Should we have Universal Basic Income?

Should we have Universal Basic Income? I'll gather evidence from recent pilots and economic research to lay out the case for and against.

Universal Basic Income (UBI) is typically conceived as a program to provide a financial safety net, with no obligations and without the bureaucracy and associated administrative costs of means-tested benefits. Whether a country should adopt it depends on how you weigh competing goals: poverty reduction and simplicity versus cost, targeting efficiency, and work incentives. The body of quantitative evidence for or against a universal basic income is still slim.

Arguments In Favor

1. Simplicity and removal of disincentives
Proponents argue it is simpler to implement than other forms of welfare because it doesn't require means testing. Other welfare programs can "reduce incentives to work, because benefits get withdrawn as earned income goes up. UBI does not have that problem".

Philosophically, one argument is that all of us are benefiting from the investments in society that were made by prior generations. The wealth of every one of us is underpinned by technological advances and institution-building of the past. A UBI allows the benefits of society to be shared across all of us.

2. Poverty and inequality reduction
One of the main arguments in favour of UBI is its potential to reduce poverty and economic inequality. A 2022 study by the University of York found that a UBI model could cut poverty by more than half, bringing it to its lowest level in 60 years without any net cost to public finances. This would be achieved through tax adjustments and guaranteed weekly payments.

3. Well-being, health and trust
Finland is the only country that has completed a nationwide randomized control trial. From January 2017 to December 2018, 2,000 unemployed people in Finland received an unconditional monthly payment of €560 instead of their usual unemployment benefit.

The final results found:

Earlier initial results had found that basic income recipients were no more likely to find work than a control group who did not receive the payments, showing how interpretation has evolved.

4. Employment and spending behavior - Stockton, California
The Stockton Economic Empowerment Demonstration, or SEED, founded in February 2019, gave 125 people living in neighborhoods at or below Stockton's median household income the unconditional monthly stipend of $500.

Results from the first year, February 2019 to February 2020, found recipients obtained full-time employment at more than twice the rate of nonrecipients. Specifically, full-time employment rose from 28% to 40% during the program's first year in the SEED group, while full-time employment increased less dramatically in the control group, from 32% to 37%.

People spent their SEED cash on basic needs — less than 1% was spent on alcohol or tobacco, counter to an assumption that people will spend government money on drugs or other non-essentials.

5. Response to automation
Concerns that automation will destroy jobs have revived interest in UBI. One 2013 estimate out of Oxford University is that 47% of U.S. jobs are at risk of being automated in 20 years. Proponents argue that even a small basic income could do a lot of good in this context.

Arguments Against

1. Cost and feasibility
Critics argue UBI is unaffordable or inadequate, though some modeling tests this claim. The best argument against UBI is often described as feasibility.

Conservative economist Martin Feldstein opines that a universal income would be "impossibly expensive" and that paying for the program without raising the deficit would require "doubling the personal income tax". A UBI that pays every American $10,000 a year would cost about $3 trillion.

Research from the National Bureau of Economic Research notes a UBI would direct much larger shares of transfers to childless, non-elderly, non-disabled households than existing programs, and much more to middle-income rather than poor households. A UBI large enough to increase transfers to low-income families would be enormously expensive.

"Thoughtful liberals and conservatives trained in economics are almost universally against the idea", in part because because of the cost, it will generally weaken the ability to target the poor by diluting the spending to everyone.

In Switzerland, voters rejected a UBI proposal 77 per cent to 23 per cent because of its prohibitive cost and implicit reward for idleness.

2. Targeting efficiency
Despite imperfections in targeting using proxy-means tests, targeted transfers may result in substantially higher welfare gains than universal programs, because for a given total budget they deliver much higher transfers to the poor.

Either we end up with a very low UBI, which would leave those reliant on it in abject poverty; or we end up with a higher UBI and far greater taxes than we are used to paying.

3. Inflation and economic growth
One of the most common arguments against universal basic income is the idea that it will cause inflation. Conservative economists also argue it would harm economic growth.

4. Work incentives and automation uncertainty
The assumption that an entirely unconditional guaranteed income would reduce incentives to work has led many countries to deploy active labor-market policies. While Finnish and Stockton results did not show reduced work, critics still worry about long-term effects, especially if payments were larger and permanent.

Others question the automation premise itself. Wharton management professor Peter Cappelli says he has yet to see evidence that robots are going to cause massive joblessness, noting robotics is often a labor complement.

Alternatives Often Proposed

Instead of a universal payment, alternatives include:

Some economists propose bundling a modest guaranteed income with an expanded EITC to both simplify the patchy safety net and maintain work incentives.

Questions to Consider

If evaluating UBI for your context, key questions are:

In short, pilots show promising effects on well-being and no clear reduction in work effort, but at a modest payment level and small scale. The central trade-off remains whether the benefits of universality and simplicity outweigh the high fiscal cost and reduced targeting efficiency compared to alternatives like a negative income tax or expanded EITC.