One of the largest studies of the real-world consequences of giving people an extra $1,000 a month with no strings attached found that these people typically worked less, earned less, and engaged in more leisure activities.
The results appear to undermine some arguments for a universal basic income (UBI), which advocates say would help lower- and middle-class Americans become more productive. The idea is that UBI would reduce financial uncertainty that may prevent some people from pursuing new career or entrepreneurial opportunities. Businessman and former Democratic presidential candidate Andrew Yang popularized the idea during the 2020 primaries, arguing that a $1,000-per-month UBI would “allow all Americans to pay their bills, educate themselves, start businesses, and more. Be creative, stay healthy,” move jobs, spend time with your children, care for loved ones, and have a real stake in the future. “
In theory, this sounds great. In fact, most people don’t, according to a working paper published this month.
The five researchers who published the paper followed 1,000 people in Illinois and Texas over three years who received monthly gifts of $1,000 from the nonprofit organization that funded the study. In 2019, the average household income of the study participants was about $29,000, so the monthly payment amounted to about a 40% increase in their income.
Researchers found that compared to a control group of 2,000 people who received only $50 a month, participants in the UBI group were less productive and less likely to pursue better jobs or start a business. They also reported “no significant impact on human capital investment” due to monthly payments.
Participants who received a $1,000 monthly payment saw their income fall by about $1,500 per year (excluding UBI payments) because labor market participation fell by two percentage points and participants worked about 1.3 hours less per week than the average member. control group.
“You could think of total household income, excluding transfers, as every dollar received,” University of Toronto economist Eva Vivalt, a co-author of the study, wrote in an article published on X. For $1, that’s more than 20 cents off.
But if these people have less work to do, the important question to ask is how they spend the extra time – time that was effectively purchased through transfer payments.
Study participants generally did not use the extra time to find new or better jobs—although younger participants were more likely to pursue additional education. Although Vivaldt noted a significant increase in “first movers” in entrepreneurship, there was no clear indication that the study’s participants were more likely to take the plunge and start a new venture. Instead, the biggest increases were in what the researchers call the social and personal leisure activities category.
Some UBI advocates might argue that the study shows participants were better off despite a decline in hours worked and income. Indeed, maybe that’s the point?
“While declining labor market participation is generally negative, policymakers should take into account the fact that beneficiaries have demonstrated through their own choices that time away from work is something they highly value,” the researchers note in the paper’s conclusion. of.
If you gave someone $1,000 a month to give them more flexibility in their life choices, there would be nothing wrong with the fact that most people would choose leisure over hard work.
“So, free time is good [and] Damon Jones, a professor at the University of Chicago School of Public Policy, said on the
Of course, if the money to fund a UBI program simply falls from the sky, policymakers have no reason to care about labor market impacts and potential productivity losses. If such a program were free, the only goal would be to see as many people as possible realize themselves. Does a person want to learn a new skill or start a business? great! Does anyone else want to play video games all day? Astonishing.
In reality, however, a UBI program is not cost-free, and policymakers must decide whether the benefits are worth the high cost when deciding whether to implement it—for example, Yang’s national UBI proposal is estimated to be costly $2.8 trillion Per year.
That’s why research like this is important, and why it’s so potentially damaging to the case for universal basic income. Welfare programs that encourage people to work less and earn less (that’s what it boils down to) are not successful public policies. Whatever mechanism is used to achieve this goal, taxpayers should not be expected to fund an increase in personal leisure time.
In theory, replacing the myriad, overlapping, and often inefficient welfare systems run by federal and state governments with a universal basic income is an interesting idea. In fact, this new study suggests these trade-offs may be less than ideal.
