Universal Basic Income – Top 3 Pros and Cons

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Alaska residents filing applications for their Permanent Fund payments in Anchorage, Alaska, last year.
Source: Rashah McChesney, “Alaskans Weigh in on This Year’s Smaller Dividend Check,” ktoo.org, Sep. 23, 2016

A universal basic income (UBI) is an unconditional cash payment given at regular intervals by the government to all residents, regardless of their earnings or employment status. Pilot UBI programs have taken place or are ongoing in the United States, Brazil, Canada, Finland, and other parts of the world. In 2017, Hawaii passed legislation creating a working group to study UBI. In that same year, 77% of Swiss voters rejected a proposal to introduce a UBI.

The Alaska Permanent Fund (AFP), created in 1976, is the only genuine UBI in existence today. Funded by oil revenues, AFP provides dividends to permanent residents of the state ($1,022 in 2016, $2,072 in 2015, $1,884 in 2014).

Proponents of UBI say that it reduces poverty and income inequality, encourages employment and skills training, and values normally unpaid roles such as homemakers and caregivers. They also say it improves the health of recipients and empowers women. Opponents of UBI say that it does not reduce poverty, that it deprives the poor of needed targeted support, provides a disincentive to work, and weakens the economy. They also say it is unaffordable and less effective than targeted aid and welfare.

Universal Basic Income - Top 3 Pros and Cons

Pro 1

Universal Basic Income (UBI) reduces poverty and income inequality, and improves health.

In 1981, Alaska was ranked 30 out of 50 states on income inequality; by 2015, the state had jumped to number two. [42] [
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Alaska’s improvement in income equality is largely attributed to the implementation of its UBI program starting in 1976, the Alaska Permanent Fund. [29]

Namibia’s UBI program, the Basic Income Grant (trialled in 2007-2012), reduced household poverty rates from 76% of residents before the trial started to 37% after one year. Child malnutrition rates also fell from 42% to 17% in six months. [7]

Scott Santens, Founding Member of the Economic Security Project, says that a UBI set at $1,000 per adult per month and $300 per child per month would eradicate US poverty entirely. [12] John McArthur, DPhil, Senior Fellow at the Brookings Institution, says that 66 countries in extreme poverty could afford to implement what he calls “extreme poverty-ending cash transfers.” [3]

Kenya’s UBI trial (ongoing) has reportedly led to increased happiness and life satisfaction, and to reduced stress and depression. [2]

Participants in India’s UBI trial (2013-2014) said that UBIs helped improve their health by enabling them to afford medicine, improve sanitation, gain access to clean water, eat more regularly, and reduce their anxiety levels. [14]

Mincome, a trial UBI in Manitoba, Canada, in the mid-1970s, found that hospitalizations for accidents, injuries, and mental health diagnoses declined during the trial. [1]

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Pro 2

UBI leads to positive job growth and lower school dropout rates.

The guarantee of UBI protects people from sluggish wage growth, low wages, and the lack of job security caused by the effects of the growing “gig” economy such as Uber/Lyft driving, short-term contracts, and increased automation in the workplace. [4][5][10] UBIs also enable people to stay in school longer and participate in training to improve skills or learn a trade.

Researchers from the Roosevelt Institute created three models for US implementation of UBI and found that under all scenarios, UBI would grow the economy, increasing output, employment, prices, and wages. [44] Since implementation of the Alaska Permanent Fund, the increased purchasing power of UBI recipients has resulted in 10,000 additional jobs for the state. [6]

Uganda’s UBI trial, the Youth Opportunities Program, enabled participants to invest in skills training as well as tools and materials, resulting in an increase of business assets by 57%, work hours by 17%, and earnings by 38%. [8]

The Canadian Mincome trial in the 1970’s found that participants of the trial were more likely to complete high school than counterparts not involved in the trial. [1]

The Basic Income Grant trial in Namibia (2007-2012) enabled parents to afford school fees, buy school uniforms, and encourage attendance. As a result, school dropout rates fell from almost 40% in Nov. 2007 to 5% in June 2008 to almost 0% in Nov. 2008. [7]

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Pro 3

UBI guarantees income for non-working parents and caregivers, thus empowering important unpaid roles, especially for women.

Guy Standing, PhD, Professor of Development Studies at the University of London (UK), says UBI makes all forms of work, including childcare and eldercare, “equally deserving” of payment. [25] A UBI allows working parents to reduce their working hours in order to spend more time with their children or help with household chores. [26][27]

Reviewing the UBI trial in India (2013-2014), SEWA Bharat (an organization related to women’s employment) and UNICEF (a children’s rights organization) concluded that “women’s empowerment was one of the more important outcomes of this experiment,” noting that women receiving a UBI participated more in household decision making, and benefited from improved access to food, healthcare, and education. [14]

The Basic Income Grant Coalition trial UBI in Namibia (2007-2012) found that UBI “reduced the dependency of women on men for their survival” and reduced the pressure to engage in transactional sex. [7]

Mincome, the Canadian UBI trial in the mid-1970s, found that emergency room visits as a result of domestic violence reduced during the period of the trial. [28]

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Con 1

Universal Basic Income (UBI) takes money from the poor and gives it to everyone, increasing poverty and depriving the poor of needed targeted support.

Poor people face a variety of hardships that are addressed with existing anti-poverty measures such as food stamps, medical aid, and child assistance programs. UBI programs often use funds targeting the poor for distribution to everyone in society. According to Robert Greenstein, President of the Center on Budget and Policy Priorities, “[i]f you take the dollars targeted on people in the bottom fifth or two-fifths of the population and convert them to universal payments to people all the way up the income scale, you’re redistributing income upward. That would increase poverty and inequality rather than reduce them.” [15]

Luke Martinelli, PhD, Research Associate at the University of Bath (UK), created three models for implementation of UBI and concluded that all three would lead to significant numbers of individuals and households who are worse off, noting that “these losses are not concentrated among richer groups; on the contrary, they are proportionally larger for the bottom three income quintiles.” [37] Research by the Organisation for Economic Co-operation and Development (OECD) in Finland, France, Italy, and the UK concludes that “rather than reducing the overall headcount of those in poverty, a BI [basic income] would change the composition of the income-poor population” and thus “would not prove to be an effective tool for reducing poverty.” [39]

UBIs are less cost-effective than targeted welfare programs because many people lack more than just cash. [19][24] UBI does not cure addiction, poor health, lack of skills, or other factors that contribute to poverty. [19]

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Con 2

UBI removes the incentive to work, adversely affecting the economy and leading to a labor and skills shortage.

Earned income motivates people to work, to be successful, to cooperate with colleagues, and to gain skills; however, “if we pay people, unconditionally, to do nothing… they will do nothing” and this leads to a less effective economy, says Charles Wyplosz, PhD, Professor of International Economics at the Graduate Institute in Geneva (Switzerland). [33] Economist Allison Schrager, PhD, says that a strong economy relies on people being motivated to work hard, and in order to motivate people there needs to be an element of uncertainty for the future. UBI, providing guaranteed security, removes this uncertainty. [36]

Elizabeth Anderson, PhD, Professor of Philosophy and Women’s Studies at the University of Michigan, says that a UBI would cause people “to abjure work for a life of idle fun… [and] depress the willingness to produce and pay taxes of those who resent having to support them.” [17]

In 2016, the Swiss government opposed implementation of UBI, stating that it would entice fewer people to work and thus exacerbate the current labor and skills shortages. [34]

Guaranteed income trials in the United States in the 1960s and 1970s found that the people that received payments worked fewer hours. [9]

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Con 3

UBI is too expensive.

Y Combinator, a startup incubator, is going to run a UBI trial in Oakland, California, providing individual participants with $1,000-$2,000 a month. [22] A $2,000 a month per head of household UBI would cost an estimated $2.275 trillion annually, says Marc Joffe, MBA, MPA, Director of Policy Research at the California Policy Center. [23] Some of this cost could be offset by eliminating federal, state, and local assistance programs; however, by Joffe’s calculation, “these offsets total only $810 billion… [leaving] a net budgetary cost of over $1.4 trillion for a universal basic income program.” [23]

The UBI trial in Finland provides participants with €560 ($673 USD) a month for two years. [21] lkka Kaukoranta, MS, Chief Economist of the Central Organization of Finnish Trade Unions (SAK), says that Finland’s UBI model is “impossibly expensive, since it would increase the government deficit by about 5 percent [of GDP].” [20]

In a Sep. 14, 2016 parliamentary debate, UK Minister for Employment, Damian Hinds, rejected the idea of UBI, saying that estimated implementation costs ranging from £8.2 billion – £160 billion ($10.8 billion – $211 billion USD) are “clearly unaffordable.” [38]

Economist John Kay, Research Fellow at the University of Oxford, studied proposed UBI levels in Finland, France, Germany, Switzerland, the United Kingdom and the United States, and concluded that, in all of these countries, UBI at a level which can guarantee an acceptable standard of living is “impossibly expensive… Either the level of basic income is unacceptably low, or the cost of providing it is unacceptably high.” [41]

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Sources:

1.Evelyn L. Forget, "The Town with No Poverty," public.econ.duke.edu, Feb. 2011
2.Johannes Haushofer and Jeremy Shapiro, "The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya," princeton.edu, Apr. 25, 2016
3.John McArthur, "How Many Countries Could End Extreme Poverty Tomorrow?," brookings.edu, June 1, 2017
4.Caroline Lucas, "These Are the Simple Reasons Why a Basic Income for All Could Transform Our Society for the Better," independent.co.uk, Jan. 15, 2016
5.May Bulman, "French Socialist Presidential Candidates Back Universal Basic Income of £655 a Month for All Citizens," independent.co.uk, Jan.17, 2017
6.Luke Kingma, "Universal Basic Income: The Answer to Automation?," futurism.com (accessed July 6, 2017)
7.Basic Income Grant Coalition, "Pilot Project," bignam.org, 2014
8.Christopher Blattman, et al., "Generating Skilled Self-Employment in Developing Countries: Experimental Evidence from Uganda," ssrn.com, Nov. 14, 2013
9.Alicia H. Munnell, "Lessons from the Income Maintenance Experiments: An Overview," bostonfed.org, Sep. 1986
10.Robert B. Reich, "Why We'll Need a Universal Basic Income," robertreich.org, Sep. 29, 2016
11.Greg Mankiw, "News Flash: Economists Agree," gregmankiw.blogspot.co.uk, Feb. 14, 2009
12.Scott Santens, "Universal Basic Income as the Social Vaccine of the 21st Century," medium.com, Feb. 5, 2015
13.Oren Cass, "Why a Universal Basic Income Is a Terrible Idea," nationalreview.com, June 15, 2016
14.SEWA Bharat, "A Little More, How Much It Is... Piloting Basic Income Transfers in Madhya Pradesh, India," unicef.in, Jan. 2014
15.Robert Greenstein, "Commentary: Universal Basic Income May Sound Attractive But, If It Occurred, Would Likelier Increase Poverty Than Reduce It," cbpp.org, May 31, 2016
16.Noah Zon, "Would a Universal Basic Income Reduce Poverty?," maytree.com, Aug. 2016
17.Elizabeth Anderson, "Forum Response: A Basic Income for All," bostonreview.net, Oct. 1, 2000
18.Robert Whaples, "Skeptical Thoughts on a Taxpayer-Funded Basic Income Guarantee," The Independent Review, Spring 2015
19.Isabel V. Sawhill, "Money for Nothing: Why a Universal Basic Income Is a Step Too Far," brookings.edu, June 15, 2016
20.Raine Tiessalo, "Free Money Provokes Some Finns to Slam Basic Income as 'Useless'," bloomberg.com, Feb. 8, 2017
21.Kela, "Experimental Study on a Universal Basic Income," kela.fi, Feb. 16, 2017
22.Jason Koebler, "100 People in Oakland Will Get Free Money as Part of a Basic Income Experiment," motherboard.vice.com, May 31, 2016
23.Marc Joffe, "Universal Basic Income: An Idea Whose Time Should Never Come," thefiscaltimes.com, Apr. 3, 2017
24.Andreas Mogensen, "Why We (Still) Don't Recommend GiveDirectly," givingwhatwecan.org, Feb. 27, 2014
25.Guy Standing, "How Cash Transfers Promote the Case for Basic Income," guystanding.com, Apr. 2008
26.Philippe Van Parijs, "A Basic Income for All," bostonreview.net, 2000
27.Olivia Goldhill, "All of the Problems Universal Basic Income Can Solve That Have Nothing to Do with Unemployment," qz.com, Apr. 24, 2016
28.Canadian Medical Association, "National Support for a Basic Income Guarantee," cloudfront.net, 2015
29.Malcolm Torry, Money for Everyone, 2013
30.Philippe Van Parijs, "Basic Income and Social Justice: Why Philosophers Disagree," jrf.org.uk, Mar. 13, 2009
31.Poverty and Social Exclusion (PSE), "Benefit System Riddled with 'Stigma'," poverty.ac.uk (accessed July 25, 2017)
32.David R. Henderson, "A Philosophical Economist's Case Against a Government-Guaranteed Basic Income," independent.org, 2015
33.Charles Wyplosz, "Universal Basic Income: The Contradictions of a Simple Idea," parisinnovationreview.com, Dec. 8, 2016
34.Swiss Federal Council, "'Unconditional Basic Income' Popular Initiative," admin.ch, June 2016
35.Rachel Slater, "Cash Transfers, Social Protection and Poverty Reduction," odi.org, Mar. 2008
36.Allison Schrager, "Why You Need a Healthy Amount of Uncertainty in an Economy," qz.com, Nov. 16, 2013
37.Luke Martinelli, "Exploring the Distributional and Work Incentive Effects of Plausible Illustrative Basic Income Schemes," bath.ac.uk, May 2017
38.Damian Hinds, "Universal Basic Income," hansard.parliament.uk, Sep. 14, 2016
39.Organisation for Economic Co-operation and Development (OECD), "Basic Income as a Policy Option: Technical Background Note Illustrating Cost and Distributional Implications for Selected Countries," oecd.org, May 2017
40.GiveWell, "GiveDirectly: Supplementary Information," givewell.org (accessed Aug. 24, 2017)
41.John Kay, "The Basics of Basic Income," johnkay.com, Apr. 5, 2017
42.Thomas A. Husted, "Changes in State Income Inequality from 1981 to 1987," journal.srsa.org (accessed Sep. 5, 2017)
43.Kirby B. Posey, "Household Income: 2015," census.gov, Sep. 2016
44.Michalis Nikiforos, et al., "Modeling the Macroeconomic Effects of a Universal Basic Income," rooseveltinsitute.org, Aug. 2017