Essential definitions

Universal basic income

A regular unconditional payment to individuals irrespective of employment or income.

Minimum wage

A legal floor on the wage employers may pay covered workers.

Discrimination

Unequal treatment based on characteristics unrelated to relevant productive ability.

Understand a universal payment

A universal basic income is a regular payment without a means test or work condition. Everyone covered receives it, reducing eligibility gaps and stigma. Taking a job does not remove the payment itself, although taxes used to finance it can still affect the net reward to work.

A meaningful payment to everyone has a large budget cost. If it replaces targeted disability or housing support, people with high needs may lose. Compare the final tax-and-benefit package rather than the payment alone, identifying both how it is funded and who is better or worse off.

Improve access to employment

Anti-discrimination laws can prohibit recruitment, pay or promotion decisions based on irrelevant personal characteristics. Transparent procedures, enforcement and accessible complaints make rights more effective. Removing barriers helps qualified people use their abilities and can reduce persistent earnings gaps.

A law alone cannot supply missing qualifications, transport or childcare. Complementary services may be needed for formal equality to become a practical opportunity. This connects income policy to the previous lesson's emphasis on removing the actual constraint facing a household.

Read the minimum-wage model

Put the real wage vertically and labour quantity horizontally. In a competitive market, demand and supply meet at equilibrium E. A binding wage floor above it raises pay for retained workers, but employers demand fewer workers than people offer. Read employment at the floor's intersection with labour demand; the gap to labour supplied is excess supply.

This prediction depends on the model, size of the increase, productivity and enforcement. With employer wage-setting power, a moderate minimum can raise wages without the same job loss. A wage floor directly helps covered workers; a universal payment also reaches people without jobs. Compare those differences and budget costs, while enforcement and services address barriers neither payment can remove alone.

Apply and evaluate

• A wage floor’s effects depend on labour-market structure and how far it exceeds the prevailing wage.
• A UBI must be evaluated with its financing and any benefits it replaces.

Real-world application

Sources and applications

• IB Economics guide: first assessment 2024, updated October 2022 · 2022-10