Bad News for Universal Basic Income

The largest study into the real-world consequences of giving people an extra $1,000 per month, with no strings attached, has found that those individuals generally worked less, earned less, and engaged in more leisure time activities.

It’s a result that seems to undercut some of the arguments for universal basic income (UBI), which advocates say would help lower- and middle-class Americans become more productive. The idea is that a UBI would reduce the financial uncertainty that might keep some people from pursuing new careers or entrepreneurial opportunities. Andrew Yang, the businessman and one-time Democratic presidential candidate who popularized the idea during his 2020 primary campaign, believes that a $1,000 monthly UBI would “enable all Americans to pay their bills, educate themselves, start businesses, be more creative, stay healthy, relocate for work, spend time with their children, take care of loved ones, and have a real stake in the future.”

In theory, that sounds great. In reality, that’s not what most people do, according to a working paper published this month.

The five researchers who published the paper tracked 1,000 people in Illinois and Texas over three years who were given $1,000 monthly gifts from a nonprofit that funded the study. The average household income for the study’s participants was about $29,000 in 2019, so the monthly payments amounted to about a 40 percent increase in their income.

Relative to a control group of 2,000 people who received just $50 per month, the participants in the UBI group were less productive and no more likely to pursue better jobs or start businesses, the researchers found. They also reported “no significant effects on investments in human capital” due to the monthly payments.

Participants receiving the $1,000 monthly payments saw their income fall by about $1,500 per year (excluding the UBI payments), due to a two percentage point decrease in labor market participation and the fact that participants worked about 1.3 hours less per week than the members of the control group.

“You can think of total household income, excluding the transfers, as falling by more than 20 cents for every $1 received,” wrote Eva Vivalt, a University of Toronto economist who co-authored the study, in a post on X. “This is a pretty substantial effect.”

But if those people are working less, the important question to ask is how they spent the extra time—time that was, effectively, purchased by the transfer payments.

Participants in the study generally did not use the extra time to seek new or better jobs—even though younger participants were slightly more likely to pursue additional education. There was no clear indication that the participants in the study were more likely to take the risk of starting a new business, although Vivalt points out that there was a significant uptick in “precursors” to entrepreneurialism. Instead, the largest increases were in categories that the researchers termed social and solo leisure activities.

Some advocates for UBI might argue that the study shows participants were better off, despite the decline in working hours and earnings. Indeed, maybe that’s the whole point?

“While decreased labor market participation is generally characterized negatively, policymakers should take into account the fact that recipients have demonstrated—by their own choices—that time away from work is something they prize highly,” the researchers note in the paper’s conclusion.

If you give someone $1,000 a month so they have more flexibility to live as they choose, there’s nothing wrong with the fact that most people will choose leisure over harder work.

“So, free time is good [and] guaranteed income recipients use some of the money to free up time,” argued Damon Jones, a professor at the University of Chicago’s school of public policy, on X. “The results are bad if you want low-income people to be doing other things with their time, for example working.”

Of course, if the money being used to fund a UBI program was simply falling from the sky, policy makers would have no reason to care about things like labor market effects and potential declines in productivity. If a program like this is costless, then the only goal is to see as many individuals self-actualize as much as possible. One person wants to learn new skills or start a business? Great! Others want to play video games all day? Awesome.

In reality, however, a UBI program is not costless and policy makers deciding whether to implement one must decide if the benefits will be worth the high price tag—Yang’s proposal for a national UBI, for example, is estimated to cost $2.8 trillion annually.

That’s why a study like this one matters, and why it’s so potentially damaging to the case for a UBI. A welfare program—which is ultimately what this is—that encourages people to work less and earn less is not a successful public policy. Taxpayers should not be expected to fund an increase in individuals’ leisure time, regardless of the mechanism used to achieve it.

In theory, substituting a UBI in place of the myriad, overlapping, and often inefficient welfare systems operated by the federal and state governments is an intriguing idea. In practice, this new study suggests those tradeoffs might not be as desirable.

The post Bad News for Universal Basic Income appeared first on Reason.com.

Source: https://reason.com/2024/07/25/bad-news-for-universal-basic-income/