Suffice to say, the idea that people will seek to maximize their short-run real income is not speculative. People are semi-rational actors, and generally place a very heavy weight on avoiding very big losses or suffering in the very near future. The result is that, yes, people dependent on cash transfers downgrade their living conditions to maximize real income. This is empirically pretty straightforward to demonstrate, especially when we look at Social Security recipients. I will do this in a later blog post, so stay tuned!
I’m very skeptical that anything meaningful about the general population can be drawn from social security recipients, a group that skews much older. It makes complete and total sense to be more risk averse and focus more on the near future when you’re, say, 80 years old, and a longterm outlook isn’t entirely relevant. If you have data that controls for those biases, though, I’m interested to see what it says.
But what we know about the job-guarantee or paid-leave research is that entrepreneurship generated changes it from like 1% of the population to like 1.2% of the population, and the new ventures generated are rarely employer-businesses, but usually provide supplementary income, or just enough for the proprietor. In other words, they’re nice to have, but this kind of extra entrepreneurship is not usually stuff that really changes an economy. Plus, the studies we’ve seen of this effect have largely, just by virtue of where the policies in question exist, focused on very urbanized, higher-income areas where there’s great demand for tertiary services. In poorer areas, there’s less payoff to the risk of entrepreneurship. So while this effect may be real, it’s unlikely to do much to get people out of poverty.
I don’t know what a 20% increase in entrepreneurship would do for a local economy, but that’s what going from 1% to 1.2% is. Even if entrepreneurs are “usually” not employer businesses (which I take to mean that less than 50% of these businesses employ anyone, even if some technically comprise more than one person), one successful business could still potentially employ the entire town. I don’t know what the statistics look like in 2016, but about a decade ago, approximately 50% of all employed people were employed by a small business, so gains in entrepreneurship would seem to be quite significant in improving local economic conditions.
In terms of getting people out of poverty, that will have theoretically already been accomplished in any legitimate form of basic income. In that context, and especially in the context of a poorer area under a basic income paradigm where the locals theoretically have more extra cash than locals in a wealthier area who are getting the same disbursement, it stands to reason that the payoff to risk is proportionally greater than in wealthier areas. Not, of course, if basic income is regionally adjusted, but it could be the case if there is a flat basic income.
