With an aging population, many people are concerned that we will no longer be able to afford to ‘fund’ the age pension or other welfare from taxation, because we will end up with fewer payers and more payees.

However, this concern is based on several misconceptions about how the economy works, as well as the future of work.

At any time, there is a certain amount of resources available to meet the needs of everyone in society. The only question is how these resources are ‘divided up’.

The total value of output is paid to everyone in the production process as wages, fees, profits, rent, or interest. Without taxation, collectively, these people could consume all that they produce as they spend their incomes.

This would leave nothing for the 12-14% of the population who cannot do paid work, and who have no savings or family support. Mainly kids, the disabled and aged, and their unpaid carers (mainly women), and some between jobs. This is not a fixed group of people: the young grow up, the disabled age and the aged die, while their carers and those between jobs find new employment… only to be replaced by a new cohort. In many respects, this group is ‘us’ over time.

By funding current welfare payouts from current taxes, the spending power of people who participate in the production process (as workers or investors) is reduced (freeing up resources). Through welfare, the money is transferred to those who are now retired or are without paid employment for some period. This allows the available resources to be channelled to where they needed, without causing inflation.

Each generation of workers looks after the earlier generation in turn, as well as those who may be unable to work for some part of their lives (for any number of valid reasons).

The main requirement is that any redistribution should not disincentivise people from taking on the available paid work when they can.

Unfortunately, traditional welfare fails this test, because it is reduced as you earn. In these circumstances, it is rational for people to take the benefit in lieu of a low paid job - if the benefit meets their basic needs. It forces the government to set welfare below the poverty line for people in the working age population. While this does incentivise people who can work to take the available jobs, it also leaves an ever-changing group of 3.2 million Australians destitute. This is called ‘The Poverty Trap’.

A Universal Basic Income (UBI) solves the Poverty Trap, as it ensures everyone has sufficient income to survive, while allowing people to earn on top, without losing payment of the UBI. Pilots from around the world show that when people have enough to live on, they invariably do activities to better themselves and their family. This includes better family care, more education, and taking on paid work when they can.

We don’t have to worry about a reduction in available output due to a decline in worker numbers.

Once it took most of the workforce to produce our food. Now it takes just over 2%. Manufacturing peaked at 25% of the workforce, but is now around 6%. Services now take almost 78%.

There is a wave of automation, virtualization and AI coming that will dramatically reduce the need for workers in a whole range of services, as well as further automating manufacturing, logistics (including trucking), mining and farming.

This will completely solve the supposed impending ‘worker shortage’.

We also need to remember that over 100 years ago it was common to work 72 or more hours a week, including Saturdays.

The opportunity is to shorten the work week further, perhaps to 30 or 25 hours, while increasing productivity, as well as increase job share and mutual flexibility - to better share the available work, while giving people more free time.

The UBI can be set to keep the labour market in dynamic balance as these changes occur - so there is never a shortage of labour, or people out of work, for long periods. This can be achieved because everyone has a different need and capacity to do paid work. If there are too few jobs due to automation, as the UBI is raised, some people will choose to stop looking for work or reduce their hours, leaving an opening for those who still want the work, until the market is again in balance.

The UBI allows everyone to signal their basic needs to the market (whether they are in paid employment of not) with the money flowing up to the owners of capital. This is good for people, and good for business, which is good for society overall.