Nova workboard

a blog from young economists at Nova SBE

Universal Basic Income: What to look for.

In the light of the technological changes occurring and the automation increasing, the idea of Universal Basic Income has been discussed for quite some time now. Universal or Unconditional Basic Income (UBI) is a periodic cash payment unconditionally delivered to all the citizens on an individual basis, without means-test or work requirement. Moreover, it is paid at regular intervals under an appropriate medium of exchange allowing those who receive it to decide what they spend it on. Therefore, it is not paid either in kind or in vouchers dedicated to a specific good or service.

 

In my opinion, there are two main arguments that stand out against this type of program: one is the affordability of this program, the cost objection. It states that the cost of providing everyone with a minimum reasonable income floor, under which no one would fall, is not achievable by governments. To do so taxes would have to be raised to unacceptable levels. The second argument is that there is resistance to just give money to everyone for not doing anything: the work ethic objection. This criticism has implicit that individuals given an Universal Basic Income would change their behaviour regarding their willingness to work.

 

Despite these two strong arguments, the Finish government is running an experiment with 2000 unemployed individuals (initially planned: 10000). These citizens are between 25 and 58 years old, and were randomly selected by Kela, the national social-insurance institute, to receive a basic income of 560€ per month during two years. It replaces their unemployment benefit and the selected individuals will continue receiving it whether or not they find work or earn any additional income.

 

There are some critics being pointed to this experiment regarding the sample size or even the fact that the sample is not representative as it only includes unemployed citizens. Therefore, some authors call it an unconditional unemployment benefit. Notice, however, that the main goal of the experiment is to test the work ethic objection referred to above. The goal, as stated by Kela, is to determine “whether there are differences in employment rates between those receiving and those not receiving a basic income.” The hypothesis is that people will accept job offers (typically with a low salary) that they otherwise would not as they then would lose their unemployment benefit.

 

The finish national social-insurance institute has no intention, at least in the first place, to study effects on other variables such as individual health and well-being. Nevertheless, many UBI recipients have reported “decreased stress and more time to pursue business ideas”.

 

Basic Income is an idea which is accepted by different ideologies from some liberals to left wing parties. Results on the current Basic Income trials, as well as its accuracy, which are only possible under a correct design of the experiment, can play an important role on the acceptance of this game-changing program.

 

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Author: studentnovasbe

Master student in Nova Sbe

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