The Role Of Universal Basic Income (UBI) In Diminishing Inequality
It may be important to note that the expansiveness of this topic merits multiple articles to fully encapsulate the ideas discussed. As such, this article touches on various points without necessarily delving too deeply. Subsequent articles will offer a deeper dive into the topics discussed here.
Universal basic income (UBI), although not a new concept, has gained popularity recently. The concept describes the unconditional provision of periodic cash payments to citizens of a country, state or city, with virtually no requirements. Also known as a ‘minimum income’, this payment is intended to cover basic needs of the individual and provide financial security, serving several benefits, especially to underprivileged groups in society. Some plans may have few caveats which restrict eligibility to adult citizens (18 years and above), but should still, by definition, be universal and unrestricted to all its adult citizens[1,2]. Although disbursement plans differ from place to place, a universal basic income should have the following qualities:
Paid regularly to its constituents (monthly, quarterly)
Paid to Individuals directly (and not to households or representative institutions)
Paid universally without exclusion (without a means test)
Offered in an appropriate medium of exchange (cash)
One of the most notable proponents of this concept -a former US democratic candidate-, Andrew Yang, dubbed UBI ‘The Freedom Dividend’ during his candidacy. Yang proposed a $1,000/month ($12,000/year) basic income for every American over 18 years old, to aid in providing, among other things, “a real stake in the future” [3]. For Yang, the raison d'être of the program - one that garners widespread support and attention for its relevance today - is to offset the job losses due by automation; the fourth industrial revolution. According to Andrew Yang, the proposed Freedom Dividend will not only improve individual lives, but also boost the economy and create jobs. The disruption caused by the current COVID-19 pandemic further underscores the importance of a universal basic income. This period has seen majority of American voters now support a UBI, where previously only a minority did. In places like Canada and Britain, where majority has always been in favor of a UBI, there is even stronger support for the program now [4, 5].
The concept and practice of a universal basic income predates Andrew Yang and his contemporaries by decades. Martin Luther King Jr. advocated for a guaranteed income to mitigate poverty, especially for marginalized groups in society. Milton Friedman, a Nobel Memorial Laureate in Economics, believed that a guaranteed income will empower individuals to participate in the market without government micro-managing people’s needs. Even going as far back as the 1700s, during the founding of the United States, where Thomas Paine, an American politician and revolutionist, thought that it was only fair to redistribute the rewards from the land equitably through something like a guaranteed income (negative income tax).
Some of the first recorded programs were conducted in places like New Jersey, North Carolina, Manitoba (Canada) in the 60s and 70s. Each of these programs was conducted on a smaller sample population in their respective states, as a temporary study (generally spanning a few years at the longest) with the aim of ascertaining the efficacy of UBI. These programs were targeted at randomized groups of underprivileged individuals, who received a few thousand dollars each month for the duration of the studies. Insights from these studies reported increased welfare and health outcomes, but no increase in employment numbers as initially anticipated (employment numbers stayed the same) [6].
Due to the nascent nature of such studies, certain discrepancies were identified only in retrospect. These studies hypothesized the UBI program would cause an increase in economic activity and employment, which turned out to not be exactly true. Even though employment neither increased nor decreased, welfare and health outcomes improved significantly during this time. Perhaps employment should not have been the focus, but rather health and welfare of the population, as these have long-term benefits for people, and the economy by extension. Additionally, the small sample populations used for the studies presented issues with accuracy of insights. Regardless, these studies formed the backbone on which many others would be conducted.
Since the first UBI studies, there have been many others, spanning the world over. Studies conducted in Namibia (Omitara) and India (Madeya Pradesh) for example, form a growing body of UBI studies, as countries prepare for the inexorable technological revolution. Insights from all these studies point to the fact that a guaranteed universal income improves health, standard of living, trust in government programs, among many others. The largest study of this kind is currently being conducted in Kenya. It spans a 12-year period, and was started back in 2016. Although the study hasn’t run its full course yet, some insights (mostly anecdotal) are already available. People are spending on business ideas, buying food, making educational investments, and saving more.
Table: GiveDirectly
While there are many upsides of UBI programs, there are some potential downsides worth noting. The issue with employment seems to be the most glaring. Initial UBI studies hypothesized the programs would increase the likelihood of people looking for jobs in the short term. While many of the earlier studies did not confirm this hypothesis, they did confirm employment rates not decreasing. However, not achieving the initial objective of increasing employment (as erroneous as it may have been) introduced some doubt about the effectiveness of UBI among policy makers globally. Another potential issue with UBI is that, depending on how the program is instituted, it may take money from the poor and gives it to everyone, effectively redistributing the income upward. This may happen as some governments, particularly in low-income countries, allocate funding that would otherwise be used for welfare programs, towards funding a universal basic income. This is counterintuitive, as it leaves lower-income people in a potentially more precarious place.
By supplementing low wages with additional income, UBI programs could make people ineligible for other government benefits by pushing them over the minimum welfare threshold. This would further increase poverty and deprive the underprivileged of the required support. Additionally, giving everyone extra cash is, unfortunately, not a panacea for the plethora of issues some underprivileged groups face. UBI does not offer solutions for addiction, mental health issues, lost opportunities due to racism and systemic oppression, or the many other factors that contribute to poverty.
Another common argument against a Universal Basic Income is that it is too inclusive. Some groups have argued -and reasonably so- about the value (or lack, thereof) of a UBI for high-income earners. There is no real value to a billionaire who gets a $1000 check a month as part of the program. In fact it may seem wasteful, as those funds could be allocated elsewhere. However, it is important to note that high-income earners form a very small percentage of the population, as such the administrative costs associated with picking out who not to disburse funds to will probably erode any potential cost savings. Additionally, if there is no income threshold to qualify for the UBI, there are no incentives for people to want to remain unemployed or below the basic income threshold.
There is a belief that the risk of inflation increases with more people being on the program. If the government prints and distributes excessive amounts of cash to the point where people become so comfortable that they do not need to work, then it is easy to see how this would lead to increased inflation. Employers would pay extraordinarily high wages to encourage workers to stay, which trickles down as higher prices on pretty much everything. While this argument has intuitive plausibility, it is rather simplistic. A well-executed UBI is meant to be a redistribution of existing cash in the economy directly into the hands of people to cover their everyday needs. For example, Yang’s proposed income of $12,000/year puts one just below the poverty line of $12,760/year in the United States. The fact is that the UBI amount will not drastically change an individual’s life and work motivation enough to affect the economy when considering the total population. Results from various programs around the world have debunked the inflation myth, with many programs experiencing little to no related inflation [7].
In order for UBI programs not to create unintended consequences for those it most aims to support, proactive policies need to be instituted to ensure people who were previously eligible for welfare programs do not get sidelined on the basis of increased income from UBI. Additionally, in order not to cannibalize on existing welfare programs, UBI programs would need to be funded without reducing welfare funding for underprivileged communities. It may be important to reiterate here that a UBI is not a replacement for other welfare programs, but rather a safety net that preserves the agency of individuals to take care of their needs, which the the individual knows best about.
A universal basic income is not contingent on employment (in the way welfare programs are), which is what makes it different than a minimum wage increase. As such, it can be implemented alongside a minimum wage increase, which recognizes an individual’s economic value, versus the universal basic income, which recognizes a person’s intrinsic human value. This is especially important since the economy misses out on rewarding important human contributions, like raising children and volunteer work. It gives individuals some freedom in choosing jobs that better suit them, and offers more leverage in demanding for better working conditions for unwanted and undignified jobs. This freedom extends to individuals dependent on abusive spouses, people moving between jobs, and young people looking to start independent lives.
There are many reasons to welcome UBI for any population. As various studies have shown - and continue to show - there are many upsides of a guaranteed income program. In Alaska, where residents are entitled to a once-a-year dividend payment from the $65 billion Alaska permanent fund [8,9], residents report using this extra money mainly for necessities, bills, investments, and savings. Other programs like the Stockton UBI pilot study, which offers a $500 monthly stipend to a sample population also reports similar insights for its recipients [10]. Similar spending patterns are seen with people who received stimulus checks during the COVID-19 pandemic. Although a very peculiar situation, the pandemic highlights a few things; it is indeed possible to identify and disburse these funds on a regular basis to eligible candidates, and also most people will use the extra income for things that are essential to them.
The value of a Universal Basic Income lies in the freedom it affords people to choose what to do, and in essence, who they want to become. It helps to lift the burden of excessive worry about finances from underprivileged populations, whose lives are marred by perpetual precariousness. But the advantages go beyond the individual. In addition to being a good tool in elevating the psyches of otherwise destitute populations, it leads to more economic activity, which has profound benefits for any country. Implementing a UBI in every country might not be possible. And even for those that can do it, it will require a lot of time and policy considerations to ensure its long-term success. One thing is for sure though; society needs a safety net to offer its people some semblance of equity, and to offer them the best chance at taking on the future; a future that is both exciting for some and deeply uncertain for others.
References:
[1] https://basicincome.org/about-basic-income/
[2] https://basicincome.org/news/2017/12/basic-income-guarantee-experiments-1970s-quick-summary-results/
[3] https://www.yang2020.com/policies/the-freedom-dividend/
[5] https://news.gallup.com/poll/267143/universal-basic-income-favored-canada-not.aspx
[6] https://www.vox.com/2019/4/6/18297452/finland-basic-income-free-money-canada
[7] https://ubi.earth/basic-income-doesnt-cause-inflation
[8] https://iseralaska.org/static/legacy_publication_links/2016_12-PFDandPoverty.pdf
[9] https://apfc.org/our-performance/
[10] https://www.vox.com/future-perfect/2019/10/8/20902839/universal-basic-income-stockton-trial
Elikem is a director at Very Temporary, to get in touch, send him an email.
Nii is a director at Very Temporary, to get in touch, send him an email.
