Economics of paid idleness: The impossibility of the guaranteed basic income, the Swiss know better

The Swiss overwhelmingly voted against the basic income plan that would have guaranteed Swiss Francs 2500 ($2550) per adult as a minimum income per month and every child SFr 650; quite an unearthly income for not doing anything, going by any standards, but on careful scrutiny, it may not be so for the Swiss. With 4% unemployment rate, those for the cause were not in the majority for sure.

77% opposed it on the voting day. On the same day they also voted against the Transport financing: An initiative from the car lobby which wants more investment in roads. The government had urged a “No” vote and it was rejected by 71%.

The Swiss have a method in thinking; they do not want wide roads and new roads, which conflicts with the objectives of sustainability.

The same day the Swiss voted in favor of fast tracking the country’s asylum process by nearly 67%. If there were asylum seekers who were eligible, they would now get a faster access to Switzerland.

The percentage of people of Switzerland who participated on the voting is normally below 60% and since much of the voting happens by post, it is not unlikely that those who voted on one referendum also voted on the other four referendums.

First of all what is SFr2500 per month per person in Switzerland? It is just sufficient for a family of four to live in a town or suburb in two-room housing with basic amenities of health, education and living.

If one would carefully examine the people who are unpaid in Switzerland or have an income less than SFr2500 per month, they are those who are unpaid homemakers or voluntary-care workers. Otherwise no full time job is available in Switzerland below SFr2500. For part-timers, yes, there was room but the 77% who voted against gives the share of those who do not fall in this category.

These numbers who work unpaid at home or are care workers is a good percentage of the population. They form part of the welfare payments and the contention was that such welfare payments did not reach the deserving ones.

Imagine you want to clean your snow in your drive-way or work on your garden, or your swimming pool or want to paint your house. You would want to do that yourself for good reason because if you want to employ someone to do that the expenditure would be well above the equivalent rate of SFr2500 per month.

The same is true for cooking at home or cleaning the house. You would have good reason to do these jobs yourself and mechanization helps you to do it as well with relative ease.

So a lot of work goes unpaid in Switzerland, which in other countries people would pay for as these reflect the residual labor with little bargaining power and the supply of which is also high.

If in India you want to drive your car you save the equivalent of four times the prevailing minimum wage in India, wherever you are living. As the minimum wage is low, a lot many people can afford it, but in Switzerland as I have already explained there is no paid full time work less than SFr 2500, it would be impossible to think anyone would dream of affording a chauffeur, which would be at least three times the prevailing minimum wage.

But when unpaid work is to be replaced by a minimum wage of SFr2500 per month, it could be a possibility that the fiancée at home who is doing the cooking is getting paid for it. The drive-way cleaning which was getting done free is now getting paid. The person completely idling without any work is also getting paid for.

The voluntary work that many do in Switzerland would have been paid for more generously if the guaranteed scheme would have come in. But if income is separated from work, there is no incentive towards work. It could be much worse as it could lead to punishment for working.

As a person goes from not working to working, the loss of welfare benefits functions as an enormous tax on his earnings; in some cases making him worse off than if he stayed home and sat on the couch. But that is not what the Swiss referendum was intending to do. They were attempting to create a new paradigm: what would a person do if an idle person was given a minimum wage that would take care of his living?

It was a way of saying that you could follow your dream and do what you wanted to do. It would spark off additional creativity and that would in turn have paid for the additional money. Well, this is short of Utopia.

The Swiss do not live in an island, the number of people in Europe who would have seen SFr2500 as a great opportunity would be pouring into the borders of the country. The unpaid jobs would have a new supply of labor. Incentivizing an unpaid work with a relatively high rate compared to rates prevailing in neighboring countries would have attracted cross border movements. The trade-off would have been rather complex.

If the state of entitlement that everyone could follow his own desires and dreams is extended to everyone, then either there would be none to pay for it, or you create a pool of people who would be living below the threshold to take care of such less-skilled jobs.

So the vote is a perfect match and the denouement a perfect result. But what does this leave to the rest of the world, especially those in the developing nations like India?

If you think of voting for a minimum wage in the region of Rs.10,000 per month in India, the vote would tilt for an overwhelming majority in favor for such a denouement. No wonder, as the enormous benefit for those who will see rise in their entitlements would dwarf the cause against, how the entitlement program would be financed.

I am not sure what would be the result in U.S. for a vote on $2000 per month. But then we do not know how many would actually appear on the voting day. In any case the Libertarians would have a field day, but those against would be bringing the same argument as I have proposed.