Universal Basic Income: A Comprehensive Analysis of Pros and Cons

The concept of Universal Basic Income (UBI), a regular, unconditional cash payment provided by the government to all residents, has gained significant traction in recent years. Fueled by concerns about automation, income inequality, and economic instability, UBI has been touted as a potential solution to a variety of societal challenges. However, the idea also faces criticism regarding its cost, potential impact on work incentives, and overall effectiveness. This article will delve into the multifaceted debate surrounding UBI, exploring its potential benefits and drawbacks.

Defining Universal Basic Income

Universal Basic Income (UBI) is a government program that provides regular cash payments to everyone, rich and poor, working and unemployed. It is a regular cash payment by the government that is given on a monthly or annual basis.

Fabian Wendt, a teaching assistant professor, says that UBI is unconditional in several respects. In contrast to many other welfare programs that you only get when you prove your willingness to work, a UBI would be unconditional in that respect. It would also be unconditional on what money you make, what you have in general and on what contribution you made to finance the UBI. Finally, it would be unconditional on your family situation, on whether you’re married or not.

Doug MacKay says that UBI is a platform to stand on and to build a life on.

The Goals of UBI

The goals of UBI can vary depending on the policymaker and the proposer. For some on the left, it is seen as a platform to build a life on, providing security and the ability to meet basic needs. If you think about the pandemic, when people are losing their jobs, it takes a long time for government to react. Had we had a basic income in place, that would have been a way of ensuring people are secure, have the ability to meet their basic needs and live a dignified human life. They don’t need to appeal to various agencies. They have consistency in terms of being able to afford housing, food and so on. It’s an anti-poverty measure.

For some on the right side of the political spectrum, UBI is seen as anti-paternalistic, allowing individuals to live their lives as they see fit without government interference. The other thing that folks on the right emphasize is the way UBI might allow you to shrink the size of government. People on the left often think of basic income as something we’re going to add to the safety net and keep much of the safety net intact. People on the right often see it as a replacement: We’re going to give people a guaranteed income, and we’re going to get rid of a whole host of social safety net programs that cost a lot of money and require a lot of people to administer.

The Rise of UBI: Drivers and Context

Andrew Yang put UBI on the map, but what’s driving it and why now? UBI has often been seen as a response to the challenge of automation - the worry that many people are going to become unemployed and replaced by machines. For example, truck drivers will lose their jobs once there are automated trucks. In the end, that’s not a new concern, though. People have worried that machines would replace jobs at least since the 19th century, but usually new types of jobs were always created elsewhere.

The idea of a UBI was brought up last spring as a response to the pandemic - an emergency UBI. The coronavirus hit so hard. Many people felt like this was a chance to get some serious reform of the welfare state going. In the end we got the stimulus checks instead, which were not completely different, but a one-time thing, and not unconditional. The checks depended on how much you earned.

Another thing I would point to are concerns about income inequality. I don’t think this is necessarily a great solution to the problem of income inequality, but I think the economic anxiety leads people to UBI.

Evidence from UBI Experiments

There’s been a variety of studies. There were a couple of really famous experiments in the ’70s in Canada and here in the United States. There was a really interesting study in Manitoba in the late ’70s, where they had a whole town that was subject to a guaranteed income policy - a floor that families would not fall below. A lot of randomized controlled trials in low-income countries have been using cash transfers since the late ’80s, early ’90s. Some of these are conditional cash transfers. In Mexico, for example, you might get a cash transfer from the government if you send your kids to school and take them for yearly doctor visits. And there was one recently in Finland, where they gave $500 per month to unemployed folks.

An experiment in Kenya is the largest. It involves around 20,000 people and unconditional cash payments that cover basic needs. It started in 2017 and will last 12 years. There are four different groups. One group gets the cash for the whole 12 years. Another group gets paid up front rather than on a monthly basis, I believe. Another group receives payments for a shorter period of time. And then there’s a control group that doesn’t get any cash. Some people reported that it has changed how women see their role in the household, because they felt entitled to have a say over how to spend the money.

These are high-quality studies. The evidence has shown that the UBI programs are pretty effective in a number of different ways. The caveat I would give is that they happen in different contexts, and the interventions are very different.

Arguments in Favor of UBI

Poverty and Income Inequality Reduction

UBI reduces poverty and income inequality and improves physical and mental health. Child malnutrition rates also fell from 42% to 17% in six months. Participants in India’s UBI trial said that UBI 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. Mincome, a UBI trial in Manitoba, Canada, found that hospitalizations for accidents, injuries, and mental health diagnoses declined during the trial. Kenya’s ongoing UBI trial has reportedly led to increased happiness and life satisfaction and to reduced stress and depression, proving that UBI could improve a range of mental health concerns and stressful situations proven to deteriorate mental health.

Matthew Smith, professor in health history at the University of Strathclyde says that “Recent research has linked the stress of poverty with inflammation in the brain…UBI could be set at a level to ensure that everyone’s basic needs are met. This would reduce much of the stress faced by the working poor or families on benefits…UBI would also help people, usually women and children, to leave abusive relationships. Domestic abuse occurs more often in poorer households, where victims lack the financial means to escape. Similarly, UBI might prevent the negative childhood experiences believed to lead to mental illness and other problems later in life. These include experiencing violence or abuse, or having parents with mental health, substance abuse and legal problems. Behind these problems are often poverty, inequality and social isolation,”

Job Growth and Education

UBI leads to positive job growth and a better educated citizenry. 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, as well as increased automation in the workplace. Researchers from the Roosevelt Institute created three models for American implementation of UBI and found that under all scenarios, UBI would grow the economy by increasing output, employment, prices, and wages. Since implementation of the Alaska Permanent Fund, for example, the increased purchasing power of UBI recipients has resulted in 10,000 additional jobs for the state.

UBI would also give employees the financial security to leave a bad job or wait until a good job comes along to (re)join the job market. People won’t have to take an awful job just to pay the bills. Further, UBI enables people to stay in school longer, reducing drop-out rates, and to participate in training to improve skills or learn a trade, improving their chances of getting a good job. 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%. The Canadian Mincome trial found that participants of the trial were more likely to complete high school than counterparts not involved in the trial. The Basic Income Grant trial in Namibia (2007-12) 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.

Gender Equality

UBI reduces gender inequality. UBI makes all forms of work, including child care and elder care, “equally deserving” of payment. Guy Standing, professor of development studies at the University of London says that “Almost definitionally, a properly designed basic income system will reduce gender-based inequality, because on average the payment will represent a higher share of women’s income,”

A UBI also allows working parents to reduce their working hours in order to spend more time with their children or help with household chores. Reviewing the UBI trial in India, 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. The Basic Income Grant Coalition trial in Namibia found that UBI “reduced the dependency of women on men for their survival” and reduced the pressure to engage in transactional sex. Mincome, the Canadian UBI trial, found that emergency room visits as a result of domestic violence reduced during the period of the trial, possibly because of the reduction in income-inequality between women and men.

Empowerment and Opportunity

Beyond addressing basic needs, UBI is seen as a tool for empowerment. It can provide a safety net that encourages entrepreneurship, allowing individuals to take risks and start their own businesses. The monthly payments could cover startup costs or provide support while the business gets off the ground. It gives working mothers cash to pay for childcare, for example, or it makes it easier to leave an abusive husband if you have something to rely on that is independent from the family situation.

Streamlining Welfare

A UBI program could eliminate all these problems. Recipients could get their money automatically and spend it however they chose. They would also be free to work and earn as much as they wanted. Making the benefit universal would eliminate social stigma.

Health Benefits

People living in low-income areas have a greater risk for mental illness and chronic diseases such as obesity, diabetes, and heart disease. By raising people out of poverty, universal basic income can alleviate these problems. In UBI trials around the world, from Kenya to Finland, participants’ health improved significantly in many areas.

Criticisms and Concerns about UBI

Poverty and Increased Inequality

UBI increases poverty by giving to everyone instead of targeting the poor. UBI takes money from the poor and gives it to everyone, increasing poverty and depriving the poor of much needed targeted support. People experiencing poverty face a variety of hardships that are addressed with existing antipoverty measures such as food stamps, medical aid, and child assistance programs. UBI programs often use funds from these targeted programs for distribution to everyone without regard for need. Robert Greenstein, president of the Center on Budget and Policy Priorities, says that, “If 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,”

Luke Martinelli, research associate at the University of Bath, created three models of UBI implementation and concluded that all three would lead to a significant number of individuals and households being worse off. He notes, “these losses are not concentrated among richer groups; on the contrary, they are proportionally larger for the bottom three income quintiles.” Research by the Organisation for Economic Co-operation and Development (OECD) in Finland, France, Italy, and the U.K. 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,”

UBI does not cure addiction, poor health, lack of skills, or other factors that contribute to and exacerbate poverty, making UBI less cost-effective than targeted welfare programs. Anna Coote of the New Economics Foundation and Edanur Yazici, Ph.D. student, explain that there is “the danger of UBI entrenching low pay and precarious work. It could effectively subsidise employers who pay low wages and-by creating a small cushion for workers on short-term and zero-hours contracts-help to normalise precarity,” UBI could become another American tipping system in which employers pay low wages and count on customers to fill in the gap with tips.

Cost

UBI is too expensive. A $2,000 a month per head of household UBI would cost an estimated $2.275 trillion annually, says Marc Joffe, director of policy research at the California Policy Center. 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.” A 2018 study found that a $1,000 a month stipend to every adult in the United States would cost about $3.81 trillion per year, or about 21% of the 2018 GDP, or about 78% of 2018 tax revenue.

The UBI trial in Finland provided participants with €560 ($673 USD) a month for two years. Ilkka Kaukoranta, chief economist of the Central Organization of Finnish Trade Unions (SAK), explains that Finland’s UBI model is “impossibly expensive, since it would increase the government deficit by about 5 percent,” Former U.K. Minister of State for Employment Damian Hinds rejected the idea of UBI during parliamentary debate, saying that the estimated implementation costs ranging from £8.2-160 billion ($10.8-211 billion USD) are “clearly unaffordable.” 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 concludes that, in all of these countries, UBI at a level that 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.”

Incentive to Work

UBI removes the incentive to work. Charles Wyplosz, professor of international economics at the Graduate Institute in Geneva, says that earned income motivates people to work, be successful, work cooperatively with colleagues, and gain skills. However, “if we pay people, unconditionally, to do nothing…they will do nothing,” and this leads to a less effective economy. 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.

Economist Allison Schrager 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. Elizabeth Anderson, professor of philosophy and women’s studies at the University of Michigan, says that UBI would cause people “to abjure work for a life of idle fun…[and would] depress the willingness to produce and pay taxes of those who resent having to support them,” In fact, guaranteed income trials in the United States in the 1960s and 1970s found that the people who received payments worked fewer hours. Nicholas Eberstadt and Evan Abramsky, both at American Enterprise Institute (AEI), say that “The daily routines of existing work-free men should make proponents of the UBI think long and hard. Instead of producing new community activists, composers, and philosophers, more paid worklessness in America might only further deplete our nation’s social capital at a time when good citizenship is already in painfully short supply,”

Reciprocity

A big one is a reciprocity worry - that in order to get access to public benefits, you should be at least willing to participate in the labor market. The question they ask is: Why should some group of individuals be participating in the labor force and paying taxes to fund a UBI for other people who aren’t participating in the labor market? One of the responses to this is that UBI recognizes all those forms of contribution to society that aren’t remunerated. Think about parents taking care of their children or poor people taking care of elderly family members. There’s lots of ways in which people contribute to society. And you can think of a UBI as reciprocating in that sense, remunerating people for those contributions.

Wasteful Spending

Another common worry is that UBI is a waste of money on the wealthy. Why should all of those wealthy people get a monthly check? If the goal is to do something about poverty, then why UBI, since the rich by definition are not poor? That’s an understandable concern for sure. But the reply there is that depending on how the UBI is financed, the rich will not be net beneficiaries. They will contribute more to finance the UBI than what they get as their monthly check.

Alternative Approaches and Targeted Programs

Oftentimes we discuss UBI as a major transformation to society, as a sort of utopian policy. That draws a lot of attention. But I think the discussion might lead to a simpler idea - just using cash payments in more of our social safety net programs. That might be more sustainable, more cost effective, than trying to try to implement a full UBI type policy. For that reason, what’s happening in Durham - a guaranteed income for a very narrow group of individuals - is really interesting.

One thing the pandemic has shown us is that the government got a little bit more comfortable with giving cash payments to people. Another thing I’m really excited about are these proposals to expand the child tax credit, both coming from [Mitt] Romney and also coming from the Democrats, which you might think of as a basic income for kids. Every month, they would get a certain amount of money, maybe a few hundred dollars. The parents decide how to spend it, but the thought is it’s kind of like a baseline for kids.

tags: #universal #basic #income #pros #and #cons