More Evidence Against Universal Basic Income

March 24, 2023 by Dan Mitchell @ International Liberty

I’ve repeatedly expressed opposition to “universal basic income” and I repeated those concerns as part of a conference at the Acton Institute earlier this week.

If you don’t want to spend two minutes to watch the video, all you need to know is that I’m worried that more redistribution will lead to more dependency and less work.

Do This is captured in this Wizard-of-Id parody, with the only difference being that UBI is a big handout for everything rather than a set of handouts for specific reasons (food stamps, welfare, housing subsidies, etc).

There’s already academic evidence against UBI, as I wrote in 2021 and 2022.

Now we have new evidence this year. Three European academics – Timo Verlaat, Federico Todeschini, and Xavier Ramos – produced a study on the consequences of an experiment in Barcelona.

Here are their main findings, published by the Germany-based Institute of Labor Economics, all of which confirm that a basic income would be bad news.

…we aim to advance the literature on unconditional transfer programs by describing their employment effects in the context of an advanced welfare state. Our analysis uses data from a field experiment in Barcelona (Spain), trialing a generous and unconditional municipal cash transfer program. …we find strong evidence for sizeable negative labor supply effects. After two years, households assigned to the cash transfer were 14 percent less likely to have at least one member working compared to households assigned to the control group; main recipients were 20 percent less likely to work. …Another important finding concerns the persistence of effects. Employment rates in the treatment group remain lower even six months after the last transfer, indicating that households’ labor supply decisions may be hard to reverse.

I have to give credit to Matt Weidinger of the American Enterprise Institute. I did not know about this new study until I saw his article, which also merits a few excerpts.

That program is similar in many respects to universal basic income (UBI) programs proposed in Congress and being tested in multiple locations across the US. It also bears similarities to the unconditional expanded child tax credit payments temporarily made to tens of millions of households with children in 2021, which President Joe Biden’s latest proposed budget seeks to revive. Those similarities suggest American policymakers should take heed of the study’s findings… As Jon Baron, a longtime expert on evidence-based policy, recently described, the findings of the “high-quality” randomized control trial reflected in the study “suggest a need for caution in the design of anti-poverty programs, to avoid discouraging work effort.”

Since I’m a policy wonk rather than an academic, I don’t need qualifiers such as “a need for caution.” I can bluntly state that redistribution programs have a very negative impact on labor supply.

 

The moral of the story is that a basic income would make a bad situation even worse, especially when you consider that politicians almost surely won’t get rid of the handout programs that already exist (this is the “public choice” problem I mentioned in the above video).

Instead of moving in the wrong direction, existing redistribution programs need to be scaled back. But that’s just part of the solution. The federal government should get out of the way.

It’s time to shift all of these programs back to the state level, building on the success of Bill Clinton’s welfare reform from the mid-1990s.

P.S. Back in 2017, Joe Biden said some sensible things about work and dependency. Given what he’s now pushing, he obviously was not being sincere back then. Or maybe he doesn’t remember.

P.P.S. I can’t claim perfect memory. Regarding the Swiss referendum on basic income, I was wrong about the margin of victory (77 percent rather than 78 percent), wrong about the year (it was in 2016 not 2015), and the proposed handouts were even bigger than I remembered.