Events at CERGE-EI

Alexander P. Hansak, MSc.

Vienna Graduate School of Economics, Austria

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Abstract: The trend towards increasing automation and robotization is a challenge for the labor market, especially for the demand for low skilled labor. Concepts of a Universal Basic Income (UBI) are often brought up as potential reforms to current welfare systems which could provide additional insurance against this trend. I develop a quantitative theory of the labor market where firms endogenously decide on their investment in robots, while workers can insure themselves against the risk of automation induced job-loss by obtaining a college degree. This framework allows for an analysis of the interaction between unconditional transfers and automation and reveals a negative relationship between the generosity of the basic income and the investment in robots. UBI lowers the effective marginal tax rates for unemployed and reduces the incentives for obtaining a college degree. Both effects lead to an increase in participation and search effort in the automation sector and investment in robots is discouraged while employment increases. Concerning worker welfare, my framework highlights a generational conflict: When comparing stationary equilibria, workers would always prefer being born into an economy without a basic income. However, older cohorts who are already alive during the introduction of the basic income can expect welfare gains during the transition to the new equilibrium.

JEL Classification: E24, H24, H31, I38, J24
Keywords: Universal Basic Income, Negative Income Tax, Automation, Labor Market Frictions, Overlapping Generations

Full Text: Quantifying the Effects of Basic Income Programs in the Presence of Automation