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Universal Basic Income doesn’t make the poor lazy, Iranian experience shows

LiveMint logoLiveMint 12-05-2017 Tadit Kundu

Two main arguments which are given against Universal Basic Income programmes are burden on exchequer and decline in labour supply as people get paid without working. The second argument might not be true, shows a study based on cash handouts in Iran. The initial handouts, which started in 2010, were to the tune of $40 per month. The paper uses household survey data to show that the poor did not necessarily reduce their labour supply when they received cash handouts. Overall labour force participation remained the same in both the years of the study, 2010 and 2011, at 88% for men and 18% for women. In fact, poorer service sector workers actually increased their hours of work, using the extra cash to expand their business. However, there was some decline in labour force participation among youth, but the authors say this could be due to increased enrolment in education.

Also Read: Cash Transfers and Labor Supply: Evidence from A Large-Scale Program in Iran

Mafia-type criminal organizations, through their investments in legal businesses like real estate, might often act as a sort of “stabilizer” for the local economy, according to a recent study by Marco Le Moglie and Giuseppe Sorrenti, researchers at the Bocconi University and the University of Zurich, respectively. They contend that the negative impact of the 2007 credit crunch in Italy on newly established businesses was less severe in areas with organized crime. This is because while bank credit dried up during the crisis, the finances of the mafia, often dependent on the illicit drugs trade, remained robust. Thus, mafia-run legal businesses, often in sectors like construction, healthcare, waste treatment, and tourism, continued to survive and benefit the local economy through spillovers.

Also Read: “Mafia Inc.”: when godfathers become entrepreneurs

Birth order appears to shape personality traits and leadership qualities, at least among men, according to research by Sandra E. Black, professor at the University of Texas at Austin, and others. Drawing from Sweden’s military enlistment records of men, the researchers find that earlier-born children are more likely to be in occupations that require leadership ability and social ability. Specifically, first-born children are more likely to be managers, while later-born children are more likely to be self-employed. This might be a result of evolutionary psychology where first-borns often dominate younger siblings, while later-borns often use more unorthodox strategies to attract attention.

Also Read: Born to Lead? The Effect of Birth Order on Non-Cognitive Abilities

Mental health and career are inherently intertwined, according to a recent paper. Using data from surveys of Australian households conducted between 2001 and 2014, the researchers conclude that joblessness can often cause or accentuate depression, while deteriorating mental health in turn can be very disruptive for career. Further, analysis suggests that the link between mental health and employment is closer among men than women. In case of women, job loss-related depression takes more time to set in, but could have greater chance of leaving chronic depressive symptoms.

Also Read: The Bilateral Relationship between Depressive Symptoms and Employment Status

American economist William Baumol passed away at the age of 95 last week. Baumol taught economics for decades at Princeton and New York University. Among his most popular contributions to economics is the concept of Baumol’s cost disease. It explains why cost of services with unchanged labour productivity levels (such as a haircut) can rise faster than produced goods such as T-shirts and consumer durables. Baumol also gave a lot of importance on the role of entrepreneurship and innovations in understanding the capitalist economy. Baumol–Tobin model of the transactions demand for money is another important contribution he has made to the subject. Kevin Bryan, a professor of economics at the University of Toronto, has written a blog paying tribute to Baumol.

Also Read: William Baumol: Truly Productive Entrepreneurship

Economics Digest runs weekly, and features interesting reads from the world of economics.

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