Basic income and employment

Abstract We analyse the general equilibrium implications of introducing a universal basic income (UBI) for employment and income in an economy characterized by involuntary unemployment. Our framework allows tax revenues and workers' reservation wages to adjust endogenously with employment to satisfy the government's budget constraint. We show that multiple equilibria may emerge and that a UBI can support higher employment when the initial equilibrium is characterized by high taxes. However, in this setting, replacing unemployment benefit schemes with UBI proves less effective at fostering employment, ultimately requiring higher taxes and yielding more limited welfare gains.