Professionals and Cons of Common Fundamental Revenue (UBI)
Have you ever wished you could afford to quit your job? Maybe you’d love the opportunity to go back to college, start a business, or take a few years off to raise children. Or maybe you’d just like to find a different job — perhaps earning less but enjoying the work much more.
Several American politicians and tech billionaires would like to help you achieve those dreams. They’re proposing a new type of benefit program called universal basic income, which would give every American adult a monthly cash payment with no strings attached.
Is universal basic income just a pipe dream, or is it an idea that could benefit everyone in the country?
Pros of Universal Basic Income (UBI)
Most UBI programs are designed to pay just enough for people to survive on. That way, they still have an incentive to work for more money. In good times, the monthly check can buy a few luxuries or go into savings. In hard times, it ensures no one has to starve on the streets.
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According to proponents, the concept has some clear advantages.
1. Reduces the Poverty Rate
The most basic argument for universal basic income is that it could eliminate poverty in the U.S. If you give everybody enough money to survive, then no one will live below the poverty level.
Other UBI programs of the past and present have been successful in this area. For example:
- The world’s first guaranteed income program, called the Speenhamland System, saved many families in rural England from starvation between 1795 and 1834.
- Between 2007 and 2009, the Basic Income Grant program in Namibia cut the nation’s poverty rate nearly in half.
- Between 2003 and 2015, a guaranteed income program in Brazil called Bolsa Familia cut that country’s poverty rate by more than three-quarters.
- A 2016 University of Alaska study of the Alaska Permanent Fund, a program that gives a modest cash payment (around $1,000 per year) to all state residents, found that it kept between 15,000 and 25,000 Alaskans out of poverty each year.
- In the 2010s, UBI trials run by GiveDirectly in Kenya and Uganda boosted participants’ earnings, assets, and nutrition.
- In 2017, a basic income pilot program in Ontario helped participants save more, pay off debt, and improve their living standards.
- Another trial that same year in Finland significantly improved participants’ financial health.
- A 2019 UNICEF report on Iran’s basic income program, which gave Iranians monthly cash transfers equal to about $1.50 per day, found that it had significantly reduced poverty in that nation.
In 2022, the U.S. poverty threshold is $13,590 for a single person and $18,310 for a family of two. Thus, a monthly cash payment of about $1,135 for every adult and $395 for every child could keep every American above the poverty level.
2. Reduces Income Inequality
Some argue universal basic income could fight income inequality. The safety net UBI provides could help people at the low end of the income scale get ahead. For example, they could pursue a college degree that would boost their future earnings instead of starting work at a young age.
Universal cash payments can also reduce another type of inequality: the gender wage gap. Because women make less than men on average, the same payment would increase women’s incomes by a larger percentage than men’s. It would make an especially big difference for women with no cash earnings, such as stay-at-home mothers.
It’s unclear how much UBI reduces income inequality in the real world. Most UBI experiments have been too small and short-lived to affect this large-scale problem. Only a few countries have adopted any form of UBI on a large scale, and the evidence from those countries is mixed.
For instance, according to the U.S. Census Bureau’s 2018 American Community Survey (via Zippia), Alaska — the only U.S. state with any form of UBI — has the lowest level of income inequality in the country. Moreover, according to calculations from Bloomberg CityLab, in 2012, Alaska was one of only four U.S. states where inequality has not risen by at least 10% since 1979.
Brazil’s Bolsa Familia program has also helped reduce inequality. Since it passed in 2004, the country’s Gini Index has fallen. However, this program is not a true UBI. Payments are targeted to low-income families and conditional on having their kids vaccinated and sending them to school.
By contrast, Iran’s basic income program hasn’t had much impact on inequality. The country’s Gini Index fell by several points after the program started in 2010, but since then, it has returned to roughly its previous level.
3. Eliminates the Need for Government Programs
Of course, UBI isn’t the only way to provide aid to the poor. Right now, the U.S. has hundreds of benefits programs run by the federal government and the states. These include Social Security, health care programs like Medicaid, subsidized housing, and food stamps.
But getting aid from these programs isn’t easy. In the first place, each program has strict eligibility limits. Many are unavailable to the unemployed or gig workers with variable income. As a result, many people slip through the cracks.
Even those who qualify have to jump through a lot of hoops to apply for and collect their benefits. The time involved makes it harder for them to hold a job. And some people never apply for benefits because of the social stigma attached to taking “handouts.”
The red tape doesn’t end once people get their benefits. The government often puts limits on how they can spend the money. For instance, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) only covers the costs of certain foods.
Once people are on benefits, they must stay within the program’s income limits to avoid losing them. If they earn too much, their benefits shrink — or, if they’re on disability or Supplemental Security Income, vanish entirely. In this way, government programs discourage people from getting better jobs or working more hours, which could take away their benefits without fully replacing the assistance they provide. Economists call this problem “the poverty trap.”
All this bureaucracy isn’t just inconvenient for recipients. It’s also costly for the government. A 2012 analysis by the Center on Budget and Policy Priorities shows that up to 10% of spending for some aid programs goes toward administrative costs.
A UBI program could eliminate all these problems. Recipients could get their money automatically and spend it however they chose. They would also be free to work and earn as much as they wanted. Making the benefit universal would eliminate social stigma. And with less bureaucracy, nearly all the money collected would go directly to recipients.
4. Improves Physical & Mental Health
According to the U.S. Department of Health and Human Services, being poor is bad for your health in measurable ways. People living in low-income areas have a greater risk for mental illness and chronic diseases such as obesity, diabetes, and heart disease. Their lifespans are shorter, and their death rate from all causes is higher.
By raising people out of poverty, universal basic income can alleviate these problems. In UBI trials around the world, from Kenya to Finland, participants’ health improved significantly in many areas. They experienced:
- Better nutrition, especially for children
- Improved access to clean water, sanitation, and medicine
- Fewer hospitalizations
- Lower rates of stress and depression
- Better education for children
- Higher levels of happiness
5. Makes Higher Education More Accessible
The educational benefits of UBI aren’t limited to young children. The monthly payments also make it easier for teens and young adults to stay in school.
Most trials of UBI haven’t been large enough or long enough to show an increase in college education. However, teenagers involved in UBI trials like Namibia’s Basic Income Grant and Canada’s Mincome (a 1970s UBI pilot program in Manitoba) were more likely to finish high school, allowing them to go to college.
UBI can also open up educational opportunities for adults. They can more easily afford to take time off work and go to college or graduate school. And by getting a degree, they improve their ability to earn more money in the future.
6. May Improve Wages
Some proponents of universal basic income believe it could help drive wages up. The idea is that extra income would make workers more willing to leave jobs that weren’t worth their while.
That would create a tighter labor market in which fewer workers are available to fill open jobs. To attract workers, employers would have to increase wages. This effect could be substantial for otherwise unrewarding jobs, such as cleaning public restrooms.
Additionally, UBI puts money directly into people’s pockets, encouraging them to spend more. That boosts the economy and helps create new jobs. That, in turn, can make the labor market tighter and drive up wages.
Some economists argue that higher wages could be a bad thing because they might drive up inflation. But that hasn’t happened in Alaska, the one state with a UBI program. On average, inflation in Alaska is rising about as fast as in the U.S. as a whole.
However, the yearly payouts from the Alaska Permanent Fund are fairly small. It’s still possible a more generous UBI program, such as former presidential candidate Andrew Yang’s proposed Freedom Dividend of $1,000 per month, would be enough to drive both wages and prices higher.
7. Supports Caregivers
In the U.S. economy, there are many people who do valuable work without being paid for it. For instance, parents who provide full-time care for young children are doing a job that day care services charge thousands of dollars per year for.
Likewise, adults caring for aging parents may devote as many hours to it as they would to a full-time job. Professionals who provide long-term care charge thousands of dollars per month for it, but these family caregivers don’t get a dime.
UBI would provide a source of income for unpaid caregivers. It would make it easier for parents to stay home with their children or just reduce their working hours to spend more time with them. And for those who continue to work full time, the cash would help pay for child care.
8. Gives Domestic Violence Victims More Freedom
Domestic violence takes many forms. Victims can be abused physically, emotionally, sexually, or all three. But in many cases, there’s an additional, less talked-about element: financial control.
According to the National Coalition Against Domestic Violence, one common reason victims stay in abusive relationships is that they lack the means to support themselves or their children. UBI can help victims out of this bind by giving them an independent source of income.
In 2009, Namibia’s Labour Resource and Research Institute and Desk for Social Development released a joint report on the Basic Income Grant program. It found that it made women less dependent on men for survival and relieved the “pressure to engage in transactional sex.” And under the Mincome program, emergency room visits for domestic abuse declined.
9. Encourages Entrepreneurship
Universal basic income could also free people up to start businesses. They could use the monthly payments to cover their startup costs or support themselves while getting the company off the ground. Traditional benefits programs don’t help with such a transition because many self-employed people are ineligible for them.
In a 2017 Harvard commencement address, Mark Zuckerberg noted that he was only able to start Facebook because of the financial safety net his well-to-do family provided. If he had needed to work instead of having time to code, he said, he “wouldn’t be standing here today.”
He went on to argue that a UBI program would give everyone “a cushion to try new things.” Other tech titans have made similar arguments. Stewart Butterfield, founder of business productivity software Slack, tweeted in 2017 that ”even a very small safety net would unlock a huge amount of entrepreneurialism.”
10. Protects Workers From Economic Shocks
One reason so many Americans are talking about universal basic income right now is the fear of automation replacing jobs or reducing wages. Yang and technology titans Elon Musk and Sam Altman have all argued that technology will soon displace millions of workers.
Not all economists agree on this point. Some think it’s an example of the “lump of labor fallacy”: the idea that there are only a fixed number of jobs to go around. They argue that in the long run, new technology creates more jobs than it destroys.
But even if this is true, automation can still put people out of work in the short term. And there’s no guarantee the new jobs created will pay as well as the lost ones.
Moreover, automation isn’t the only threat to U.S. jobs. For instance, the coronavirus pandemic put millions of Americans out of work temporarily. The government passed a series of stimulus bills to help those workers make ends meet, but an existing UBI program would have done it automatically.
Cons of Universal Basic Income
For all the good UBI programs can do, there are some potential practical and social downsides. There are a number of potential downsides to UBI, some more valid than others.
1. High Cost
One reason most UBI trials last no more than a year or two is the price tag. For example, the Ontario trial ended early due to what officials called its “extraordinary cost” — and that program covered only 4,000 people. A full-scale UBI program in the U.S. would cost far more.
For instance, Yang’s proposed Freedom Dividend would pay $1,000 per month to every adult citizen — almost 260 million people. That adds up to over $3 trillion per year, more than half the federal budget for 2022.
The Urban Institute calculates that canceling existing social welfare programs could cover about $483 billion of the cost. However, that’s only a fraction of the total. Moreover, ending existing benefits would still leave many Americans in poverty, even with the $12,000 per year from UBI.
Other options to pay for UBI are equally problematic. A value-added tax would raise the cost of goods and services, reducing the value of the UBI. A wealth tax would face stiff opposition from wealthy taxpayers. And borrowing to pay for it would add to the soaring national debt.
The problems with funding universal basic income aren’t unique to the United States. A 2017 article by University of Oxford economist John Kay published in the journal Intereconomics looked at proposed UBI plans in the U.S. and five European countries. He found that in every case, “Either the level of basic income is unacceptably low, or the cost of providing it is unacceptably high.”
2. Reduces the Incentive to Work
For as long as guaranteed income programs have existed, economists and other critics have argued that they encourage laziness. They say if you give people money for doing nothing, they have no incentive to engage in productive work, and the economy suffers as a result.
One problem with this argument is that many UBI programs don’t provide enough money to live on. At most, they supply only a bare subsistence income. Thus, people still have a strong incentive to work and raise their standard of living.
Another problem is that the current welfare system discourages work through poverty traps. These can be a much bigger incentive to avoid working and earning than UBI does. Earning more income can reduce or even eliminate government benefits, but it doesn’t diminish UBI.
Most experiments with UBI have shown no overall decrease in working and earning. In the Finnish trial, work hours stayed about the same. And in Kenya and India, people who received cash payments actually earned more money from work, not less.
In the Mincome trial, recipients’ work hours did decline somewhat. However, closer analysis finds that only certain groups worked less. Boys stayed in school longer before starting work, and mothers took more time off after having a baby.
Some economists have feared UBI may not reduce employment rates in the short term, but it will in the long run. A 2016 Economist editorial argues that with a long-term UBI, “the stigma against leaving the workforce would surely erode,” leading more and more people to quit their jobs.
A longer-term GiveDirectly UBI trial currently running in Kenya will help settle this point. However, there’s already some evidence against it. A 2018 paper by the National Bureau of Economic Research found that the Alaska Permanent Fund payouts have not reduced full-time employment in that state. Meanwhile, part-time employment has increased slightly.
Universal basic income isn’t the most efficient way to help people in need. While current social welfare programs direct aid to low-income people, UBI gives it to rich and poor alike. Even millionaires receive monthly payments they don’t need.
If the U.S. took all the money it spends on aid programs now and divided it among the entire population, the poorest Americans would receive much less aid than they do now. Like Robin Hood in reverse, the program would rob from the poor and give to the rich and middle class.
A UBI program designed that way would make poverty and inequality worse, not better. Studies by the Center for Budget and Policy Priorities, the Organisation for Economic Co-operation and Development, and the Institute for Policy Research have all found that this kind of UBI program does not reduce poverty and can exacerbate it.
UBI could still help struggling Americans if it were an add-on to existing social programs rather than a replacement for them. However, that would make the program much more costly, requiring higher taxes on both the rich and middle class to pay for it.
Alternatively, the U.S. could replace existing programs with an even more generous UBI that would pay more than the poorest Americans receive in benefits today. But that would cost even more than the first option.
Suppose that right now, the benefits paid to low-income Americans are worth around $15,000 per year. Instead of giving that money to low-income Americans only and another $12,000 in UBI to everyone, the program would need to give at least $15,000 to every single American.
4. Diminishes Self-Worth
A job can be more than just a source of income. It can also contribute to a sense of self-worth. In 2016, The Economist argued that replacing work with UBI on a large scale would drive people into “alienated idleness.”
Polls of American workers provide somewhat mixed support for this argument. A 2019 CNBC survey found that nearly 90% of American workers describe their jobs as either “very meaningful” or “somewhat meaningful,” and almost as many were at least somewhat satisfied with their jobs overall. Despite that, the survey also found that over a third of those who gave their jobs top marks in three or fewer of the five satisfaction categories considered quitting in the previous three months.
And a 2017 Gallup poll found that a majority of U.S. workers do not feel engaged at their jobs. The only benefit they get from them is a paycheck.
For these workers, UBI could offer an opportunity to spend their time doing something that engages them more. That could mean going back to school, starting a business, volunteering, or pursuing hobbies. Or it could mean getting a new job without worrying about what it pays.
5. May Reduce Wages
While some economists say UBI could drive wages up, others argue it would reduce them. According to them, if UBI gives workers enough money to live on, employers will be able to get away with paying them less than a living wage.
It’s already happening to some extent in the gig economy. Many gig workers are willing to work for low wages because they have other sources of income.
So far, there haven’t been any studies on a large enough scale to show which view is closer to the truth. However, if there is a risk UBI could depress wages, the government could counter this effect by raising the minimum wage.
6. Doesn’t Address the Root Causes of Poverty
People living in poverty lack more than just money. Many also have addiction issues, poor health, or lack of skills and education. Giving them cash doesn’t solve these problems.
Some people argue that aid programs targeting these social ills can help the poor more than cash. Even GiveDirectly, a charity that gives money to poor people in developing countries, concedes that its cash transfers may be less cost-effective than deworming and mosquito nets, which prevent diseases that harm people’s ability to work and earn money.
On the other hand, when people have the cash to cover their basic needs, they’re more able to deal with their other problems on their own. According to a 2016 World Bank report, participants in UBI trials around the world reduced their spending on alcohol and tobacco.
UBI experiments have also shown that participants tend to invest in resources that help them earn more. And their kids stay in school longer, helping to raise the next generation out of poverty.
Providing a universal basic income across the entire United States would be an incredibly ambitious project. It would cost a massive amount of money by any measure and face stiff opposition from across the political spectrum.
A less extreme plan, such as a negative income tax or a higher child tax credit, has a better chance of passage. These policies could provide many of the same benefits as UBI, such as reduced poverty and streamlined government bureaucracy, at a much more reasonable cost.