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Universal Basic Income – a promising concept?

In January 2017, Finland caught the world’s attention by introducing one of the first basic income programmes. At that time, many praised the experiment as a progressive and promising approach to tackle the consequences of the ongoing rationalization by relieving low-income individuals. Despite having encouraged the establishment of similar projects around the world, the Finish government has now decided not to expand its trial. Consequently, the programme will end in December of this year and the government plans to assess its results subsequently. As part of the experiment, a sample of 2,000 unemployed people, aged 25 to 58, was randomly selected and granted a monthly “income” of €560 per person. Motivated by Finland’s stubborn 8% unemployment rate, the government initially intended to assess whether unconditional income might incentivize people to take up paid work.

The idea of Universal Basic Income, or UBI, has been discussed for quite some time and is supported by famous individuals such as Nobel laureates Milton Friedman and James Tobin. The basic concept comprises regular payments to every citizen as a fundamental right. Unlike any existing social benefits, UBI is unconditional and independent of employment or personal circumstances. The amount of the programme is supposed to cover the subsistence minimum. Although different models of such a grant have been proposed, the majority aims to substitute most of the publicly financed support and social grants with the UBI.

UBI appeals to people throughout a broad political spectrum for several reasons. The political left endorses the idea as it reduces inequality and poverty. In contrast, the right might view it as a chance to simplify the bureaucratic structures of the welfare system. For instance, comprising of more than 40 different means-tested benefits, the Finish social security system is remarkably complex. This is due to its struggle with the fluctuations of the current labour market that ranges from part-time employment to start-ups. As a result, “People don’t understand what they’re entitled to or how they can get it.” according to Marjukka Turunen from Kela, Finland’s social security agency that conducted the country’s basic income programme. Most importantly though, a basic income would function as a sort of safety net that would help to reduce peoples’ insecurities, especially in uncertain market periods such as after the financial crisis in 2008. In the long run, optimistically, basic income could stimulate the mobility in the labour market as people would have financial support between two jobs.

On the other side, skepticism for UBI arises due to the concern that the model might decrease incentives to work. As everybody receives a basic income, the additional earnings from low-paid jobs may be perceived less valuable than the potential additional time. Therefore, it is argued UBI could affect both the employment rate and consequently the GDP negatively. Furthermore, substitution of most existing social programs by the UBI would lead to an underfinancing of those in greatest need and in essence, making the cost of the programme its most criticised aspect.

The chart above, based on estimations of the OECD, illustrates the financial burden of introducing a universal basic income at the existing minimum social assistance level in the UK. Even though the costs of the new system are merely estimates and hence rarely accurate but additional costs would range in the billions for most industrial countries. However, one should consider that the estimated costs vary significantly across countries, and could potentially be positive, as forecasted for Italy.

Analysing this with respect to the labour market, a prominent notion that has come up in recent years and also happens to be the primary reason for the growing support of UBI - the threat of accelerating redundancy throughout various industries. Several tech-titans and academics such as Mark Zuckerberg and Elon Musk, believe in UBI because they are concerned that artificial intelligence and robots will rapidly replace humans as a workforce. Musk even admitted that job disruption caused by technology was “the scariest problem to me,”. In this case, UBI is supposed to provide relief to workers, so that they may focus on their abilities and may even start a new era of entrepreneurs.

Overall, the implications of introducing UBI are relatively uncertain, especially the reaction of the labour market, which could go either way as each country has a very distinct labour force. Therefore, it might still be too early to draw a conclusion. Once more studies provide promising data, this might be an idea to think about, which is why further findings from Finland’s case are crucial.




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