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Universal basic income study shows it could make unemployment worse

Suban Abdulla
·3-min read

WATCH: What is Universal Basic Income?

Universal basic income (UBI) could lead to higher unemployment despite claims that the policy might alleviate contemporary labour force issues including job polarisation and inequality.

A study by the European Network for Economic and Fiscal Policy Research (ECONPOL) found that UBI has a "small effect" on employment in Finland. The study examines 2,000 benefit recipients in Finland who were randomised to receive a monthly basic income and was carried out in 2017 and 2018.

UBI involves unconditional cash payments to all citizens whatever their income and can be used on anything. This ensures that everyone in society has a minimum standard of living. Some people believe that it could either replace or complement other targeted welfare benefits or tax allowances.

The study showed that despite the considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. In fact, they appeared "somewhat higher in the second" year, said one of the authors of the research Kari Hämäläinen.

"In this regard, the Finnish experiment provides an interesting contrast," said Ohto Kanninen, another author.

The researchers, Jouko Verho, Hämäläinen, and Kanninen identified three broad policy lessons from their study, Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment.

First, improving monetary incentives for employment "might not work in hard-to-employ" populations, especially if the increase in incentives peaks at relatively high wage levels.

"These findings are particularly relevant for many European countries, with a high level of long-term unemployment, relatively high minimum wages, and extensive social safety nets," the study said.

The study showed that despite considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. Photo: Danny Lawson/PA via Getty
The study showed that despite considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. Photo: Danny Lawson/PA via Getty

Second, filling out unemployment benefit claims online might have become so easy that some people do this even if they don't need to. "If researchers want to find convincing evidence of the existence of bureaucratic traps, a more promising topic could be the benefit complexity that results from the interaction of different types of benefits."

Finally, labour market policies that entice participation with monetary supplements seem to counteract the employment-promoting threat effect of active labour market programmes.

"There is a real possibility that a well-intentioned policy exacerbates the unemployment problem," the research said.

READ MORE: Germany to trial giving away £1,000 a month in universal basic income

Supporters of UBI argue the policy is the most effective way to keep every household above the breadline by helping to tackle poverty, encourage more flexible working practices, and allow some people to devote more time to caring for older family members.

WATCH: What you need to know about UK's 2021 budget

Campaigners have also claimed that the system is more effective and less bureaucratic than most targeted support schemes, which often fail to reach all their intended recipients.

There have been increasing calls for UBI in the UK amid the coronavirus pandemic as millions of households took an economic hit. Some advocates also argue that it would prevent those who need income to survive from going to work when sick and risk spreading COVID-19 further.

A YouGov poll showed that the majority of the British public support giving people UBI during the coronavirus pandemic to ensure their financial security.

In April last year, UK chancellor Rishi Sunak ruled out introducing UBI in Britain, dashing the hopes of some campaigners.

He said it was not the “right response” to the COVID-19 pandemic and defended the existing welfare system.

But, there have been fears that the cost of UBI will be prohibitive and fear secondary effects, such as inflation or inadvertently discouraging work.

There have also been concerns over the unfairness of giving everyone, including the well-off, UBI.