Nova workboard

a blog from young economists at Nova SBE

The desire of going back to the 70’s – Basic Income in Canada

In 2013, one in seven people in Canada lived in poverty (average gap between the poverty line and actual poor household income is 33%). A deeper analys1is reveals a high child poverty rate (19%, despite it being a priority of policies) and single parent families being largely affected. Additionally, poverty is more pervasive in indigenous communities and immigrants/refugees and neighbourhood effects exist. More people have been resorting to foo3d banks. Duration of poverty
spells
is of almost
two years, with 23% of people exiting to near po2verty.

Consequently, criticism of the social welfare system arose (an example of inadequacy of policies are minimum wages, which were found not to have a statistically significant effect on poverty, although that was the main rationale for its introduction).

Due to technological developments and changing labour force (higher time people take to find a stable job; abundance of short-term contracts), institutions are under pressure to rethink social programs. Hence, precarious work, low wages along with elimination of jobs by technological advances and an uncertain economy boosted the discussion around a minimum guarantee income. Other drivers are demographic pressures on the health-care system and OECD’s research, which states that increasing income for the bottom 40% of the income distribution can decrease income inequality, impacting positively on economic growth. In Canada, the social system is perceived as not protecting the working poor, paving the way for increased support from the public to basic income and a recommendation that the federal government studies it.

This follows the increasing momentum of the idea, especially in Europe, with Switzerland having a referendum, Finland planning to set a pilot program and pressure on Italy to introduce it.

An experiment on basic income happened between 1974 and 1979 in Dauphin, Manitoba, in which cheques were delivered to poor people. This program, “Mincome”, had the objective of checking whether giving money to people would reduce their motivation to work. During this period, one thousand families that were below the poverty line started earning a liveable income. Basically, they were given 60% of the low income cut-off determined by Statistics Canada and 50 cents were deducted from every dollar people got from other income sources. This experiment ended when the government changed, without a final report having been drafted. Nevertheless, recent research was able to discover some of its effects. Taking part in the program led to an increase in food security and on the ability to pay expenses. Although there was a slight reduction in the workforce, it happened mainly in the demographic groups of high school student and young mothers – teenagers were able to focus on studying instead of working (increased likelihood of finishing high school, since people could now afford further education) and women could stay longer at home with new-borns. For some people, the possibility of pursuing more stable and suitable jobs emerged. Therefore, people continued to work. This goes against opponents of the program who claimed people would stop working, relying on government given income. On health, rates of hospitalization decreased (for accidents, domestic violence and injuries), mental health of participants improved and hospital visits declined by 8.5%. Summing up, Mincome allowed people to be above the poverty line, easing economic anxiety and letting them make long-term plans.

This program inspired the recently announced basic income pilot in Ontario, which aims at testing its efficiency in giving income support and its impacts on labour supply4, health-care and overall benefits. Other governments also showed interest in the idea. It will replace several benefits into one cheque given to people on welfare and those that have a low paid job (the exact details are not defined yet). Proponents claim the program is more efficient, yields lower costs than having a series of social programs (would streamline government bureaucracies), could reduce health-care costs (as poor people are usually less health) and eliminate poverty. Critics state the hardship of implementation in Canada, not being able to solve discrimination and inequality (won’t impact on relative poverty), giving incentives for employers not to create well-paid and secure jobs, reduction of labor supply (results now could be different from those of 40 years ago) and the potential cost of the program (possible need to raise takes to finance it, leading some to be worse off). Nevertheless, there is consensus on the need to develop a new approach that would prevent poverty and lift people out of it.

Ana Margarida Carvalho (795)

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Author: studentnovasbe

Master student in Nova Sbe

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