Finland’s basic income trial boosted ‘wellbeing’ but not employment

New Zealand isn’t the only country trying to improve wellbeing.

Reuters:  Finland’s basic income trial boosts happiness but not employment

Finland’s basic income scheme did not spur its unemployed recipients to work more to supplement their earnings as hoped but it did help their wellbeing, researchers said on Friday as the government announced initial findings.

The two-year trial, which ended a month ago, saw 2,000 Finns, chosen randomly from among the unemployed, become the first Europeans to be paid a regular monthly income by the state that was not reduced if they found work.

Finland — the world’s happiest country last year, according to the United Nations — is exploring alternatives to its social security model.

The trial was being watched closely by other governments who see a basic income as a way of encouraging the unemployed to take up often low-paid or temporary work without fear of losing their benefits. That could help reduce dependence on the state and cut welfare costs, especially as greater automation sees humans replaced in the workforce.

Finland’s minister of health and social affairs Pirkko Mattila said the impact on employment of the monthly pay cheque of 560 euros ($635) “seems to have been minor on the grounds of the first trial year”.

But participants in the trial were happier and healthier than the control group.

“The basic income recipients of the test group reported better wellbeing in every way (than) the comparison group,” chief researcher Olli Kangas said.

Chief economist for the trial Ohto Kanniainen said the low impact on employment was not a surprise, given that many jobless people have few skills or struggle with difficult life situations or health concerns.

“Economists have known for a long time that with unemployed people financial incentives don’t work quite the way some people would expect them to,” he added.

Giving unemployed people more money should improve their wellbeing and it should also help with improving happiness if it makes it easier for them to survive financially.

But going by this, on it’s own it isn’t a solution to unemployment.

If so then the question for a basic income is how much more money a country wants (and can afford) to give people living on benefits. The amount could make a significant difference – if they make it too generous then it’s likely more people will choose unemployment as a financially viable option, further increasing the costs.

I wonder if Jacinda Ardern and Grant Robertson have something like this in mind for their ‘wellbeing’ budget.

Universal Basic Income

Is a Universal Basic Income worth considering? Our tax and welfare systems have become very complex and uneven and at the very least could do with a radical simplification.

(Emmerson at NZ Herald)

There’s been an interesting discussion running at The Standard on a UBI (see Basic Income at Wikipedia). Slow news (especially political news) and spare time for many has contributed to a more in depth and thoughtful discussion than usual.

It started with a repost of Why we should give free money to everyone which detailed a number of examples where people were given money and they improved their lives.

In the 2010 work Just Give Money to the Poor, researchers from the Organization for Economic Cooperation and Development (OECD) give numerous examples of money being scattered successfully. In Namibia, malnourishment, crime and truancy fell 25 percent, 42 percent and nearly 40 percent respectively. In Malawi, school enrollment of girls and women rose 40 percent in conditional and unconditional settings. From Brazil to India and from Mexico to South Africa, free-money programs have flourished in the past decade. While the Millenium Development Goals did not even mention the programs, by now more than 110 million families in at least 45 countries benefit from them.

OECD researchers sum up the programs’ advantages: (1) households make good use of the money, (2) poverty decreases, (3) long-term benefits in income, health, and tax income are remarkable, (4) there is no negative effect on labor supply – recipients do not work less, and (5) the programs save money.  Free money stimulates the entire economy: consumption goes up, resulting in more jobs and higher incomes.

Obviously “free money” has to come from somewhere, and the Standard discussion acknowledges it would require a large amount of money. This means larger amounts of tax for those already paying the bulk of the tax. That is a tough sell.

And while the post claimed that it always worked well there are criticisms and studies have highlighted contradictions. From Wikipedia:

One critical view of Basic Income theorizes that it would have a negative effect on work incentive and labor supply. Even when the benefits are not permanent, the hours worked—by the recipients of the benefit—are observed to decline by 5%, a decrease of 2 hours in a typical 40 hour work week, in one study.

We have already experienced difficulties with welfare dependency and disincentives to work here.

However, in studies of the Mincome experiment in rural Manitoba, the only two groups who worked less in a significant way were new mothers, and teenagers working to support their families. New mothers spent this time with their infant children, and working teenagers put significant additional time into their schooling. Under Mincome, “the reduction of work effort was modest: about one per cent for men, three per cent for wives, and five per cent for unmarried women.

What studies don’t show are the longer term effects. Problems with welfare dependency have increased with time. But it is still worth considering.

The idea has been propagated by some of history’s greatest minds. Thomas More dreamt of it in his famous Utopia (1516). Countless economists and philosophers, many of them Nobel laureates, would follow suit. Proponents cannot be pinned down on the political spectrum: it appeals to both left- and right-wing thinkers. Even the founders of neoliberalism, Friedrich Hayek and Milton Friedman supported the idea. Article 25 of the Universal Declaration of Human Rights (1948) directly refers to it. 

The basic income. 

And not just for a few years, in developing countries only, or merely for the poor – but free money as a basic human right for everyone. The philosopher Philippe van Parijs has called it ‘the capitalist road to communism.’ A monthly allowance, enough to live off, without any outside control on whether you spend it well or whether you even deserve it. No jungle of extra charges, benefits, rebates – all of which cost tons to implement. At most with some extras for the elderly, unemployed and disabled.

A relatively rich country, Switzerland, has had groups actively campaigning for a Basic Income.

The association BIEN-Switzerland (affiliated to the Basic Income Earth Network) promotes basic income in the francophone part of Switzerland. In the German-speaking part of Switzerland a group called “de:Initiative Grundeinkommen” is very active in promoting basic income.

Daniel Häni and Enno Schmidt produced The Basic income, a cultural impulse, a movie that explains and praises the idea of a basic income.

In September 2013, the initiative achieved the collection of about 126,000 signatures and handed them over to the government on October 4thereby triggering a nationwide popular referendum, which would be the first of its kind on this issue, anywhere in the world.

It will be interesting to see how the referendum goes and if it succeeds. And if it succeeds, on how it works out in practice. Back to The Standard where the post quotes:

Milestones of civilization are often first considered impossible utopias. Albert Hirschman, one of the great sociologists of the previous century, wrote that utopian dreams are usually rebutted on three grounds: futility (it is impossible), danger (the risks are too big) and perversity (its realization will result in the opposite: a dystopia). Yet Hirschmann also described how, once implemented, ideas previously considered utopian are quickly accepted as normal.

Those utopian ideas that work. Many utopian attempts have failed – I recall the idealistic communes of the seventies having a wee burst of interest and then winding up.

A number of people at The Standard are very keen on working together and taking the idea further. It’s something that’s certainly worth exploring.

We have a very complicated system of tax and social welfare. Substantially simplifying it and providing a basic level of income for everyone without a mass of confusing rebates, credits, benefits, top-ups, supplements and whatever else is available in our convoluted mish-mash could have some merit.

One exchange at The Standard:

KJT:

i would advocate also for a meaningful UBI. Say about the same level as current super, with a lesser amount for children under 18, and a more progressive taxation.

Say 45% top rate of 250k per year on today’s figures.

Colonial Viper:

Heck, with an 89% rate on incomes over $1M pa to efffectively hard cap what our society will accept as a maximum income: 25x the median working wage.

KJT:

shh..sh. Better keep that part quiet for now.

High tax rates have problems of their own. And they would be very hard to sell, voters have an aversion to raising taxes.

If the universal income idea is to get anywhere here it will have to be well thought through, well constructed and well sold to the electorate.

And it that succeeds then it might become a long term experiment. Big stakes.

I don’t think this year is the right time to make it happen. After a number of years of difficulty there are predictions of a big economic lift in New Zealand.Voters will be looking forward to reaping the benefits of that and will be wary of upsetting it.

If the country booms that is the time to look at radical changes. Initial costs would be high and they have to be able to be afforded.

But the sooner the homework and the groundwork are done the better prepared for the right time.

If you are interested it’s worth having a read through the Standard thread, it’s one of the better ones there – http://thestandard.org.nz/ubi/

I’m not convinced a universal basic income will solve all our problems but it’s certainly worth exploring in conjunction with reforming our tax and welfare systems.