Is income security possible in a capitalist economy?: An agency-theoretic analysis of an unconditional income grant

Abstract

This paper is an assessment of the economic effects of the replacement of means-tested or employment-status-related state redistributive programs by a basic income grant paid unconditionally to all adults without regard to their employment status or pretransfer incomes. A microeconomic model is developed to identify the effects of such a grant on the institutional mechanisms governing the supply of work by those employed and the implied effects on the level of wages, profitability an investment. Two questions are posed. First, taking account of the implied effects on wages, labor discipline and taxes, is it possible to introduce a basic income grant without reducing the level of economy with maintainance of the level of profitability and so, what is the largest grant consistent with maintainance of the level of profitability and investment? The answer to the first question is affirmative. The answer to the second is that for an economy such as the United States, the profitability and investment maintaining grant is small but hardly insignificant; its implementation would effect a major redistribution of income from the employed and the unemployed to the non-employed.