The real problem of Universal Basic Income (UBI)

April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.

McDonalds
Finland ran a two-year Universal Basic Income in 2017 and 2018
(Image credit: Photo by Noam Galai/Getty Images)

Let’s say you are unemployed and someone offers you $15 an hour to work a 40-hour week as a shift manager at McDonald’s in the US. That would give you $600 a week. It’s not a fortune. It’s not awful either. So all other things being equal, if you were in need of work you’d probably take it. But what if someone else was offering you a little over $600 a week if you didn’t take it? $650 perhaps — to stay at home instead. My guess is that you might think twice.

This might be part of the explanation behind the trouble American companies are having hiring at the moment. For much of the past 18 months the US government has not only showered one-off stimulus cheques on the general population but also offered hugely bumped up unemployment benefits. People have been able to claim more and for longer than ever before (39 weeks rather than 26 weeks). The average weekly unemployment benefit across the country is now well over $600, with some states paying over $700.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.