# UBI and labor supply

What do UBI proponents expect would be the effect of a UBI on labor supply?

Let me show you a few slides from my 2015 presentation on the subject.

Suppose, completely hypothetically, you ran a small RCT on UBI. (ht Morgan Warstler)

Then there would be no meaningful

> increase in labor demand (as a policy choice, or potentially as a direct effect of the UBI if demand is unmanaged) [to] restore[] the original quantity of work provided, but at significantly higher wages.

(Fourth slide above.)

So what you would expect is to be stuck at the second diagram reproduced above. You would see a some reduction of the quantity of labor supplied, rather than the desired effect of an unchanged quantity of labor supplied, but at somewhat higher wages (the third diagram).

To the degree that a basic income increases entrepreneurial intentions, that might also, by a completely separate mechanism, yield an immediate-term reduction in employment and income, while recipients reduce labor force participation to devote time to enterprises not yet paying off.

Hypothetically speaking, a two percentage point difference in employment and 1.3 hour per week average reduction in work hours — with both effects often indistinguishable within a 90% confidence interval, probably always indistinguishable within a more conventional 95% confidence interval — might strike one as a surprisingly small effect for a $1000 per month basic income pilot.

Which might be a shame! It would suggest only a modest wage increase if a genuinely universal basic income of that amount were enacted, assuming continued full-employment macro policy.

But, at least directionally, it would suggest an increase in wages for a constant quantity of labor supplied.

And recipients would enjoy the per se benefits of an extra $1000 a month, taken in some mix of cash and time for education, care, leisure, or entrepreneurship.

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