What you should know about the Universal Basic Income

As unemployment rates increase and many jobs become automated, the world tries to find a solution.

Universal basic income (UBI) has increasingly and excitedly being advocated by both academics and activists in the fight against unemployment, poverty and income inequality. More than by academics and activists, it has been advocated also by some of the world’s biggest tech companies.

This apparent odd convergence of interests is explained by the prominent arrival of a future where automation may transform many of the current jobs into flexible, precarious and even obsolete – and where UBI can ascend as a necessary alternative for them.

The French economist Thomas Piketty, in a recent post in his blog, argued that “The debate on basic income has at least one virtue, namely that of reminding us that there is a degree of consensus (…) on the fact that everyone should have a minimum income.” However, the same author also argues that this kind of policy does not express completely the concepts of social justice and fair wage, which should include public services such as education, labour organizations and the tax system.

Still very little is known about UBI outcomes, transforming it more into a promise for the future than an actual point of the development agenda.

UBI consists of a periodic and unconditional cash transfer paid by the welfare system to all individuals, regardless their income and employment status.

This policy design is considered an advance in relation to the traditional conditional cash transfer programs, very common particularly in developing countries, which transfer cash to beneficiaries usually conditional on their disadvantaged economic status. Furthermore, the conditional cash transfers often require commitments from their beneficiaries, commonly related to attendance to health and educational programs, which equally do not exist in the case of UBI.

Who has tried?

UBI has recently appeared in the media thanks to the present experience in Finland. In this pilot program, the Finnish government will make a transfer to a group of about two thousand citizens, aged between 25 and 58, regardless their economic conditions and without requiring any report about how this income will be spent by them, during a period of two years.

The results of this experience may determine whether UBI will permanently become part of Finland’s welfare system – being extended to all individuals in the country – or not.

However, the UBI idea is not new. On the contrary, it results from debates about negative income tax which occurred in the United States during the 1960’s and 1970’s. These debates endorsed that individuals whose earnings are inferior to a minimum should receive transfers from the welfare system instead of paying taxes – being the opposite for those with higher earnings.

In those same decades, the province of Manitoba, in Canada, implemented the first guaranteed basic income program, which consisted of an experiment where randomly selected families received a minimum guaranteed cash according to their size and earnings. This program was the first attempt to verify the eventual social impacts of a guaranteed, unconditional annual income. Similarly, in the 1980’s, the American state of Alaska implemented the Alaska Permanent Fund, which would share part of the dividends from the oil industry equitably to all Alaska’s residents.

Since then, besides the Finnish experience, UBI examples can be found also in countries like Namibia, Brazil, India, Kenya, Netherlands and Scotland, some of them already generating preliminary gains.

Where it could go wrong

The excitement around UBI, however, is followed by concerns regarding its implementation and outcomes.

The most basic of the concerns relate to the costs of these programs, in a moment when the welfare system is deeply crossing a worldwide crisis. Despite the evidences, UBI is not so expensive, these estimates are based on the assumption it would replace the current welfare system and its conventional benefits (such as the housing and childcare ones, usual mainly in developed countries), and not be implemented in an overlapping way. It means that the current, conventional benefits paid by welfare system would be displaced and simply substituted by a universal basic transfer.

Therefore, a threat is that some individuals could receive a lower amount of benefits from an UBI program than the amount they actually receive from the current welfare system. People with disabilities and children, for instance, commonly receive higher benefits which could be simply replaced by a lower UBI, given that a universal transfer would not consider these individuals’ particular features. On the other hand, because of its universal characteristic, the richer individuals would then start receiving UBI too, apart from their economically advantageous situation. This would mean in practice a transfer from the neediest to the least. In other words, if not well designed, a UBI program can ironically represent a regressive cash transfer from the poor to the rich.

Another concern regards the disincentives UBI programs may eventually generate for individuals’ participation in the labour market. Finland’s biggest union has recently pointed to the dysfunction of the country’s UBI program regarding the stimulus it creates for its beneficiaries to work. The discussion about these so called “perverse incentives” is particularly relevant in a time when unemployment is still high and wage levels are lower.

Whilst some argue UBI could encourage individuals to accept part-time, flexible jobs without the risk of partially losing their unemployment benefits, as it is nowadays, it could also discourage others to join the labour market if the proposed wage is not enough to stimulate them to work, since they have already access to a basic income. The consequence of this would be the creation of a poverty trap where individuals would be stuck in economically minimum life conditions.

What more do we need?

UBI is certainly a promising policy that addresses important issues regarding unemployment, poverty and inequality. However, there are still many questions that need answering.

Like any other policy, UBI programs must be implemented under the rigorous empirical evidence, with their pros and cons very well defined – which may occur after the experiences currently implemented in different countries. Otherwise, UBI can be shamefully wasted, untidily implemented with excitement instead of palpability

Categories
Development
Diego da Silva Rodrigues

Diego is an applied economist interested in policy evaluation and quantitative methods. His main interests are around family issues, such as marriage, parenting, gender, fertility and children, being member of the International Network of Child Support Scholars (INCSS) and the Parenting Culture Studies Postgraduate Network. Diego has also publications in migration and health economics, and is currently involved with human rights and democracy activism in South America. At present, he is completing his PhD at the University of Kent, UK, and is lecturer in Economics at IESGO, Brazil.

    4 Comments on this post.
  • Serena Natile
    11 August 2017 at 6:45 pm
    Leave a Reply

    Nice piece, Diego. However, one of the main and fairly successful basic income projects was conducted in Namibia – this is my next research project. http://www.bignam.org/

    • Words In The Bucket
      12 August 2017 at 11:20 am
      Leave a Reply

      Follow up piece 🙂

    • Serena Natile
      12 August 2017 at 11:56 am
      Leave a Reply

      I planned to, but as a guest writer now I’m prioritising other things – but I will do it as soon as I have some time. A good way to test my new research.

    • Diego Rodrigues
      12 August 2017 at 8:15 pm
      Leave a Reply

      Thank you, Serena! I briefly metioned Namibia in the article, I am aware the experience there has generated good outcomes. Good luck with your project and, please, give us a feedback about it when possible. 🙂

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