FEATURE22 January 2020

Income for everyone

x Sponsored content on Research Live and in Impact magazine is editorially independent.
Find out more about advertising and sponsorship.

Europe Features Finance Impact Middle East and Africa North America

Giving citizens money for free is an idea that can be explored from many angles. Behavioural economists are researching the concept among different income brackets, as Jane Bainbridge reports.

Money 3_crop

The idea of universal basic income (UBI) has been gaining attention of late.

Approached from various political directions – whether based on an idea of fairness, eradicating poverty, or with one eye to a future where automation means fewer jobs for people – the concept of giving people free cash is being explored in several experiments and pilot projects.

It was also the topic of a session at last year’s Behavioural Exchange conference, BX2019, run by the Behavioural Insights Team (BIT) – What happens when you give people money for free? – where academics from around the world talked about their research.

Finland: more life satisfaction

Finland’s pilot of UBI is probably the one that has garnered the most headlines – although it’s not strictly UBI, as the trial only involved the unemployed. Markus Kanerva, a behavioural change consultant for the Finnish Prime Minister’s Office, explained that the study was partly motivated by Finland’s benefits system.

“Social security is currently very complex; we were looking to abolish work disincentives, diminish bureaucracy, and reform to better match societal changes,” he said.

Between January 2017 and December 2018, 2,000 unemployed people received a monthly payment of €560. The money was paid regardless of whether the person found a job or not, with the trial designed to see if guaranteed income would help people find jobs and to support them if they could only find short-term work. So, what has been the effect of this payment?

“Preliminary results show no effect on employment,” said Kanerva, who pointed to factors such as most people in the experiment being the long-term unemployed – they may live remotely and have long-term health problems, which could specifically affect their employment options.

The income did have other effects on the participants, however: “They trusted people and politicians more – felt less stress. They were more satisfied with life,” said Kanerva. The final report will be published later this year.

Alaska: distributing oil wealth

Dr Damon Jones, associate professor, University of Chicago Harris School of Public Policy, has been involved in a study looking at how Alaska’s Permanent Fund Dividend (PFD) affected the labour market.

It was established in 1976 to distribute wealth generated from the US state’s oil reserves to Alaskan citizens and, in 1982, dividends started to be paid annually to residents. While the exact amount has varied from year to year, it has averaged about $1,000.

The research looked at Alaska before and after 1982 to see the effects. They were compared against a control that was an economic hybrid – a combination of states with similar labour patterns that Jones dubbed “synthetic Alaska”.

While its conclusion did not point to a significant change in behaviour, there were some interesting findings.

“We found that people were more likely to be working part-time in Alaska,” said Jones. That could be the result of people reducing their hours from full-time, or because some people moved from not working to working part-time.

Perhaps the value of the dividend wasn’t enough to create clear changes – would the effect on employment have been greater if the dividends were larger?

“This is very possible. Some argue that a larger dividend would begin to have a larger effect on employment. On the other hand, what we know from other studies of employment among lottery winners is that big and small cash winnings have proportionately similar effects on employment. We cannot say for sure which view is correct.”

How might these findings help a UBI study? “You might see different patterns if you run a UBI trial where a small share of the population gets it, versus a trial where an entire geographic jurisdiction receives the transfer,” says Jones, who also points to doing more work on the effects of ‘free money’ trials on the price of goods.

Kenya: boosting wellbeing

Perhaps some of the most effective studies done on UBI so far are in countries where poverty is more profound.

Researchers at Princeton and the University of Oxford have looked at how simple interventions can have stark impacts on behaviour. For instance, exploring the issue of whether poverty affects people’s decision-making psychology – do the consequences of poverty adversely affect their decisions, trapping them in poverty?

Johannes Haushofer, assistant professor of psychology and public affairs, Princeton University, did research with the non-governmental organisation GiveDirectly, looking at unconditional cash transfers in a randomised controlled study among rural households in Kenya. It was randomised for 15,000 families at village and household level; the recipients varied between the man and the woman; the money was given in a lump sum or via monthly instalments; and the value of the transfer varied – $400 or $1,500.

The test included control households where others in the village received the cash, and other control households where no-one in the village was given the cash.

Haushofer wanted to determine if giving people money increased psychological wellbeing, and this involved them completing a questionnaire a year later.

“We saw large improvements of economic outcomes and psychological wellbeing with large cash transfers,” said Haushofer, who added that there was no evidence of envy within a village where some received the cash and the control households didn’t.

“Monthly transfers are more likely than lump-sum transfers to improve food security, whereas lump sums are more likely to be spent on durables – suggesting the households face savings and credit constraints,” Haushofer concluded.

This article was first published in the January 2020 issue of Impact.