Should we have Universal Basic Income?

Should we adopt Universal Basic Income? I'll review the latest pilot results and the economic case for and against it.

Whether society "should" have Universal Basic Income depends on what problem you want it to solve, how it is designed, and what you are willing to trade off. UBI is generally defined as a regular, unconditional cash payment given to all members of a society.

There is no consensus among economists, and recent pilot studies give a mixed picture.

The case FOR a UBI

Proponents frame UBI as a response to structural economic changes:

•Response to automation and insecurity: Unconditional basic income is seen as a potential solution to decreasing job security and predicted automation of many routine jobs.

•Advantages over conditional welfare:

•It can redistribute the benefits from automation and globalization

•Since it is not conditional on income, it does not create "poverty traps"

•It is simple and transparent, with low administrative costs

•It is an efficient buffer against shocks and systemic risks from automation and globalization

•Freedom and empowerment: It would allow people to spend money on whatever they value most, empower women and marginalized groups, and free people to spend time on caregiving, volunteering or education without losing benefits.

Pilot evidence often cited by supporters:

•In the largest US basic income pilot, direct cash payments improved recipients' home lives and did not stop participants from working and helped get their families into safer situations.

•Some studies reported large positive effects in terms of birth weight, hospital admissions, adult and child mental health and infant obesity.

•There were some large increases in the proportion of teenagers completing high school and improved educational performance in negative income tax studies and in tribal dividend studies.

•Participants in Canadian studies reported that flexibility, security and being able to work alongside health issues, education, or caring responsibilities without losing benefits were highly valued.

The case AGAINST a UBI

Critics focus on cost, feasibility, and unintended consequences:

1. Enormous cost

•A UBI large enough to increase transfers to low-income families would be enormously expensive.

•The average proposed stipend of around $10,000 annually would cost the United States approximately $3.2 trillion to distribute.

•A UBI of just $1,000 per month would cost around $4 trillion per year, which is close to the entire federal budget in 2018. Without major cost savings, federal tax revenue would have to be doubled.

Financing it would require drastic tax increases. One study of a basic income of 1,200 euros per adult found financing would require a tax increase between 50 and 100% over the current standard, and additionally depending on its design, a basic income could lead to inflation, which would significantly erode its purchasing power.

One of the most common arguments against universal basic income is the idea that it will cause inflation.

2. It may not be sustainable and inclusive at once

A British think-tank, the New Economics Foundation, analyzing 16 projects, concluded: "There is no evidence that any version of UBI can be affordable, inclusive, sufficient, and sustainable at the same time".

Its authors argued the money needed to pay for an adequate UBI scheme would be better spent on reforming social protection systems, and building more and better quality public services.

Sacrificing all other social programs for a UBI is also seen as risky, because such programs exist to address specific problems, such as the vulnerability of the elderly, children, and disabled people.

3. Work incentives

Classic economic theory predicts a UBI generates a pure income effect which would reduce work on the extensive and intensive margins. While effects are debated, critics warn that over time, the stigma against leaving the workforce would erode and large segments could drift into alienated idleness.

What do experiments actually show?

No experiment has yet tested a truly universal, permanent, sufficient UBI at national scale, so extrapolation is difficult.

•Finland (2017-2018): 2,000 unemployed people received an unconditional monthly payment of €560 instead of their usual unemployment benefit. The experiment lowered participation tax rates by 23 percentage points for full-time employment, despite the considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. By the second year, recipients were active for 6.63 days more than the control group - a small effect. Researchers summarized: UBI did not have a significant effect on employment, but it significantly increased confidence in reemployment. Other reporting noted it made them happier and less stressed — but it did not make them any more or less likely to get a job.

•North America and Iran reviews: Effects on men's labour market activity were mostly quite small, although one Alaskan study found annual hours worked reduced by 11%. Women with young children and single parents reduced hours by up to 33%.

•Overall, researchers caution that people might be more likely to change the amount they work if payments were not due to stop in two or three years, and if everyone received payments, employers might have to increase wages — spillover effects very difficult to measure if only a small number of people receive payments.

Should we have it? Alternatives to consider

Because a full UBI at a livable level is so expensive, many economists propose more targeted alternatives:

•Guaranteed Basic Income / Negative Income Tax: Rather than giving everyone $1,000 per month, a guaranteed-income program would offer transfers only to individuals whose monthly income is below $1,000, thereby coming in at a mere fraction of a UBI's cost.

•Expanded Earned Income Tax Credit (EITC) and stronger safety net: The EITC already functions like a guaranteed basic income for low-wage workers, costs far less than a UBI, and directly encourages work. Other proposals argue for universal health care, more generous unemployment benefits, and better-designed retraining programs instead of UBI.

Bottom line:

•If the goal is to reduce poverty, simplify welfare, and give people security to navigate precarious work, care for family, or return to education — pilot evidence suggests unconditional cash does help on health, well-being, schooling and financial security without causing mass exit from work.

•If the goal is to do so affordably, efficiently, and without major tax increases or cuts to existing services for vulnerable groups — evidence so far suggests a truly universal payment sufficient to live on fails the affordability and sustainability tests.

Many researchers therefore conclude: generous, non-stigmatizing income support is valuable, but everything turns on how much money is paid, under what conditions and with what consequences for the welfare system as a whole. A scaled-down, targeted guaranteed income is currently seen as more feasible than a permanent, universal payment for all citizens.

Do you want me to outline what a targeted UBI-like program might look like for a specific country — for example the US, UK, or EU — and estimate the trade-offs?

Citations (3)

1weforum.orgNonprofits and think tanks
Why universal basic income is not the silver bullet its advocates claim
Backs: “Whether society "should" have Universal Basic Income depends on what problem you want it to solve, how it is designed, and what you are willing to trade off.”
2weforum.orgNonprofits and think tanks
Is universal basic income a good idea? | World Economic Forum
Backs: “In the largest US basic income pilot, direct cash payments improved recipients' home lives and did not stop participants from working and helped get their families into safer situations. Some studies reported large positive effects in terms of birth weight, hospital admissions, adult and child mental health and infant…”
3weforum.orgNonprofits and think tanks
Why Universal Basic Income might not be the answer
Backs: “The average proposed stipend of around $10,000 annually would cost the United States approximately $3.2 trillion to distribute. A UBI of just $1,000 per month would cost around $4 trillion per year, which is close to the entire federal budget in 2018.”