême 

 Je m'en allais, les poings dans mes poches crevées;
Mon paletot soudain devenait idéal;
J'allais sous le ciel, Muse, et j'étais ton féal;
Oh! là là! que d'amours splendides j'ai rêvées!
Mon unique culotte avait un large trou.
Petit-Poucet rêveur, j'égrenais dans ma course
Des rimes. Mon auberge était à la Grande-Ourse.
Mes étoiles au ciel avaient un doux frou-frou
Et je les écoutais, assis au bord des routes,
Ces bons soirs de septembre où je sentais des gouttes
De rosée à mon front, comme un vin de vigueur;
Où, rimant au milieu des ombres fantastiques,
Comme des lyres, je tirais les élastiques
De mes souliers blessés, un pied près de mon coeur!


What is a Minimum Income Guarantee? And how does it relate to UBI?


1. Introduction

As the idea of UBI continues to gather support among the public, attention is turning to specifics such as what level a UBI would be set at and how it would be financed. But alongside this discussion of design and implementation, another term is increasingly being heard: ‘Minimum Income Guarantee’ (or alternatives such as ‘Guaranteed Minimum Income’ or ‘Guaranteed Income’). For example:

So what is a Minimum Income Guarantee (MIG) and how does it relate to UBI? The distinction is not always clear from references to MIG and UBI in the media or more specialist policy literature. Sometimes the terms UBI and MIG (or similar) are used interchangeably, for instance media reports have referred to both the above-mentioned Stockton and Spanish schemes as UBI. At other times, the terms are clearly separate: the SNP manifesto distinguishes between UBI and MIG, suggesting that MIG is less ambitious and falls somewhat short of UBI. And John McDonnell has separately advocated UBI pilots and a MIG. In the US, the term Guaranteed Income (GI) is more common than MIG, but again there is disagreement about whether it means the same thing as UBI.

2. What is a Minimum Income Guarantee?

So how can we understand MIG in the current debate? To start with, it is important to realise that a MIG has long been a standard component of traditional welfare systems. In its purest form, a MIG is a scheme to ensure that nobody’s income falls below a minimum threshold: if income without the MIG is below the threshold, it is topped up. This also implies that any additional income received (under the threshold) leads to a pound-for-pound reduction in the MIG amount. As such MIG is a means-tested benefit with a 100% withdrawal (or taper) rate.

As will be seen, the ‘new’ MIG schemes being proposed are more complex and nuanced than this narrow definition. But the basic idea is clear: rather than an equal payment to all as under UBI, MIG is a payment targeted on those in need.

3. MIG and UBI compared

The philosophy of needs-based targeting has a number of implications for the design of MIG, and therefore how it compares with UBI in practice. To gain a better understanding of the differences, this article takes the standard definition of UBI – a payment to all individuals, without conditions or means-testing, and sufficient to meet basic needs – and considers how MIG would look under each of these headings. This exercise is partly speculative, because there is as yet no agreed specification for a broad-based MIG. But we can already draw some conclusions based on existing proposals, pilots and schemes. In particular, a very helpful contribution is the recent report by IPPR Scotland, Securing a Living Income in Scotland: Towards a Minimum Income Guarantee. It presents a detailed preliminary outline of what a MIG for Scotland might look like. 

Universality

UBI is paid to everyone. With MIG, the scheme also covers everyone but because it is targeted, only a minority of the population actually receive a payment. The IPPR describes its proposal as a “universal guarantee, delivered through a targeted payment.” As will be discussed below, targeting can be based on household types but is mainly based on income.

Some guaranteed income pilots (in the US) focus on particular demographics, for instance on African-Amercan mothers, young people leaving foster care, or post-incarcerated Black people. It is not clear whether this kind of demographic targeting is used for the pilot only or whether it would also apply to a broader rollout of these schemes. If so, a MIG could end up being targeted on low-income members of particular demographic groups.

Conditionality

A UBI has no conditions attached – everybody gets it whatever their employment status, and there are no other behavioural requirements such as training or job search activity. Similarly, MIG is also likely to be unconditional – if it were not, it would make little sense as a guarantee. Unconditionality is probably the respect in which UBI and MIG most resemble each other.

Mean-testing

A UBI is not means-tested, that is people receive it whatever their income. MIG is different: following the principle of targeting, it is only paid in full to people on low incomes. As income from other sources (e.g. earnings) increases, the MIG payments are withdrawn. In the spirit of targeting, and also in order to contain costs (discussed in more detail below), the withdrawal or taper rate is likely to be quite high. In the IPPR Scotland proposal, the taper rate is 62% (meaning that MIG is reduced by 62p for every £1 received from other sources). This is almost the same as the 63% taper rate associated with the existing Universal Credit scheme.

In practice, the mean-testing difference between MIG and UBI may be less than it first appears. The reason is that a UBI is likely to be (partly) funded through increases in income tax rates. So as income rises, some of the UBI is effectively ‘paid back’ through higher taxes. This amounts to a ‘mean test’ via the tax system, as opposed to an assessment up front (a distinction which has been called back-end versus front-end means testing).

Both methods lead to the same net income but the framing and mechanics are different. With a back-end system (UBI), the emphasis is on the same payment delivered to everyone, with any clawback occurring afterwards (and possibly with some delay if taxes are assessed annually); while with a front-end system (MIG), the payment differs across people right from the start. As such, there is a risk that MIG may perpetuate the stigma, anxiety and bureaucracy currently experienced by people on means-tested benefits. With a UBI plus income tax clawback, stigma disappears because the means test is merged into the tax system and applied to everyone.

Individual or household based?

UBI advocates are always clear that, as a matter of principle, UBI would be paid to individuals, not households, and that all individuals would receive the same amount (except for some variation by age, for example lower payments for children). In this view, everyone is entitled, as a matter of right, to a basic level of income that provides them with the economic foundation needed to flourish as a citizen.

MIG, in contrast, appears to be motivated by more technocratic considerations and a narrower focus on standards of living. Since people in households can, up to a point, share facilities and space (such as kitchens and bedrooms), those living together require less income than a single person for the same standard of living. For this reason, official poverty thresholds vary across types of households, as do the JRF Minimum Income Standards (MIS). The MIS specify the levels of income deemed necessary (by the general public) for a minimum acceptable standard of living.

Following this household needs approach, MIG would be set at different levels (per person) for different types of household. For its scheme, IPPR Scotland proposes a core amount of £792 per month for a single person but only £1,244 for a couple (£622 each). The couple payment would be made separately to each person (with additional payments for children going to the primary carer), but this still represents a significant departure from the individual-based principal of UBI (to my knowledge, the only UBI proposal to take on board the household-specific dimension is UBI+, which includes an specific ‘home allowance’).

Amount of payments

While in principle UBI should be sufficient to cover basic needs, in practice there is much debate around what the right amount is, especially for a UBI that could be seen as an introductory measure. Amounts proposed in the UK for working-age adults range from around £50 per week (sometimes termed a ‘partial UBI’ or ‘dividend’) to more than £200 per week. Since almost by definition a decent amount paid to everyone is costly, practical proposals are strongly influenced by cost considerations – in particular there is often a desire to limit increases in marginal income tax rates, which are politically unpopular and can be economically distortionary (including a ‘poverty trap’ effect at low incomes).

With MIG, the constraints are less severe because MIG is explicitly targeted on low incomes. That implies, by design, high taper rates. A MIG with a high taper rate will have a lower net cost than a UBI funded by more evenly spread tax increases (because a taper on low incomes affects everyone on that portion of their income). Thus for a given budget, MIG can ‘afford’ to be more generous than UBI –and the higher the taper rate, the higher the basic level of MIG can be. (The flipside is that MIG is disproportionately financed by the very people it is targeted on, who pay back large proportions of their MIG when their incomes rise).

Since there is a strong focus in MIG on household needs (using MIS as a guide in the UK), and since costs can be contained using a high taper rate, it seems likely that MIG will be near the high end of amounts suggested for UBI. The Scottish proposal is for a core MIG to an individual of the equivalent of £168 per week, accompanied by a steep taper of 62%. NEF has proposed a MIG of £227 per week during the Covid crisis, and their ongoing work on a Living Income draws heavily on MIS, suggesting similar levels for a longer-term payment.

Other support measures

Finally, both UBI and MIG exist in a wider socio-economic context of issues such as low wages, inadequate public services, and a lack of affordable housing. Proposals for UBI recognise these issues, but generally focus on the case for UBI itself, while arguing that a UBI can have wider beneficial effects – for example a UBI can give low-paid workers more bargaining power. The focus in UBI is also on the core payment, rather than any additional payments to cover, for example, the costs of disability or variable housing costs (an exception here is UBI+).

In contrast, a MIG is likely to be part of a broader package. One reason is that with a high taper rate, MIG will provide little or no support for those in employment; moreover the taper will disincentivise people from taking low-paid jobs. For the MIG to work, it needs to be accompanied by a living wage ensuring that everyone in full-time employment earns well above the MIG level. Also, MIG specifies variable payments as part of the core model. These account for different family types, as already seen, but can also include support for housing costs, disability and informal care responsibilities. Finally, a MIG might be linked to a broader Social Guarantee including access to public services, which some MIG advocates argue is a more cost-effective solution to basic needs than monetary payments alone.

4. Conclusion

As UBI moves from concept through to design and implementation, it is important to understand whether MIG is just another flavour of UBI or an alternative policy offer. Two aspects of MIG are UBI-like and should find favour among UBI proponents. The first is that MIG does not impose behavioural conditions – so whatever somebody’s employment or other activity, they are guaranteed to be above a minimum income threshold. The second is that MIG is likely to be set relatively high, comparing favourably with the amounts suggested for UBI.

But in other respects, MIG looks like a competing offer to UBI. MIG is targeted and adjusted for household needs, in contrast to UBI’s flat payment to all individuals. While UBI may be subject to a ‘back-end’ means test via the income tax system, the marginal rate for UBI will almost certainly be less than the MIG taper. In addition, the effects of the MIG taper will likely be aggravated by the stigma associated with ‘front-end’ means testing.

Targeting and household-based payments will be resisted by UBI supporters, however MIG will be attractive to others as a pragmatic extension of the traditional UK approach to income security. And the technocratic aspects of MIG will appeal to some who consider UBI to be overly utopian. So to finish, it is worth considering whether there is any room for combining the two approaches. A couple spring to mind:

  • A Negative Income Tax (NIT) is a form of UBI financed by income tax but delivered as a single net payment combining the UBI and income tax. The payment falls as income rises, similar to MIG, but since income tax is assessed individually (in the UK) the NIT would be individual-based (with the same basic amount for all). So an NIT could be seen as a halfway house between MIG and UBI.
  •  A ‘partial’ UBI could be at the core of a broader MIG system – it would deliver a base level of income to all, with additional MIG payments subject to needs- and means-testing. This could be a step in the direction of a full UBI if the additional components were converted over time into universal payments.There are no doubt more possibilities, and others will emerge as more detailed MIG and UBI proposals are developed. 

Ultimately there may be more than one route to economic security.