Not only does it have a high cost, UBI drains the labour force by discouraging work and boosting leisure time, says one big-picture study
Earlier this month, a cross-border team of North American economists published the results of a landmark study, probably the best and most careful yet done, of how low-income workers respond to an unconditional guaranteed income. Not so long ago this would have been a plus-sized news item in narcissistic Canada, for the lead author of the study is a rising economics star at the University of Toronto, Eva Vivalt. The economists, working through non-profit groups, recruited 3,000 people below a certain income cutoff in the suburbs of Dallas and Chicago. A thousand of these, chosen at random, were given a thousand dollars a month for three years. The rest were assigned to a control group that got just $50 a month, plus small extra amounts to encourage them to stay with the study and fill in questionnaires.
That randomization is an important source of credibility, and the study has several other impressive methodological bona fides. If you have an envelope to scribble on the back of, you can see that the payments alone were beyond the wildest dreams of most social science: most of the money was provided by the AI billionaire Sam Altman. But the study also had help from state governments, who agreed to forgo welfare clawbacks from the participants to make sure the observed effects weren’t obscured by local circumstances. Participant households were also screened carefully to make sure nobody in them was already receiving disability insurance. (Free money doesn’t discourage work among people who can’t work — or who absolutely won’t.) And the study combined questionnaire data with both smartphone tracking and state administrative records, yielding an unusually strong ability to answer difficult behavioural questions.
The big picture shows that the free cash — a “universal basic income” (UBI) for a small group of individuals — discouraged paying work, even though everybody in the study was starting out poor. Labour market participation among the recipients fell by two percentage points, even though the study period was limited to three years, and the earned incomes of those getting the cheques declined by $1,500 a year on average. There is no indication that the cash recipients used their augmented bargaining power to find better jobs, and no indication of “significant effects on investments in human capital”, i.e., training and education. The largest change in time use in the experiment group was — wait for it! — “time spent on leisure”.
Colby Cosh, “Universal basic income is a recipe for fiscal suicide (for so many reasons)”, National Post, 2024-07-30.
November 2, 2024
QotD: UBI discourages low-income workers
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