If Work Becomes Optional, What Does the State Owe Us?

by Kent O. Bhupathi

In 2024, a senior product manager that I met at a major tech expo told me something that has stayed with me. If I may be permitted some paraphrasing:

“It’s not just that I’m being replaced,” he said. “what really scares me is that my job is dissolving.”

Every quarter, a few more of his responsibilities migrated into software. First the routine analytics. Then client summaries. Then strategy. None of it disappeared overnight. It all just… thinned. What once required a devoted team, now required an “exec view” dashboard. What once required judgment, now required review.

Fortunately, he still has a job (albeit, in an industry removed from that which he devoted over twenty years). But he no longer believes work, as he has known it, is structurally necessary. His initial fear has quickly started its descent into acceptance.

And here is the uncomfortable truth: some of the very billionaires funding the next wave of artificial intelligence agree with him. They have publicly warned that AI may/will render large swaths of human labor economically redundant. Not just factory work. Not just clerical tasks. Knowledge work. Creative work. Managerial work. Potentially, frankly, most work…

Since Q4 2025, Melissa Carleton and I have argued that if AI’s labor impact is truly cross-industry and task-deep, then incremental policy adjustments will not be enough. If the private sector is structurally incentivized to eliminate labor in pursuit of profit, then fiscal policy will need to rise to that scale.

We have discussed Universal Basic Income. We have explored sovereign wealth fund dividends. Today, The Honest Economist adds a third piece to the puzzle: Universal Basic Employment.

Whatever the messaging, the substantive object here is a policy regime that warrants serious empirical scrutiny. The evidence is more complicated than either side admits.

What Universal Basic Employment Actually Is

Universal Basic Employment (UBE) is not a stimulus package. Nor is it a temporary jobs program or a work requirement.

As generally understood, UBE is a regime in which the state guarantees a standing job offer at a publicly specified wage and benefits package to any eligible person willing to work. The defining feature is the open, legally enforceable offer.

The United States has never operated a modern, permanent, always-available UBE system. That means we do not have a clean, contemporary experiment to analyze. Instead, we have clusters of partial evidence: New Deal work relief, 1970s Public Service Employment, modern targeted subsidized jobs, minimum wage research, and macro-labor studies.

Each offers insight. But none offers certainty.

The New Deal: Public Jobs at Scale, With Complications

If you want the closest historical analogue to UBE in the United States, you start in the 1930s. Despite being quite a ways back, recent econometric work has squeezed extraordinary insight from that era.

Ayushi Narayan’s 2025 Federal Reserve Bank of Minneapolis working paper exploits discontinuities in WPA (Works Progress Administration; 1935) wage schedules across counties. A roughly 6% increase in posted WPA wages at a population threshold led to higher WPA employment, implying a labor supply elasticity of about 3 with respect to wages.

So, in essence, higher public wages increased program employment.

But here is the part that should make us pause: the study finds no detectable reduction in unemployment. More public jobs did not mechanically translate into less unemployment…

At the city level, Neumann, Fishback, and Kantor’s analysis of 44 cities during the 1930s finds that in later subperiods, shocks to WPA work relief were followed by declines in private employment and increases in private earnings . That pattern is consistent with a crowd-out mechanism operating through a stronger outside option.

At the state level, Fishback and Kachanovskaya estimate income multipliers for public works and relief in the range of roughly 0.9 to 1.7, depending on specification . Income and consumption rose. Yet employment effects in some specifications were negligible or even negative.

In other words: public employment programs raised incomes and spending. But net employment gains were far from guaranteed.

The Fiscal Substitution and Design Problem of the ‘70s

The 1970s Public Service Employment expansions under the Emergency Employment Act and CETA provide the closest postwar analogue. At peak, CETA public service employment reached nearly 700,000 subsidized jobs.

The dominant empirical concern was fiscal substitution. When federal funds flow to local governments, those governments may use the money to finance jobs they would have funded anyway. Some accessible summaries of the period report substitution effects rising over several quarters, potentially approaching full substitution in certain settings.

Translation: gross job creation can look impressive while net job creation is modest.

If UBE is implemented via grants to states or municipalities, substitution incentives become central. If it is implemented via direct federal hiring, substitution may still occur indirectly through contracting or government-adjacent employment.

Ultimately, it was all about how the policy was designed.

Modern RCT Evidence: Strong Micro, Weak Macro

Because we have not run UBE at national scale, our most credible causal evidence comes from targeted, time-limited programs.

The New York City Summer Youth Employment Program lotteries studied by Gelber, Isen, and Kessler link administrative program data to IRS earnings, incarceration, and mortality records .

Participation increased earnings and employment in the year of the program, with modest contemporaneous crowd-out of other earnings. However, average earnings declined modestly over the following three years, and there was no increase in college enrollment.

Yet the program reduced incarceration and mortality probabilities.

If UBE is evaluated purely on net private employment, we may miss potentially large non-market social returns. But, these RCTs are partial equilibrium. They tell us what happens to participants. They do not necessarily tell us what happens when millions participate simultaneously.

The Wage Floor Question

When people hear of UBE, even if they are unfamiliar with its nuance, what they mostly initially think is “another jobs program.” In fact, it functions as a wage floor with enforcement power. And minimum wage research offers disciplined bounds.

Cengiz, Dube, Lindner, and Zipperer’s “missing jobs/excess jobs” design across 138 state minimum wage changes from 1979 to 2016 finds that the overall number of low-wage jobs is essentially unchanged over a five-year horizon, while wages at the bottom rise.

Card and Krueger’s canonical New Jersey–Pennsylvania study similarly found results inconsistent with simple competitive-model predictions of employment loss. And Aaronson’s restaurant price data show that minimum wage increases do pass through to consumer prices in labor-intensive sectors. What does this mean for UBE?

A UBE wage would likely compress wages at the bottom and could exert price pressure in labor-intensive industries. But it is stronger than a minimum wage because it provides an actual employment alternative.

The Hamilton Project has argued that take-up could extend well beyond the officially unemployed, particularly if the wage is attractive relative to the private wage distribution. And here is where the numbers get real!

According to MIT’s Living Wage Project, a single adult with no dependents requires approximately $23.06 per hour in Dallas County and $32.85 per hour in New York County to cover minimum basic needs while remaining self-sufficient. Those figures grossly exceed minimum wages virtually everywhere in the country.

So, if UBE pays below living wage, is it a dignity policy or a containment policy? If it pays at living wage, how many low-wage workers rationally switch?

This lives or dies on financing!

The Crowd-Out Assumption We Must Revisit

Historically, economists have worried that public employment crowds out private employment. But in an AI-saturated economy, private capital aims to crowd out human employability first. So, if firms can automate away labor at scale, then ignoring private displacement while obsessing over public crowd-out risks mis-specifying the problem.

That concern remains valid. But the economic environment under consideration is different.

If AI deployment reduces private labor demand across sectors, displacement originates in capital markets rather than in public hiring. In that context, the relevant question shifts. The issue is no longer whether public jobs displace private ones at the margin, but whether a public employment margin absorbs labor that private firms no longer demand.

Macro evidence offers a partial perspective. Boeing-Reicher and Caponi find that higher public employment at the metro level is associated with lower volatility in private employment growth, with at most limited crowd-out in their structural interpretation . Their results suggest that a larger public employment sector can operate as a stabilizing force rather than a simple substitute for private jobs.

Such a finding indicates that the magnitude and direction of crowd-out depend on scale, wage setting, and broader macro conditions.

Inflation risk is a separate channel. Minimum wage research documents price pass-through in labor-intensive sectors, which provides some empirical grounding for how wage floors transmit to prices. A permanent job guarantee would operate at a larger scale and with a standing employment offer, so extrapolation is necessarily indirect. The United States has no modern national UBE episode, and claims about inflation under such a regime rely heavily on structural modeling rather than reduced-form historical evidence. Research linking inflation expectations to job-search behavior suggests that worker flows could respond to nominal rigidities, but it does not provide direct estimates of price-level effects under a job guarantee .

The empirical record places bounds on both displacement and inflation. It does not resolve either question definitively under modern technological conditions.

So Where Does This Leave UBE?

Here is what the strongest U.S. evidence suggests:

• Public employment can raise incomes and consumption.

• Net employment gains are uncertain and depend on design.

• Wage floors need not destroy jobs at the bottom, but may compress wages and pass through to prices.

• Public jobs can generate non-market benefits such as reduced incarceration and mortality.

• Inflation dynamics under a permanent, open job guarantee remain largely theoretical in the U.S. context.

In other words: UBE is neither a silver bullet nor an economic impossibility.

And it most certainly calls for economic regime change.

If AI development truly renders the essence of work optional from the firm’s perspective, fiscal policy must decide what becomes non-optional from society’s perspective.

Universal Basic Employment deserves rigorous modeling and must be studied alongside UBI and sovereign wealth fund dividends.

Because if capital can make work optional for corporations, we must then ask whether work will remain mandatory for survival. Fancy product marketing and slogans will not help here. An answer will only come from evidence, design, and the courage to test ideas at the scale the future may demand.

Sources:

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Barden, Bret, Randall Juras, Cindy Redcross, Mary Farrell, and Dan Bloom. The Enhanced Transitional Jobs Demonstration: New Perspectives on Creating Jobs – Final Impacts of the Next Generation of Subsidized Employment Programs. OPRE Report, December 11, 2018. https://acf.gov/opre/report/enhanced-transitional-jobs-demonstration-new-perspectives-creating-jobs-final-impacts.

Bloom, Dan. Transitional Jobs: Background, Program Models, and Evaluation Evidence. OPRE Report, February 2010. https://acf.gov/sites/default/files/documents/opre/tj_09_paper_embed.pdf.

Boeing-Reicher, Claire A., and Vincenzo Caponi. Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas. IZA Discussion Paper No. 9965, June 2016. https://docs.iza.org/dp9965.pdf.

Boeing-Reicher, Claire A., and Vincenzo Caponi. “Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas.” Review of Economic Dynamics 54 (2024): Article 101232. https://doi.org/10.1016/j.red.2024.05.001.

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