I agree that that is a possible consequence, but it's far from guaranteed that that will happen. Although in sheer numbers many people may quit working, the actual percent of people who do could be rather low. After all, merely subsisting isn't necessarily attractive to people who already have decent jobs and can do better than one could on the basic income. It does however give them more negotiating power in terms of their payscale, given that quitting one's job will no longer be effectively a non-option for the vast majority.
This may mean that a lot of low-payscale jobs will be renegotiated, and employers who previously employed many low-paid workers would have to optimize for employing fewer higher-paid workers (possibly doing the same jobs, depending on how necessary they are, or by finding ways to automate). I don't claim any expertise in this, but I'd find it hard to believe that there isn't at least some degree to which it's merely easier to hire more people to accomplish many tasks people are currently hired for, rather than impossible to accomplish them some other way. This also is an innovation-space in which skilled jobs could pop up.
As for high-payscale jobs, I could see good arguments for any number of outcomes being likely to occur. Perhaps employers would be able to successfully argue that they should pay them less due to supplementing a basic income. Perhaps employees would balk at this and, newly empowered to walk more easily, demand that they keep the same pay, or even higher pay. The equilibrium would likely shift in some way as far as where the exact strata of pay are for different professions, and I can't claim to know how that would turn out, but it seems unlikely people would prefer to not work than to do work that gives them a higher standard of living than the basic income to some significant degree.
Similarly, people who own profitable businesses certainly wouldn't up and quit, and thus most likely any service that the market still supports would still exist as well, including obvious basic essentials that presumably would exist in any economic system, such as businesses selling food or whatever is considered essential technology in a given era. Some businesses might fail if they're unable to adapt to the new shape of the labor market, and profitability of larger businesses may go down for similar reasons, but the entry barrier for small businesses would also decrease, since any given person could feasibly devote all of their time and effort into running a business without failure carrying the risk of inability to continue living.
There would probably be a class of people who subsist on basic income, but we already have a fairly large homeless population, as well as a population of people doing jobs that could probably go away and not ruin the economy for anyone but that individual.
My point isn't that everything will turn out perfectly as expected, or that I have any definitive way of knowing, obviously, but there do exist outcomes that are good enough and probable enough to pass a basic sanity-check. The risk of economic collapse exists with or without instituting such a policy, and I'm not yet convinced that this increases the likelihood of it by a considerable margin.
Note: Originally posted in Discussion, edited to take comments there into account.
Yes, politics, boo hiss. In my defense, the topic of this post cuts across usual tribal affiliations (I write it as a liberal criticizing other liberals), and has a couple strong tie-ins with main LessWrong topics:
The issue is this: recently, I've seen a meme going around to the effect that companies like Walmart that have a large number of employees on government benefits are the "real welfare queens" or somesuch, and with the implied message that all companies have a moral obligation to pay their employees enough that they don't need government benefits. (I say mention Walmart because it's the most frequently mentioned villain in this meme, but others, like McDonalds, get mentioned.)
My initial awareness of this meme came from it being all over my Facebook feed, but when I went to Google to track down examples, I found it coming out of the mouths of some fairly prominent congresscritters. For example Alan Grayson:
Or Bernie Sanders:
Now here's why this is weird: consider Grayson's claim that each Walmart employee costs the taxpayers on average $1,000. In what sense is that true? If Walmart fired those employees, it wouldn't save the taxpayers money: if anything, it would increase the strain on public services. Conversely, it's unlikely that cutting benefits would force Walmart to pay higher wages: if anything, it would make people more desperate and willing to work for low wages. (Cf. this this excellent critique of the anti-Walmart meme).
Or consider Sanders' claim that it would be better to raise the minimum wage and spend less on government benefits. He emphasizes that Walmart could take a hit in profits to pay its employees more. It's unclear to what degree that's true (see again previous link), and unclear if there's a practical way for the government to force Walmart to do that, but ignore those issues, it's worth pointing out that you could also just raise taxes on rich people generally to increase benefits for low-wage workers. The idea seems to be that morally, Walmart employees should be primarily Walmart's moral responsibility, and not so much the moral responsibility of the (the more well-off segment of) the population in general.
But the idea that employing someone gives you a general responsibility for their welfare (beyond, say, not tricking them into working for less pay or under worse conditions than you initially promised) is also very odd. It suggests that if you want to be virtuous, you should avoid hiring people, so as to keep your hands clean and avoid the moral contagion that comes with employing low wage workers. Yet such a policy doesn't actually help the people who might want jobs from you. This is not to deny that, plausibly, wealthy onwers of Walmart stock have a moral responsibility to the poor. What's implausible is that non-Walmart stock owners have significantly less responsibility to the poor.
This meme also worries me because I lean towards thinking that the minimum wage isn't a terrible policy but we'd be better off replacing it with guaranteed basic income (or an otherwise more lavish welfare state). And guaranteed basic income could be a really important policy to have as more and more jobs are replaced by automation (again see gwern if that seems crazy to you). I worry that this anti-Walmart meme could lead to an odd left-wing resistance to GBI/more lavish welfare state, since the policy would be branded as a subsidy to Walmart.