La Bourse / Volume V / Nº V.07 / Quiz, reflection, essays

Three colleagues walking together down a sunlit corridor, talking, dried grasses beside them. — Plate V.07 · Quiz, reflection, essaysThe Standing Order.A floor is not an amount. It is the removal of a question — and the question was taking up the room the rest of her life had to happen in.

ASSESSMENT · Chapter V.07 — Income, Floor, and Dignity

Three instruments: a ten-point quiz, eight reflection questions, five essay prompts. The quiz checks comprehension rather than recall. The reflections are private and first-person. The essays are arguable from more than one side.

THE QUIZ — ten points

Four on recall.

1. Write the identity that connects a guarantee, a claw-back rate and a break-even income, and say what it forbids.

B = G / t, so t × B = G. The claw-back rate times the width of the withdrawal band equals the guarantee, in every design. One mark for the expression, one for the consequence: a decent guarantee, a gentle claw-back and a low cost cannot all be had. Pick two.

2. Why do income tax, National Insurance and the Universal Credit taper not simply add together, and what is the resulting rate?

Because the means test tapers what is left after tax: 1 − (1 − 0.20 − 0.08) × (1 − 0.55) = 67.6%. Credit is lost for 83 percent, which is the answer you get by adding, and which no British worker pays.

3. What did Seattle–Denver randomise besides the level of the guarantee, and what did it find?

The duration — three-year and five-year arms on the same payment schedule. The five-year arm reduced hours by more. Every time-limited trial therefore understates the response to a permanent programme.

4. Name the three design choices that decide whether a floor survives a decade, and the failure each one prevents.

Indexation to median earnings — prevents death by arithmetic, the nominal floor eroded by inflation with nobody deciding anything. Universality — prevents death by politics, a payment defended only by the poor. A ring-fenced funding source — prevents death by competition against health and schools.

Four on application.

5. A campaigner tells you a basic income for the UK would cost £318.5 billion and is therefore impossible. What has been left out, and by how much?

The tax side of the ledger. Abolishing the personal allowance returns £108.1 billion, abolishing the National Insurance threshold £28.2 billion, and replacing Child Benefit and the Universal Credit standard allowance £40 billion — a net fiscal cost of £142.2 billion, a gross-to-net ratio of 2.24 to one, and 5.6 percent of GDP rather than 12.4. The stronger answer also notes what must NOT be netted off: housing, disability and carer support are not replaced here, and a costing that folds them in is a cut wearing a new name.

6. Somebody cites Stockton — full-time employment moving 28 to 40 percent against a control moving 32 to 37 — as proof that a basic income raises employment. Give the two-sentence honest answer.

The direction is right and the precision is not: with 125 treated and 200 controls the standard error on the difference is 5.55 percentage points, and the gap between the two endpoint levels is about 0.54 standard errors. Full marks require holding both sentences — the finding is real and it is not decisive — rather than choosing one.

7. A colleague quotes the 2.4 local fiscal multiplier from the Kenyan general-equilibrium study in support of a national programme in a rich country. What is wrong with the transfer, and what is the analogous risk?

The multiplier was measured in village economies with idle capacity and elastic local supply of labour and goods. A national programme faces a labour market that can bind. The analogous risk is incidence: a floor paid into a housing market with fixed supply is a transfer to landlords with extra steps, because the incidence of any transfer lands on whoever owns the scarce thing. Credit any answer reaching "a floor without a supply policy on housing is a subsidy to whoever owns the scarce thing."

8. Why does the chapter refuse to treat the per-person comparison — £2,083 for the floor against £18,716 per job guarantee post — as settling the argument?

Because the two instruments buy different things. The job guarantee buys a wage floor, a price anchor and a public output; the floor buys an exit option. The exit option is what the carer, the student and the person who cannot work at any wage are asking for, and a job offer does not supply it. A ratio between two different goods is not a verdict.

Two that require the arithmetic to be done.

9. A government proposes a guarantee of £6,000 a year clawed back at 40 pence in the pound. Compute the break-even income and the effective marginal rate in the withdrawal band with National Insurance at 8 percent, and say how it compares with the top rate of income tax. Show your working.

Break-even: £6,000 / 0.40 = £15,000. Band rate: 40 + 8 = 48.0%. The additional rate of income tax is 45 percent, so the band exceeds it by 3.0 percentage points — a marginal rate on the lowest earners higher than the one on the highest. Modelled cost of the payment leg: £82.7 billion. The point of the question is that the answer is a rate, and a rate can be compared with another rate. Credit any method reaching £15,000 and 48 percent.

10. A firm of 2,000 hourly staff has median net monthly pay of £1,850 with a standard deviation of 18 percent, and wants to guarantee 85 percent of trailing median pay. Turnover is 60 percent and replacement costs £3,000 a leaver. Compute the annual cost and the break-even turnover reduction.

σ = 0.18 × £1,850 = £333.00. z = (0.85 − 1) × 1,850 / 333 = −0.8333. E[(a − X)⁺] = σ(zΦ(z) + φ(z)) = £333.00 × 0.1133 = £37.73 per person per month, so £37.73 × 12 × 2,000 = £905,533 a year. Break-even turnover reduction: £905,533 / (2,000 × £3,000) = 15.09 percentage points. The stronger answer notices that z is unchanged from the chapter's worked case — a floor 15 points below the median at 18 percent volatility sits at the same number of standard deviations as a floor 10 points below at 12 percent — and that the cost rose by exactly the ratio of the two volatilities.

REFLECTION — eight questions, for one person and a pen

These are not for a room. Write the answers by hand if you can; the slowness is the point.

What is your own floor, today, and who is the counterparty? Savings, a partner's income, a parent, a credit line, a landlord's patience. Name it precisely, then ask how many months it holds.

Recall a decision you made because you could not afford to be wrong. What did you choose, what would you have chosen with a bottom underneath you, and what was the difference actually worth?

Where in your own life have you accepted something you did not want because declining it was not available? Not dramatically — the ordinary version.

What work have you done that the labour market priced at zero? Care, repair, organising, holding a family together. Estimate the hours honestly.

Who in your circle has a floor they did not earn, and who has none? What has that difference produced in each of their lives over ten years?

If your income were guaranteed at the level of the chapter's floor — £5,200 a year, £100 a week — what would you stop doing, and how quickly? Be honest, including if the honest answer is nothing.

The chapter finds that the highest marginal rate in Britain is 67.6 percent and is paid by the lowest earners. Before you read that, what did you assume? What else might you be assuming about who bears what?

Write the strongest argument against an income floor that you personally find difficult to answer. Not the weak version — the one that troubles you. Then sit with it for a week before deciding whether it is right.

ESSAY PROMPTS — five

Each is arguable from more than one side. Each requires at least one source the chapter cites and at least one it does not.

1. Does the duration finding sink the trial literature? Seattle–Denver found the five-year arm reduced hours by more than the three-year arm, which implies every short trial understates the permanent response. Argue either that this makes the recent wave of two-year pilots close to useless for policy, or that the Alaska evidence and GiveDirectly's twelve-year arm together repair the gap. Use Robins (1985) and Jones and Marinescu (2022), and at least one methodological critique of cash-transfer trials that the chapter does not cite.

2. The withdrawal band, and who should stand in it. Every floor puts a marginal rate above the top rate of tax somewhere. Argue for where it should sit: on the lowest earners in a tightly targeted scheme, spread across everybody in a universal one, or nowhere at all with the cost carried by a source outside the income tax entirely. Engage the chapter's frontier table directly, and use at least one public-finance treatment of optimal income taxation — Mirrlees or after — that the chapter does not cite.

3. Floor or job. Pavlina Tcherneva argues that a job guarantee does what a basic income claims to do and more, at a fraction of the cost. Philippe Van Parijs argues that the freedom to refuse work is the point and a job guarantee cannot supply it. Take a side, cost your position using the chapter's figures — £18.7 billion against £142.2 billion net — and answer the strongest objection to it. Use Tcherneva and Van Parijs, and one empirical evaluation of an actual public employment programme that the chapter does not cite.

4. Incidence. The chapter argues that a floor without a housing supply policy is a subsidy to landlords. Argue the counter-case: that this is true of every increase in income including wage rises, that it has not prevented anyone recommending those, and that the argument proves too much. Then say what would settle it empirically. Use Egger et al. (2022), and one source on the incidence of housing subsidies or rent response that the chapter does not cite.

5. What a floor says about worth. Volume V asks what a person is worth and to whom. A floor is the most direct answer an economy gives, because it names the level below which a person will not be allowed to fall regardless of what they produce. Argue either that setting that number explicitly is a moral advance over leaving it implicit, or that making it explicit fixes it low and forecloses the informal, discretionary generosity that currently does the work. Use Van Parijs and Vanderborght, and one source on conditionality, deservingness or the administration of welfare that the chapter does not cite.