Michael Taft: What Finland’s Universal Basic Income Experiment Can Tell Us

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From top: Finland’s two-year basic income trial failed to encourage its participants to work more but it did improve their wellbeing; Michael Taft

In 2017 the Finnish Government launched a two-year experiment in Universal Basic Income (UBI).

Two thousand unemployed people were selected at random and paid an unconditional €560 per month (though, in the complex Finish social protection system, they still retained social assistance, housing and sickness allowance).

Even if they found work they continued to receive the €560 per month – as per the nature of UBI. The experiment is over and an initial report published. The two main findings are:

The experimental UBI didn’t increase employment among the recipients;

however There was a marked increase in well-being

It is important to note this initial assessment only covers the first year of the experiment. So we are looking at half-time results. Things may have changed for recipients by the end of the second year.

The experiment has been criticised on the grounds that (a) the sample size was too small (it was originally intended to be 10,000); (b) only unemployed people were selected, whereas UBI would have benefits to those both in and out of work – for instance, the low-paid; (c) its design focussed almost exclusively on the impact on the labour market; i.e. whether it would increase employment among recipients.

Regarding the last criticism, if UBI were to create jobs it would be due to a substantial redistribution to low and average income earners which would boost demand in the economy (though it could also increase inflationary pressures).

The limited experiment was not designed to test demand-boost so the employment result is not all that surprising.

Yes, a number of people felt better but is that worth the price? There are identifiable fiscal benefits that come with this enhanced well-being.

For instance, in the experiment the UBI recipients claimed an average of €121 in sickness allowances compared with €216 for a control group of non-recipients. That would yield significant savings if applied across the economy.

So where does that leave the UBI debate in Ireland? It seems stuck between proponents arguing for a fundamental systemic change, and those who have economic and social objections to UBI in principle as well as those who pragmatically oppose it on grounds of cost and unintended consequences. In short, the debate is spinning its wheels.

This is unfortunate, because one does not have to be a proponent of a full-blown UBI to see the potential common sense in many aspects of it.

Here is an example of a policy based on certain UBI principles but which could win support of UBI sceptics.

The Government could transform personal tax credits into a basic or minimum guaranteed income for all. Currently, everyone at work – except for those whose income is below the entry threshold – receives a cash payment of €63.50 per week through the tax system: the combined personal and PAYE tax credit.

If that were paid to everyone the benefit would be almost exclusively focused on low earners – in particular, those in low-paid precarious work.

No one in the tax net would benefit – after all, the ‘cash’ payment is only equal to what they get today in personal credits

Social protection recipients wouldn’t receive any benefit either, as the cash payment would be absorbed into the current payment (which is not to say that social protection benefits shouldn’t be increased but that is a separate issue)

The only beneficiaries would be the low-paid who, if below the tax threshold, do not currently get the full benefit of the personal tax credits. It would also guarantee a minimum payment for those on precarious hours regardless of how many hours they work.

The cost would be substantially less than the Taoiseach’s promised tax cuts of €3 billion. A back-of-the-envelope calculation suggests that, in 2016, paying everyone in work €63.50 per week would cost €9.6 billion. There would be a saving of €8.0 billion in abolishing personal tax credits.

This would result in a net cost of €1.6 billion. This should be considered an outer bound figure (other calculations put the net cost lower).

But these are headline estimates. There could be further costs and savings through the interaction of social protection, subsidies and work income depending on the range of personal circumstances.

For instance, this new payment would replace most of the means-tested student grants and be available to all households (currently many average-income households are excluded). This could happen with other programmes.

€63.50 per week (€3,300 per year) sounds like a small amount and it is – but it would be an improvement for those on low pay and in precarious work.

For instance, someone who can only find work for 26 weeks of the year on the minimum wage would gain €1,260. If this is shown to have social and economic benefits this minimum income floor could be raised over subsequent years.

This is would not be a substitute for other measures to combat precariousness. That will require a number of strategies – collective bargaining rights, statutory reforms and fiscal instruments such as outlined here.

Ultimately, the advantage of this approach is that one does not have to be a supporter of UBI to see the advantage of transforming personal tax credits into a minimum payment to all.

And if the benefits revealed so far by the Finnish experiment are replicated here, we would be promoting social well-being as well.

Not a bad day’s work for a little common sense.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Thursday.

8 thoughts on “Michael Taft: What Finland’s Universal Basic Income Experiment Can Tell Us

  1. Optimus Grime

    Obviously universal income would corrupt people’s ability to get up early! Leo would not like that!

  2. Worlds Biggest Ranter

    Bums are bums no matter what their nationality. Its fine concept in an ideal world. We already have a multitude of schemes here to bolster peoples incomes. They actually cause more issues than they solve. Companies in Ireland cant actually get staff because people on these schemes wont work full time. They have too much to lose. Anyway Finland scrapped the experiment so that tells you all you need to know.

    Rules of incentivising people to work.
    1) Fair Taxation
    2) Catch net of the state if you try and fail (Note “catch net” not lifestyle)
    3) Don’t bother your arse then starve and die but stop bumming off me.

    On the first rule. People in Ireland are taxed too high too early. You’re actually better off working less, avoid the heart attack and get free college and healthcare with a subsidised house.

    On the second rule. People seemingly never leave the social welfare system in this country. There’s generations of families in the same council homes all over the country. Sure what incentive is that.

    On the third rule. Simple really, here’s an education. get a job. Cant get a job! Here’s a roof over your head, some funds to live and a further training. Get a job. Repeat for years and still no go!. Yeah piddle off so. Not dying is now your number one driver for getting off your hole.

    I have a pain in my arse dragging bums along. Enough of this goody goo goo crap. Get on or get off but get outta my pocket.

    1. Worlds Biggest Ranter

      PS: I’m fully in favour of the state picking you up when you’re down. Things go wrong for people all the time. that’s fine. I’m lucky in so much as I never required its assistance at the bottom end of life. That said I came from a relatively working class area yet ploughed my own furrow. The state should help you when you’re down but not live your life for you. There has got to be repercussions for people who burn the candle at both ends.

  3. Zaccone

    This is a great idea. The biggest problem with UBI that I can see is its such a big step to implement in one go. moving towards it in baby steps will be the way to get it accepted faster.

    With massive increases in automation its going to have to come in sooner or later anyway, it’d just be nice for the poorer elements in society if that was sooner rather than later.

  4. John_Roche

    Finns are much more socially conscious than Irish people, besides the existing entitlement culture among those on social welfare, the cost of living would simply rise to swallow up and additional income received by the general public.

  5. Emily Dickinson

    Michael’s contributions are always worth reading. The implications for the UBI debate in Ireland? I wish we were having one. The only discussion of labour policy I’ve heard recently has been something along the lines of ‘…sure, the nurses deserve more money.’ Or as one TD put it during leaders’ questions last week, ‘I think everyone should get a rise!’

    Although I’m a grumpy old economic conservative, I can see the case for UBI in principle and agree with Michael that the social benefits could be significant. But like John, I’d be worried about whether rising prices would quickly wipe out the value of any payment. Even so, fair play to the Finns for testing this. It will be interesting to see what they learn.

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