Monday, February 18, 2019

Finland’s Universal Basic Income Yields Disappointing Returns

In what must be one of the most unsurprising stories of the day, researchers said that Finland’s trial universal basic income program did not lead to higher employment. Although the program did not lead more people to productive work than traditional social entitlements, participants did report that they were happier and less stressed.

In recent years, the concept of universal basic income (UBI) has become popular among some economists as an alternative to means-tested welfare programs and social safety nets. The idea is that a country would guarantee every citizen a minimum income level without meeting qualifying factors such as age, income, or dependents.

In theory, this strategy would encourage upward mobility and decrease self-defeating behaviors that are often associated with government entitlement programs. For instance, some entitlement programs have income caps that discourage recipients from getting jobs. Programs that are based around payments to support dependent children encourage recipients to have more out-of-wedlock children. By eliminating these requirements, it was hoped that the UBI would encourage people to make good decisions and improve their lives. Because the UBI also has no time limit, proponents argued that it would help people survive while they retrained for new jobs in industries that were not affected by automation.

Although first proposed in 1516 by Sir Thomas More, the UBI faced its first real test in Finland. Under a pilot program that ran from January 2017 through December 2018, the Finnish government gave 2,000 unemployed Finns a flat monthly payment of 560 Euros ($634) through the Social Insurance Institution (Kela). The trial was watched with interest by economists around the world and now that the results are in, they are disappointing. Per the BBC, Miska Simanainen, one of the Kela researchers behind the Finnish study, said that participants in the study were no more likely to find work than those in a control group that was given traditional unemployment benefits.

If this result was not surprising, neither is the fact that participants who received the free money with no strings attached liked the program because it made their lives less stressful. Tuomas, an out-of-work newspaper editor, said, “I am still without a job. I can't say that the basic income has changed a lot in my life. Okay, psychologically yes, but financially - not so much.”

Mr. Simanainen stopped short of calling the experiment a failure, saying, “This is not a failure or success - it is a fact, and [gives us] new information that we did not have before this experiment.”

It isn’t clear whether the UBI payments would save Finnish taxpayers money over the cost of traditional entitlement programs. It is possible that unconditional payments could reduce the bureaucracy associated with registering and following up with recipients of entitlement programs.

It does appear, however, that UBI, like other government programs, removes the incentive of recipients to find work. By funding a minimal income level that makes unemployed Finns more comfortable in their unemployment, the government makes it easier for them to remain unemployed.

UBI payments also promote a culture of getting paid for doing nothing. As Ulrich Spiesshofera Finnish business executive, told the Financial Times prior to the trial in 2016, “economic rewards should be based on actually creating economic value.” UBI payments are merely one more way of transferring wealth from those Finns who work to those who do not.

It is not clear what the next step is for UBI advocates. There are smaller scale trials being conducted in a Kenyan village and the city of Utrecht in the Netherlands. However, these programs are on a smaller scale than the Finnish study and the results will not be known for several years. The Kenyan study lasts until 2028. A Swiss referendum on UBI in 2016 was opposed by 77 percent of voters.

In the United States, a Gallup poll conducted in 2018 found that 48 percent of Americans support the idea of a universal basic income. Support was strongest among Democrats (65 percent) and 18-35-year-olds (54 percent). The cost of providing all working-age Americans with a $10,000 salary would be more than $3 trillion annually.

Unless and until more encouraging results come out of future trials, it will be difficult for UBI advocates to persuade policymakers and voters that the universal basic income is an idea whose time has come. That is unlikely to stop them from trying, however.

Originally published on The Resurgent

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