Integrating citizen's income with social insurance

Citizen's income or social dividend schemes are a way of avoiding the “poverty trap”, or disincentive effect, inherent in withdrawing unemployment compensation completely when the beneficiary returns to work. If there are inadequate financial incentives for the unemployed to return to work, the benefit administration may feel the need for tighter discipline of the unemployed, threatening to withdraw benefit from those who reject offers of low‐paid work. Citizen's income provides better incentives to work without so much need for sanctions. The article explores four different methods of introducing a citizen's income gradually by allowing people to keep an increasing proportion of their benefit as they move from unemployment into work. New transfers would also be made to never‐unemployed workers, to secure equity between all persons whatever their employment status or history. The best method is to define an hourly unemployment benefit, and make benefit for a certain number of hours unconditional on employment status. This gives better incentives to work part‐time than existing benefit systems, and fairer treatment for those who can only find a part‐time job. Minimum wage regulation is important, to prevent employers taking advantage of a citizen's income to reduce wage rates.