income

What is ‘universal basic income,’ and why is everyone talking about it?

By Tina Irgang

In 2017, several countries and at least one company are poised to embark on a major social experiment: What if people were simply handed a certain amount of money each year, no strings attached?

Silicon Valley has long advocated for the idea of a universal basic income, but startup accelerator Y Combinator is poised to launch an actual trial run. The company will select 100 families from Oakland, CA, and provide them between $1,000 and $2,000 a month for up to a year, according to The Guardian.

“In our pilot [study], the income will be unconditional; we’re going to give it to participants for the duration of the study, no matter what,” writes Sam Altman, Y Combinator’s president, in a blog post. “People will be able to volunteer, work, not work, move to another country —anything. We hope basic income promotes freedom, and we want to see how people experience that freedom.”

Based on whether the results of this pilot study are positive, Y Combinator plans to launch a larger, long-term study of how a universal basic income might affect happiness and financial health.

Meanwhile, a similar experiment is poised to take place in Finland. “Early next year, the government plans to randomly select roughly 2,000 unemployed people — from white-collar coders to blue-collar construction workers. It will give them benefits automatically, absent bureaucratic hassle and minus penalties for amassing extra income,” reports The New York Times. The idea is to change the calculus for unemployed Finns, who receive generous benefits that they forfeit as soon as they enter into any kind of employment — even if that job pays less than they would have received from the government.

Finland’s experiment with universal basic income is poised to last two years, and it could prove influential. Around the world, basic income is being explored as a way to balance job losses caused by automation and globalization. Proponents of the universal basic income believe it may give people the freedom to pursue self-improvement, acquiring skills that would help them compete again in a reshaped job market, notes The Times.

(In a June 2016 referendum, Swiss voters rejected the idea of a universal basic income of roughly $2,500 per person.)

Problems (and the promise) of a universal income

A recent survey — albeit one commissioned by supporters of a universal basic income — found that nearly half of all Americans support the idea of monthly cash handouts between $500 and $2,000 to those whose jobs have been lost to automation, according to CNBC.

Of course, there are a number of objections to make against a universal basic income. As MIT Technology Review sums it up: “First, the economics of such a plan are based on the assumption that the rise of automation is gobbling up jobs while creating plentiful wealth to share with great efficiency — but that kind of automation may not materialize for some time. Second, buying people out of the workforce feels like an excuse to stop training them to succeed in a shifting job market. And third: it’s damned expensive.”

Due to that expense and a widespread distaste in the U.S. against significant increases in government spending, an implementation of the universal basic income would likely mean deep cuts to existing government benefits, says Newsweek.

Meanwhile, many employers, knowing that their employees receive a government subsidy, would likely ask them to take a hit on their salaries when business bad, Newsweek adds — “or, maybe, companies would simply stop contributing to 401(k)s, because the government is providing income already, and it’s a slightly less apparent way to cut wages. Or something else. Companies aren’t going to be benevolent when the government is subsidizing their workers —they’re going to recapture as much of that subsidy as possible, because they’re going to have to in order to stay competitive.”

So given the many objections raised against it, is there anything to be said in favor of trying a universal basic income?

Here’s one argument: “Forty years ago, in Manitoba, the Canadians conducted a five-year experiment in the little prairie town of Dauphin. The results, which didn’t come to light until fairly recently, suggest the safety net could carry social benefits that save money long term,” according to NPR’s Marketplace.

Under the pilot, the government guaranteed that a family’s annual income wouldn’t fall below $16,000. So even if the family earned additional income, it would still receive a check, albeit a smaller one. The results: Most participants in the program kept working, young people stayed in school longer, and hospitalizations fell, especially those related to mental health issues, Marketplace says.

The experiment ultimately wasn’t pursued further because a new government assumed power and wasn’t interested in the idea. Now, Canada is trying again — the province of Ontario will embark on a pilot project testing a universal basic income, according to The Guardian. It’s set to launch this spring.

Tina Irgang is SmartCEO’s managing editor. Contact her at tina@smartceo.com.