The Definitive Guide to Universal Basic Income
The Definitive Guide to Universal Basic Income
What if every month, every person got a check from the government with enough money to live on? Would people stop working? Could we afford it? Would it eliminate poverty? These are some of the central questions about Universal Basic Income, a radical policy proposal with support from individuals across the political spectrum.
In this post, we examine the case for and against UBI, what we know about how it could work, and what remains to be seen. GiveDirectly is also delivering cash transfers to 20,000 people as part of the largest experimental test of UBI ever conducted. Read more about that project here.
Definition of Universal Basic Income:
A universal basic income (UBI) is a guaranteed, no-strings-attached, recurring payment to every member of society, sized to meet basic needs.
It approaches the problem of people not having enough to live on by giving everyone a check equal to the cost of living. In its fullest form, it’s:
- Universal, serving all members of society;
- Basic, enough to cover basic needs; and an
- Income, an unconditional, recurring payment guaranteed for recipients’ lifetimes.
A brief history of UBI
Basic income has a long history, claiming supporters from across the political spectrum. Over time, everyone from Thomas More, to J.S. Mill and Thomas Paine, to Milton Friedman and Friedrich Hayek, to Dr. Martin Luther King and Facebook founder Mark Zuckerberg have expressed interest in some version of the policy.
In the 1970s, the US and Canada conducted negative income tax pilots in 5 regions, and congress under President Nixon nearly passed a law implementing this basic income variant. However, the pilots were inconclusive, and the political moment passed. While interest in basic income has surged again recently, a true universal basic income has never actually been fully implemented, and countries around the world are still weighing the pros and cons.
Of course, the broader history behind helping people by “just” giving them money is at least as long, and 130 countries today have at least some type of cash transfer program, including many who have adopted a universal pension for the elderly.
GiveDirectly: why we got involved
GiveDirectly is currently running the largest universal basic income experiment in history. The debate over basic income is about a specific type of cash transfer program. GiveDirectly has delivered different types of cash transfers and evaluated their effects for a decade, distributing over $100M and conducting more than 10 randomized control trials. While, in general, the evidence is strong that giving cash is one of the best ways we can help people, we’re eager to learn how UBI compares to other approaches. This 12-year study will deliver cash to more than 20,000 people living in rural Kenya. Learn more about our program here.
Arguments in favor of UBI
Eliminating (monetary) poverty
I’m now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.Martin Luther King Jr. | Civil rights leader
If you give everyone a payment equal to the poverty line, no one will have to live below the poverty line. This is the simplest argument in favor of a universal basic income.
There is no reason why in a society which has reached the general level of wealth which ours has…that the security of a minimum income should not be guaranteed to all without endangering general freedom.Friedrich Hayek | Economist
Of course, you’d want to confirm recipients don’t work and earn less, offsetting the original payment. You might also worry that misspending or other effects could make people worse off, even if they are less “poor”. We discuss some of these concerns later on in the arguments against UBI. Monetary wellbeing, while hugely important, is also only one aspect of what makes a life worthwhile.
Empowering people to choose, destigmatizing government assistance
Many people are drawn to basic income because recipients don’t have to meet onerous conditions to receive help, and how funds are spent is entirely up to them. Similarly, some advocates argue universal inclusion would mitigate the stigma of relying on assistance from the government.
Former president Richard Nixon was drawn to a UBI-variant called a negative income tax in large because a universal approach wouldn’t support only the unemployed.
“Current welfare robs recipients of dignity. Benefit levels are grossly unequal…For the first time, the government would recognize that it has no less an obligation to the working poor than to the nonworking poor.”Richard Nixon | Former US President
Other supporters are excited about the potential for basic income to empower people to take on more creative, entrepreneurial work.
We should explore ideas like universal basic income to make sure that everyone has a cushion to try new ideas.Mark Zuckerberg | Facebook Founder, CEO (more)
Or, in some cases, to be recognized for the unpaid work they’re already doing.
The U.B.I. would also edge us toward a more gender-equal world. The extra cash would make it easier for a dad to become the primary caregiver if he wanted to. A mom with a job could write checks for child care and keep her earnings, too. Stay-at-home parents would have money in the bank, more clout in the family, and the respect that comes from undertaking an enterprise with measurable value. And we’d have established the principle that the work of love is not priceless at all, but worth paying for.Judith Shulevitz | Journalist
Reducing administrative overhead
“Now what it seems to me you ought to do is to give people money instead of a whole lot of separate little baffles and get rid of the bureaucracy that is involved in all these programs…If we want to say we’ll give you money only if you use it to buy toothpaste and not for anything else, that’s our right [as taxpayers] but I think we are very unwise to exercise it.”Milton Friedman | Economist
Cushioning technological unemployment
While some advocate for UBI as a way to reduce poverty today, others view it as an answer to the risk that AI and automation eliminate millions of jobs in the future.
We are in the fourth inning of automation. Four million manufacturing jobs have been taken since 2000 and automated trucks are already making deliveries in Colorado. 1 out of 10 American workers works in retail. If we wait any longer, we will be out of time.Andrew Yang | Presidential candidate
The appeal is fairly straightforward: in an increasingly sparse job market, UBI would enable the unemployed to maintain a baseline standard of living between jobs. It could also subsidize incomes for lower-paying, socially beneficial jobs like elderly care and education.
However, not everyone agrees that job automation is an imminent threat.
Universal basic income would require nearly doubling income taxes in this country. I think it’s based on the premise that there won’t be jobs for people. I think our premise should be that there will be jobs for people.Jason Furman | Economist
It’s a recurring panic. This happens every 25 or 50 years, people get all amped up about ‘machines are going to take all the jobs’ and it never happens.Marc Andreessen | Investor
Regardless of how likely it is that automation eliminates most jobs, it’s probably more likely that it creates the need for different types of economic transitions, which could perhaps be eased by a basic income.
One can legitimately worry about the transition even if one believes that the Lump of Labor fallacy is in fact a fallacy … Even then the adjustments in the labor market are likely far slower than the displacement effects from automation. Employers can fire people quickly. People take a long time to acquire new skills and find new jobs (and these jobs need to be created first).Albert Wenger | Investor
Arguments against UBI
Breaking the bank
Critics’ most common concern about UBI is that the price-tag alone would make it fiscally or politically infeasible to implement. For example, presidential candidate, Andrew Yang’s proposal would give $1,000 per month to every US citizen over 18, costing a total of $2.8 trillion a year, relative to total federal government spending of $4 trillion. Approximately $300 billion to $500 billion of that funding could potentially come from existing social safety net programs, but the government would still have to raise significant new revenue, and Yang’s actual proposal only saves $133 billion by repurposing existing services.
Partly, the United States spends much less on social services than other developed world countries, so there’s less existing spending to move around. Still, many countries would find a negative income tax approach, with cash support decreasing as recipients’ income increase, more palatable. For example, economists Jessica Wiederspan, Elizabeth Rhodes, and Luke Shaefer find that the United States could implement a negative income tax at a gross cost of $219 billion per year. Although, the net cost would be roughly zero if it replaces the set of existing programs they model.
Other countries may also have unique sources of revenue or existing spending that could be repurposed. Former Chief Economic Advisor to the Government of India Arvind Subramanian, for example, imagined a modest basic income funded by repurposing existing subsidy programs, which could lift millions of people out of poverty.
Redirecting scarce resources from the poor to the wealthy
The conservative version of UBI would be a huge, poverty-inducing step in the wrong direction. Our social welfare programs devote most of their resources to low- and moderate-income people, so to sum up those expenditures and divide by the population would definitionally dilute the resources currently going to those who need them most.Jared Bernstein | Former economic adviser to Vice President Joe Biden, Senior Fellow at CBPP
How a basic income is funded is critical for the effect it has on poverty and inequality. While most basic income proposals redistribute funds from the wealthy to the poor, taking funds currently spent only on the poor and distributing them universally would leave current recipients of support substantially worse off.
If a UBI of the scale often contemplated were introduced on top of the existing transfer system, it would represent a very large downward redistribution of income. In contrast, a UBI that replaced, rather than supplemented, current programs would be less targeted, providing much less assistance to the lowest income families.Hilary Hoynes & Jesse Rothstein | Economists
Critics also worry that a basic income would incentivize people to work less.
The fans of programs that accept & even encourage joblessness, like universal basic income, forget that human satisfaction doesn’t come primarily from material comfort, but from purpose, a feeling of accomplishment and the social support that often occurs in a work environment.Larry Summers | Economist
Evidence from cash transfer programs in the developing world finds “no systematic evidence that cash transfer programs discourage work.” A 2018 meta-analysis by Ioana Marinescu of negative income tax experiments in the US and Canada found similar results, “Overall, the programs analyzed suggest either no effect on labor market supply or a slight reduction in work and earnings.” And a 2019 study in Finland found the same result.
Still, some speculate that the results would be different for a lifelong basic income.
Over time, the stigma against leaving the workforce would surely erode: large segments of society could drift into an alienated idleness. Tensions between those who continue to work and pay taxes and those opting out weaken the current system; under a basic income, they could rip the welfare state apart.The Economist
For that, we’re looking forward to the longer term results from our 12 year study in Kenya.
If everyone suddenly had an extra $10K a year, and everyone knew that everyone had an extra $10K a year, prices would go up and inflation would rise, thus negating the perceived gains of such a program.Greg Archetto | Political staffer
A common concern about UBI is that increasing everyone’s incomes will result in inflation. Existing evidence would suggest that rampant inflation is unlikely because the supply of most things people spend on is not fixed. The State of Alaska has given its citizens an annual dividend between $800 and $2,000 since 1990, and its inflation has lagged the average US inflation. Two other studies from Mexico and Somalia found no overall price effects in places receiving cash transfers. In very remote economies or local areas with supply inefficiencies, this could potentially be more of a problem, especially in the short-run.
What countries have explored universal basic income?
Most countries in the world have experimented with some type of cash transfer program. The effects of these are well studied. See, for example, the Overseas Development Institute’s review of 165 studies evaluating the effects of 56 different programs. Many countries have also implemented universal, unconditional cash programs in the form of universal pensions (e.g., Social Security) or child grants.
Still, a full universal basic income, giving all members of society enough money to live on for life, has never been implemented or evaluated at scale. Many places have debated UBI and a number of trials provide indicators of how a UBI could work. We review some of these below.
In the USA
President Nixon’s Negative Income Tax
In 1969, as part of a broader proposal for welfare reform called the Family Assistance Plan, President Nixon proposed a Negative Income Tax (NIT) that was structurally very similar to UBI. The bill was motivated by Nixon’s belief that providing welfare only to the unemployed reduces the incentive to find work. President Nixon said in a national address, “Thus, for the first time, the government would recognize that it has no less an obligation to the working poor than to the nonworking poor.” However, the entire proposal was ultimately voted down by the House of Representatives, primarily stemming from Democrats’ concerns that the benefits were not large enough.
Permanent Fund Dividend of Alaska
Every year since 1982, the state of Alaska has paid an annual dividend from a fund worth ~$55 billion to all permanent residents. The fund has been funded by oil revenues. Historically, the yearly payment has fluctuated between $800 and $2,000 since 1990, based on the performance of the investment fund and year to year legislation. In a 2018 review, economists Jones & Marinescu found that, “that the dividend had no effect on employment, and increased part-time work by 1.8 percentage points (17 percent).”
Eastern Band of Cherokee Indians Casino Dividend
In 1996, the Harrah’s casino constructed in land held by the Eastern Band of Cherokee Indians began providing a share of its profits to every tribal member. Dividends typically between $2,000 and $3,000 twice per year are paid to over 16,000 recipients. Researchers evaluating the program found no reduction to the labor supply and meaningful improvements in education outcomes, crime rates, physical health, and mental health.
Hawaii Considering UBI
In 2017, Hawaii’s state legislature passed HCR 89, a measure to begin evaluating a potential UBI program for its citizens. The measure passed unanimously, creating a bipartisan task force involving the Chamber of Commerce, economic researchers from the University of Hawaii, and the state’s director of human services.
Andrew Yang’s Freedom Dividend
Democratic presidential candidate Andrew Yang has championed the Freedom Dividend, a $1,000 monthly payment to all adults in the US, funded by a new 10% Value-Added Tax, current welfare spending, higher pollution taxes, a financial transaction tax, treating capital gains as ordinary income, and higher taxes for top earners.
In February 2019, the city of Stockton, CA launched a UBI pilot for its citizens. Roughly 100 residents will receive $500 per month for 18 months. The program was proposed and championed by Mayor Michael Tubbs and largely supported by the Economic Security Project.
In February 2019 in Chicago, a task force appointed by Mayor Rahm Emmanuel recommended an experiment that would give 1,000 residents $1,000 a month for 18 months.
Around the world
UBI has been a policy consideration in Canada for decades, with multiple parties currently championing it as an effective poverty alleviation tool. Ontario, Canada launched a negative income tax pilot in April 2017 that disbursed up to $12,600 per year to 4,000 households. However, Premier Doug Ford announced in 2018 that they would discontinue the program and focus on traditional programs. In the 1970s, the “Mincome” program in Manitoba tested a negative income tax for residents for 5 years. An evaluation of that program found improvements in high school completion rates, reduced hospitalizations, and mental health.
In 2018, Finland launched a project delivering 560 euros a month to roughly 2,000 people who were previously receiving unemployment assistance. Preliminary results show that the basic income had numerous positive physical and mental health effects. Recipients worked the same amount as beneficiaries of traditional unemployment insurance, leading some to criticize the program for not increasing work effort. UBI advocate Scott Santens points out a key limitation of the experiment’s design: “the treatment group continued receiving 83.3% of the conditional [e.g., unemployment] benefits as the control group,” undermining whether the treatment group was truly released from incentives policymakers suspected might hinder returning to work.
In a 2016 referendum, 77% of Swiss citizens voted against implementing a Universal Basic Income program. In 2018, a filmmaker tried to crowdsource funds to implement a UBI experiment in the town of Rheinau, but he was ultimately unsuccessful at securing sufficient funds.
In the early 2000’s, UNICEF and SEWA (Self-Employed Women’s Organization) ran multiple pilots of basic income in Madhya Pradesh and Delhi. Arvind Subramanian, former Chief Economic Advisor, explored the case for a basic income in the government’s 2017 Economic Survey. In March 2019, India’s Congress Party-leader Rahul Gandhi promised his party would implement a UBI program if elected (he wasn’t). The Indian state of Sikkim has pledged to implement a UBI program for its residents by 2022.
In 2015, the French region of Aquitaine voted to begin researching how to implement a basic income. The motion passed unanimously, but there has been little public progress since.
Speenhamland System (England and Wales)
In the 1790s in England and Wales, the Speenhamland system (also called the Berkshire Bread Act) was created. It provided cash support to rural poor families based on the number of children in each family and the price of bread, marking one of the earliest instances of large-scale social protection policy.
In 2008, two pilots of UBI were run in Namibian villages Otjievero and Omitara. The program distributed roughly $13 each month to beneficiaries for several years. It was funded by private contributions from German and Namibian citizens through Basic Income Grant Coalition.
Universal Basic Income is increasingly becoming a serious policy consideration in Scotland. It’s a major agenda item for both the Scottish National Party and Scottish Green Party, and a parliamentary task force was formed in 2018 to examine potential pilots in four local municipalities: Glasgow, Edinburgh, Fife, and North Ayrshire.
In Germany UBI has been a major topic of debate since the 1980s. In 2013, a Parliamentary commission found that UBI was “unrealizable,” although the Basic Income Alliance, a party focused on advocacy formed in 2016 and remains present today. Mein Grundeinkommen (“My Basic Income”), a crowd-funded NGO focused on promoting UBI, raffles off €1,000 monthly incomes to hundreds of German citizens
GiveDirectly is conducting the world’s largest, most long-term experiment to date on the impact of a Universal Basic Income. Launched in 2017 the study will last 12-years and involve nearly 300 villages in rural Kenya. Learn more about the program here.
FAQ about UBI
How would universal basic income work?
UBI would guarantee every citizen within a governed population a regular payment from the government with enough money to live on. Most UBI plans would be funded by tax revenues and would either supplement or replace existing welfare programs.
Does universal basic income work? Is it a good idea?
We don’t know yet! There’s strong evidence behind cash transfers in general, but no country has implemented a UBI at scale. However, our experience on the effects of cash transfers broadly and from UBI pilots around the world suggest it’s worth testing.
How much would a universal basic income cost?
- In Kenya: In our UBI project in rural Kenya, recipients are receiving roughly $0.75 (nominal) per adult per day, delivered monthly for 12 years. For a village of 200 adults, it would cost about ~$5,000 a month to provide a UBI. You can learn more about our UBI trial in Kenya here.
- In the USA: The CBPP estimates that it would cost more than $3 trillion dollars a year to provide a $10,000 per year UBI program. There are multiple proposals of how the funding would be raised for a program of this size. A Negative Income Tax program modeled by economists Wiederspan, Rhodes, and Shaefer would eliminate poverty completely, providing basic income only to citizens below the poverty line with a 50% phase-out rate. The proposed plan cost only $219B per year, which is less than the combined funding from existing welfare programs.
- In Switzerland: In 2016 Switzerland voted down a referendum that would have created a monthly UBI of 2,500 Swiss Francs (equal to about $2,555). News reports at the time of the vote put the total cost at 25 billion Francs a year.
We sketched a rough calculator for the costs of a UBI for other countries here.
Who pays for universal basic income?
In most proposals, the citizens would pay for UBI via government tax revenue. However, many trials of UBI have also been funded by not-for-profit organizations, such as GiveDirectly’s UBI project in Kenya, and some proposals involve distributing the revenues from a shared resource (like Alaska’s Permanent fund).
What is the difference between UBI and a negative income tax?
Both a UBI and a negative income tax (NIT) establish a minimum income floor. Under a NIT people who earn less than a “zero-tax threshold” get a cash transfer instead of paying an income tax. This benefit decreases as people earn more. Because an NIT targets the poorest people in society, it’s not universal, but it would provide payments sufficient to meet basic needs.
A UBI funded by a progressive tax rate and a negative income tax can have identical income distribution effects after taxes and government payments, but a NIT would require a smaller gross budget to fund.
Otherwise, whether a NIT and UBI have similar effects depends on:
- How well the government can measure income levels and respond to income changes smoothly.
- How quickly NIT benefit levels decrease as recipients earn more, and how that affects their incentives to earn more.
- Whether structuring a program to be universal instead of focused on the poor changes how it is perceived.
Is universal basic income possible?
To date, no country has implemented UBI at a national-level. Many countries have implemented other types of cash transfer programs. For many countries, it’s possible to propose revenue models to fund a UBI. Whether those models are politically feasible and the actual effects of implementing a UBI remain to be seen.
Is universal basic income socialism?
No. Socialism is a political and economic theory where the means of production are owned by the community. A UBI provides an unconditional guaranteed income to every citizen, but does not change the ownership structure of businesses.