For example, right now Livable Wage hovers around \$20 an hour. That's around \$40,000 a year.

Let's say the US somehow will give \$50,000 a year as a "Guaranteed basic income".

How high will the "Livable Wage" go?

  • 2
    $\begingroup$ The title of your question is different from the question you ask in the body, but why would a basic income cause inflation? $\endgroup$
    – user7935
    May 8 '16 at 10:19


Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

The Consumer Price Index (CPI) is your best measure of inflation which is (put simply) the change in cost of a representative basket of goods. Each country measures this in a slightly different way.

If you are looking for a numerical increase in inflation, you'll be disappointed. A Basic Income has quite a few effects making this difficult to model. There are anticipated significant impacts on labour/leisure as well as consumption bundles. Also, inflation itself is difficult to model. To make things worse, many reserve banks target inflation with their monetary policy. So you're unlikely to ever get any empirical evidence as well.


Why would increasing income of lower income earners have an inflationary impact at all?

An increase in welfare should result in higher incomes. Higher income leads to higher consumption (or quantity demanded) which should lead to an increase in prices. But, this is only a one-off increase, not an ongoing source of inflation. I would be hesitant to call this inflation and would prefer to call it a permanent demand shock.

Unfortunately, I am not aware of any estimates of this impact but I would expect it the long term impact quite small. The higher the basic income, the greater the impact.

Also worth noting:

I can't think why this would be any more inflationary than any other form of welfare.

  • $\begingroup$ If UBI fix the basic need, then "beating the inflation" that inflict by the government monetary policies, seems counter productive. But as long as government can't get rid of "GDP growth model", it will still stay in the downward spirals of monetary havoc. $\endgroup$
    – mootmoot
    Dec 6 '16 at 9:28

The question of inflation "caused by" UBI is an attempt to create model of transition, which can only be speculated on many front. Due to complexity, Universal Basic Income (UBI) is a highly complexity model, which will change human behavior of consumption base economy model. Assumption of UBI cause higher inflation is too early to tell, because it depends on the policies come together with it.

Assumption of UBI causing high inflation

  • On funding UBI, under basic capitalism, government need to print money to pay the UBI, thus cause excessive money flow into the market, thus, devalue money.
  • UBI might cause even higher speculation on market, assume people will use the money to gamble to "gather wealth".

Assumption of UBI causing economy stagnation

  • With UBI, human being might do the reverse : because of the guarantee income, there is no need to "rush" for basic needs, thus, all the basic need , e.g. food, accomodation, basic entertainment price will stagnant.
  • Due to little to no inflation, people will NOT chase for growth, thus reduce volatility of "market". In the end, it will cause millions of job lost on financial market that base on speculative activities. Economy can no longer base on "growth"(where growth involve both production and speculation).

Assumption of UBI rewrite consumption base and economy growth model.

  • With little speculation in economy model, there is little need for ANY government to print money.
  • Without "urge" to create "GDP growth", future government may indeed switch to "knowledge point growth/goodies point growth", similar to some science fictions/Scifi game. Poverty will be eliminated, as there is no longer "race to the bottom" exploitation economy.
  • Society might transit to voluntary resource redistribution.
  • There will be no "unhireable labour". Previously "unhireable labour" maybe re-distributed to company that "not afford" to pay all the wages to generate higher knowledge output. This also true to place that need to redistribute "blue collar" workers.

Since no countries have introduced a guaranteed basic income on a big enough scale to evaluate it's impact on inflation, there is no evidence to answer your answer directly.

However, there is quite some evidence that minimum wage hikes increase the prices of firms that pay minimum wages. See Aaronson et al 2008 for an example (http://jhr.uwpress.org/content/43/3/688.refs). If you see a guaranteed basic income as an implicit wage floor---nobody would work for less than the basic income---then we should expect that the basic income increases prices.

  • $\begingroup$ My understanding of a UBI is that it would work very differently from a wage floor. With a UBI, you can earn Basic Income + wage. $\endgroup$
    – Jamzy
    Jan 9 '17 at 6:02

There are numerous problems with this question, but one of them is that a $50,000 per year per person basic income is impossible in the U.S. because per capita GDP was 55,837 in 2015.

A "guaranteed basic income of \$50,000" per person would require $\frac{50,000}{55,837} = 89.6\%$ of ALL U.S. economic output!! Given that government is already 17.5% of the U.S. economy and 89.6% + 17.5\% > 100%, we're already in the realm of physical impossibility. This is without even getting to the complete impossibility of tax collection at anything close to that magnitude.


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