Economic Impact of a Minimum Income Guarantee: Analysis of economic theory and policy evidence - Executive Summary
Economic Impact of a Minimum Income Guarantee: Analysis of economic theory and policy evidence by WPI Economics on behalf of the independent Minimum Income Guarantee Expert Group.
Creating an economic framework
These findings can be brought together into a Theory of Change, showing the interconnection of various policy mechanisms and the expected effects that should lead to outcomes that we might expect from the introduction of a Minimum Income Guarantee. This is shown below in Figure 1.
However, the shape of the outcomes and the certainty of achieving them will depend on the exact policy design of a Minimum Income Guarantee, and how the various levers interact with each other. The Theory of Change shows that attempting to achieve the Minimum Income Guarantee through just one of the policy levers is unlikely to have the desired outcomes – and could lead to some considerable unforeseen consequences. These could be offset by taking a mixed approach to achieving a Minimum Income Guarantee – as is currently the intended approach of the Expert Group.
The Theory of Change highlights the importance of ensuring that a more generous social security offering is underpinned by robust work incentives and labour market improvements and supported by sustained action on important household costs and services.
Inputs: market and policy failures to address |
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|---|---|---|---|---|
Stubbornly high poverty rates |
Labour market inefficiencies and barriers |
Inadequate financial support via the social security system |
Failure to maximise work incentives |
Rising cost of essential household goods & services |
Intervention: Introduce a Minimum Income Guarantee |
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|---|---|---|
Social Security reform |
Labour market and work |
Essential services and household costs |
Policy mechanism |
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A simplified and more generous safety net More predictable income with changes to conditionality regime |
Social partnership approach to economy bringing together employers, workers and government Reduction in precarious employment and 'low quality' work |
Improved access to essential services, in particular transport and childcare Increased government spending to provide free / subsidised services |
Effects |
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Change in reservation wage (the minimum rate of pay at which individuals are willing to take a job) Longer job searches, but with potentially better long-term job matching Change in labour supply Increased risk-taking and entrepreneurship |
Improved incentive to work as employers pressured to increase wages Improved job retention, job fulfilment and less labour market decoupling Change in hours worked and wages earned |
Reduction in household costs Improved ability to participate in the labour market Improved ability to participate in the economy Improved child development and opportunities |
Demographic effects |
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Work incentives potentially weakened for young people, women (second earners) and households without children Lone parents and single households likely to be incentivised most |
Gendered impact on labour market participation Potential for lower overall employment with ‘good work’ focus – but more workers in high-skilled roles |
Increased labour market involvement of parents with young children – particularly women Better ability of rural and other isolated population to access the labour market |
Outputs |
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|---|---|---|---|---|
Reduction in poverty |
Change in labour supply, work incentives and labour market composition |
Higher and more certain incomes for low-income households |
Increased consumption (poorer households have a higher propensity to consume) |
Better health and wellbeing |
Contact
Email: MIGsecretariat@gov.scot
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