By Daniel Archibald | CFA
The current health crisis has led to the deaths of hundreds of thousands around the world and the shutdown of everyday life. While there may be a slow return to normal over the coming months, it is likely that unemployment will remain high for a lengthy period of time.
Governments around the world have responded to the massive jump in those out of work by providing an equally impressive safety net to the newly unemployed. This unprecedented level of economic stimulus will see Government deficits blow out to around 25% of GDP (usually closer to 5%), but will hopefully keep the world from slipping into a prolonged depression.
Unemployment benefits differ from country to country. In Australia, the unemployed receive up to roughly $1200 per month. There are no major conditions on receiving the set benefit, other than that the recipient should be actively seeking work. In the U.S., employees pay unemployment taxes into an unemployment insurance scheme. Those that are unemployed can claim from their respective scheme, but payments can range from about $1,000 to $4,000 per month. This amount is dependent upon state and salary. In a global comparison, Australia's unemployment benefits are amongst the lowest around the world, though additional financial support is available to parents and renters. Part of the stimulus seen in many countries, has been to increase unemployment benefits: For example, Australia has increased benefits by $550 per fortnight under the 'Coronavirus Supplement'.
The current environment has also accelerated advocation for universal basic income (UBI). Unlike unemployment benefits, which are paid to those who have lost employment, a UBI is paid to every citizen regardless of employment status. This guaranteed income might be paid only to adults, or might also include children. High income earners would also receive a UBI payment, however, it is likely that such a plan would be funded by higher taxes on those with higher salaries (and thus, the wealthy are likely to have a negative net benefit from such a scheme).
A major rationale for such a scheme is to simplify income redistribution systems. Instead of multiple layers of benefits (unemployment, age pension, disability benefits, parenting payments, etc), a country would simply determine their basic safety net level and pay that amount to all citizens. Again, taxes would need to be high enough to cover this payment. Another reason for UBI is that it affords its citizens the opportunity to reduce workloads when needed (e.g. birth of a child, sabbatical) while still being able to meet a basic standard of living.
The current crisis has also highlighted the rapidly changing work environment, with greater levels of automation and remote work becoming the norm. As this trend continues, it may not be surprising if in the near future we start to see a greater amount of production being accomplished with just a fraction of the current workforce. This would be great for lifestyles in general (less need to work), but it could lead to a world of extreme inequality, with wealthy asset owners no longer needing to share profit through wages. While a guaranteed income for all wouldn't necessarily discourage greed, it might encourage placing a higher value on things other than money.