- What if you were given a certain amount of money every month, regardless of your financial or social circumstances?
This is the basic idea behind a universal basic income (UBI) that governments around the world have been debating for years. The concept has also been the subject of several social experiments.
In Germany, the Berlin-based nonprofit Mein Grundeinkommen (“My Basic Income”) studied 122 people who received an unconditional monthly payment of $1,365 per person over three years.
The study found that people were not less likely to work; in fact, all participants were in full-time employment. However, a significantly higher percentage felt secure enough to change jobs. They also reported greater job satisfaction and spent more time pursuing further education.
A similar, though shorter, study in Kenya, funded by the nonprofit organization GiveDirectly, yielded comparable results. In this study, 295 people in two villages across two states were given cash via mobile phones for periods ranging between two and twelve years.
Broadly speaking, there was no overall decline in the labor supply. However, many participants chose to leave paid employment to start their own businesses or become self-employed.
“I really appreciate the relief of knowing that I won’t have to miss a meal,” says Kadi, a widow in Kenya with no steady income.
She works as a casual laborer and is a beneficiary of the program. She receives US$34 a month from GiveDirectly, which she says she relies on completely. “It has become my only stable hope,” she says.
“This program has given me a sense of recognition and the opportunity to make a lot of money at once. It’s something I’ve never thought about before. I think I’ll buy oxen to plow the land.”
Falling Through the Gaps
How surprising are the results from these studies? Not very, says Dr. Kel Howson, a senior researcher at the Institute for Economic Justice in South Africa.
“Any attempt to target people based on income inequality is always going to fail,” Dr. Howson told. “We don’t need more pilot studies to show that UBI doesn’t drive people out of the labor market. Instead, it empowers them to start their own businesses and boost local economies.”
In contrast, she says, financial assistance that is only given to those who meet certain conditions always results in some level of exclusion. People are constantly “falling through the cracks.”
In South Africa, for example, access to income support often depends on digital literacy, with around 20% of the population lacking internet access.
Beneficiaries are also expected to own a smartphone with a high-quality camera to meet biometric identification requirements. As a result, many who qualify never receive the financial assistance, says Dr. Howson.
In India, citizens with “Below Poverty Line” cards are eligible for government benefits, but surveys have shown that about half of the poor do not possess such cards.
“In environments where employment is concentrated in the informal sector, mainly in the self-employed, without formal accounting or income data, asset testing can be very difficult. In such circumstances, identifying the poor can be expensive, corrupt, complex, and controversial,” wrote Pranab Bardhan, a professor at the University of California, Berkeley, in a 2016 article published on the World Economic Forum website.
Money for All?
Are the results of the German experiment echoed elsewhere in the world? And have these ideas gained international traction?
There have been several other UBI experiments in recent years across developing countries, including the Indian state of Madhya Pradesh, villages in Namibia, and a national currency exchange in Iran, introduced in 2011 to eliminate food and fuel subsidies. These examples are cited by economists such as Nobel laureate Abhijit Banerjee, who co-authored a 2019 paper on the topic for the National Bureau of Economic Research (NBER).
It is difficult to draw universal conclusions from these diverse examples, researchers say.
However, the grants appear to have given recipients a degree of flexibility. They were able to prioritize needs most relevant to their lives, be it food, fertility treatments, or birth control.
Dr. Howson notes that UBI’s positive effects are particularly pronounced in contexts marked by high inequality. She adds that UBI has found support across the political spectrum.
The left-wing argument centers on the belief that income is a fundamental right. But even some libertarians on the political right have made a case for UBI, albeit for different reasons.
Advocates such as billionaire businessman and political commentator Elon Musk have previously argued that UBI helps maintain consumer demand in the face of increasing automation and the rise of artificial intelligence.
Dr. Howson adds, “UBI is a powerful tool for development. The rationale may vary across contexts, but the logic remains consistent.”
She points to other benefits of UBI. In addition to data showing improvements in mental and physical health, there is evidence of increased school attendance, as children from families receiving UBI tend to remain in school longer.
In trials conducted in Kenya and India, women reported greater financial independence. Some were even able to leave abusive relationships thanks to the security offered by a guaranteed income.
Still, some researchers caution against generalizing findings from the German experiment.
Professor Eva Wiewoldt of the University of Toronto led a study of UBI in the U.S. states of Texas and Illinois.
In her study, participants who received $12,000 per year over three years worked an average of 1.3 fewer hours per week. Unlike in Germany, their total incomes decreased by about $1,500 per year.
“Lower-income countries tend to show more positive effects, while higher-income countries display more muted results,” she told.
“In our study, we saw more and more people reduce their working hours or stop working altogether.”
“These are just hypotheses, but in low-income countries, even a small amount of money can make a significant difference. In high-income countries, people may face problems that are not easily solved with money alone.”
What About Taxpayers?
Dr. Howson acknowledges that there is a common belief that UBI promotes a “dependency mindset” and discourages work, ultimately shifting the tax burden onto those who are employed.
Professor Flora Gill of the University of Sydney expresses skepticism about UBI. Writing for the Transforming Society blog in 2023, she stated, “If people want to work, they should be able to. That’s not the case right now. Before we can implement a UBI, we need to ensure this basic human right.”
Professor Gill worries that the only way to fund a universal UBI, which she believes would be “well below the level of subsistence”, is to significantly raise taxes. “A universal basic income would require a huge amount of tax revenue beyond what currently circulates in our economies,” she writes.
However, Dr. Howson argues that UBI could achieve the opposite effect.
“In a context like South Africa, where too many people are excluded from the economy, the way to broaden the tax base is to first eliminate food poverty and hunger. Once people are on the first step of the economic ladder, you unlock human creativity and entrepreneurship. People want to be productive.”
Rather than increasing the burden on taxpayers, UBI would stimulate economic activity. “Money flows back into government coffers through spending, VAT, and new businesses,” she says.
Other Problems
Despite its potential, researchers acknowledge that UBI is not without risks. For instance, if it reduces the incentive to work, the labor force could shrink.
Inflation is another concern. According to a 2019 NBER paper, living costs in Iran, where a national UBI program was introduced in 2011, rose sharply, while the real value of the income support declined significantly.
Social cohesion may also be affected. A guaranteed income could potentially undermine communal structures and create instability if not properly managed.
Ultimately, Professor Wiewoldt says it all depends on how much governments value giving people choice and how willing they are to spend.
“In the short term, it’s politically impossible for high-income countries to implement UBI on a large scale due to the cost,” she says.
“In lower-income countries, policymakers may aim to improve specific outcomes in health care or education. If that’s the goal, targeted programs may be more effective. The great thing about money, though, is that people can use it for whatever matters most to them.”
