Recent evidence continues to demonstrate that UBI programs do not work as intended.
Universal Basic Income (UBI) programs are gaining popularity across the nation. Some policymakers view UBI as a solution that solves poverty and provides greater economic security through wealth redistribution. Here in Iowa, Polk County joined with other Des Moines-area cities and nonprofit organizations to launch Uplift, a UBI pilot program with a total cost of $2.65 million. In response to the program, and the growing escalation of property taxes, the Iowa Legislature passed a law that prohibits local governments from implementing UBI programs. And taxpayers in the Hawkeye State should be thankful. Recent evidence continues to demonstrate that UBI programs do not work as intended and lead to lower productivity and individuals working less.
The National Bureau of Economic Research (NBER) has provided new research on the potential impact of UBI programs. The NBER tested a UBI program that provided 1,000 low income individuals with $1,000 per month. The participants were 21-40 years of age and they could not exceed 300 percent of the federal poverty level. A second group of 2,000 participants received $50 per month. The average income of the study participants was under $30,000 and the UBI funded an increase in their earnings of nearly 40 percent.
The research concluded, however, that the UBI program did not work as intended. It resulted in lower productivity and people working less. Labor market participation decreased and even unemployment was extended. In some cases incomes declined by as much as $1,500. It was not only participants that reduced their working hours, but also others in their households.
Some positive outcomes that were observed in the study included participants demonstrating more interest in entrepreneurship and younger people pursuing further educational opportunities. Nevertheless, this UBI program revealed that participants took advantage of the “free” resource to expand their leisure activities.
Despite this newest evidence, an ongoing debate will likely continue about whether UBI programs are effective in helping people build economic security or if they discourage work and productivity. Past welfare reform initiatives at the state and federal levels demonstrate that encouraging individuals to work and helping them become less dependent upon these programs leads to a reduction in poverty.
Individuals will always be helped when they are provided with a fixed amount of money per month, but human nature takes over and this is where the problem begins. In the cases examined by NBER, participants took full advantage of the UBI by using the financial resources more for leisure activities. This is evident with the decrease in labor market participation, participants working fewer hours, decreased incomes, and unemployment being extended.
As the authors of the study wrote:
“Our analysis demonstrates that even a fully unconditional cash transfer results in moderate labor supply reductions for recipients. Virtually all existing large-scale cash transfer programs in the U.S. are means-tested, which provides additional disincentives to work. Rather than being driven by 30 such program features, participants in our study reduced their labor supply because they placed a high value, at the margin, on additional leisure. While decreased labor market participation is generally characterized negatively, policymakers should take into account the fact that recipients have demonstrated–by their own choices–that time away from work is something they prize highly.“
“The real driver, the elephant in the room, is means-tested social-welfare spending—Medicaid, food stamps, refundable tax credits, Supplemental Security Income, Temporary Assistance for Needy Families, federal housing subsidies and almost 100 other programs whose eligibility is limited to those below an income threshold,” wrote former Senator Phil Gramm and Representative Jodey Arrington, who chairs the House Budget Committee.
Social safety net and tax credit programs are consuming a greater share of state and federal budgets. A UBI program would not only create an additional entitlement program, but it would become a massive albatross on a budget. Too often, government officials attempt to reduce poverty and provide greater economic security by expanding tax credits and creating new programs such as UBI. The problem is that these programs often fail to resolve poverty. Instead, many only further perpetuate our massive fiscal crisis at the federal level, or add to the tax burden heaped onto citizens at the state and local levels.
If Uplift were allowed to become a permanent program in central Iowa it would have led to a massive increase in property taxes, and most likely calls from local government officials for state policymakers to help subsidize the program. Property taxes are already high across Iowa and adding an additional entitlement that has a questionable record is poor fiscal policy.
The NBER study demonstrates that the Iowa legislature was correct to be proactive in preventing local governments from establishing UBI programs. The best solution to provide economic security and to reduce poverty is to encourage work. This means that work requirements should be applied to benefits for those who are able to work. Doling out money may be politically popular and have some short term gain, but it has significant long term consequences.
“Requiring all able-bodied Americans to work as a condition for receiving welfare would do more than reduce the deficit. It would bring people back into the economy, the source of prosperity and economic independence. A job is the best nutrition, housing, healthcare, education, child-care and general welfare program,” wrote former Senator Gramm and Representative Arrington.
Print a PDF