The UBI is dead

A new study reinforces folk beliefs about it

Eva Vivalt and others write,

We study the causal impacts of income on a rich array of employment outcomes, leveraging an experiment in which 1,000 low-income individuals were randomized into receiving $1,000 per month unconditionally for three years, with a control group of 2,000 participants receiving $50/month. We gather detailed survey data, administrative records, and data from a custom mobile phone app. The transfer caused total individual income to fall by about $1,500/year relative to the control group, excluding the transfers. The program resulted in a 2.0 percentage point decrease in labor market participation for participants and a 1.3-1.4 hour per week reduction in labor hours, with participants’ partners reducing their hours worked by a comparable amount. The transfer generated the largest increases in time spent on leisure, as well as smaller increases in time spent in other activities such as transportation and finances.

Folks beliefs are that a Universal Basic Income is a terrible idea, because it will lead people to not work. My argument is that what we have now is actually worse than a UBI, because it has even more work disincentives built in. Under our current set of programs the working poor lose many of their benefits as their income exceeds poverty thresholds. I think of it as a UBI with a tax rate of close to 100 percent on earned income.

I would like a UBI to replace our existing system, including food stamps, housing subsidies, Medicaid, and even Social Security. I would like the UBI to be not adequate for a family to live on. Maybe just $5000 a year for a family of four.

Under my proposal of an inadequate UBI, and no other Federal income assistance programs, everyone with the ability to work would want to do so. For people who cannot work, or who have unusually expensive needs, local governments and charities would supplement the UBI. (The Federal government might provide the funds for local governments and charities to do this.) The point of having local governments or charities provide the supplement is that they are close enough to the recipients to know who deserves money and who doesn’t.

The reported experiment added a UBI without replacing other benefits. I am not surprised that this reduced work effort. It is what I would expect to happen.

But I still claim that work effort would increase substantially if a UBI were used to replace our current system, because our current system of benefit phase-outs acts as an enormous tax on earned income. The decisive experiment would be one in which we give people a UBI and take away their food stamps, Medicaid, and so on. I’m not holding my breath waiting to see that experiment tried.

Meanwhile, the UBI is getting a bad name. A UBI when added to existing benefits does exactly what folk beliefs (aka common sense) suggest it would: it makes people want to work less.

I constantly criticize these folk beliefs, because I want to see a UBI that replaces existing benefit programs. But if replacement is off the table, then I cannot argue with the folk beliefs.