Will implementing the UBI help reduce poverty across the globe?
What is Universal Basic Income (UBI)
Universal Basic Income (UBI) is the concept of a government program in which every adult citizen receives a set amount of money regularly. The goals of a basic income system are to alleviate poverty and replace other need-based social programs that potentially require greater bureaucratic involvement.
The idea of universal basic income has gained momentum in the U.S. as automation increasingly replaces workers in manufacturing and other sectors of the economy.
What we know so far
UBI is not a “rich country” issue, despite what is often assumed. It has been implemented both in the Global North (e.g., Canada, Finland, Germany, Spain, the US) and the Global South (e.g., Kenya, India, Mongolia, Namibia). Experts say that developing countries are not at a disadvantage in carrying the fiscal load of UBI or in running the schemes.
Financing is front-and-center in any talk on sustained UBI. And it should stay there. Data is emerging on the feasibility and sustainability of various financing modalities. These include more traditional sources (e.g., oil and natural resource-derived funding, reallocation of existing funds), innovative ways (e.g., carbon price-and-dividend, data-driven funding, dividends from marketing socially-owned data), and mixed options.
Key lessons are also available on the distributive performance of UBI and ways of calibrating the progressive/regressive character of schemes through their financing mechanisms. These are to be listened to if the intention is to go beyond individual trials towards longer-term or to-scale UBI. They also matter greatly when it comes to public buy-in and political acceptability of UBI.
Evaluations of UBI are available and they contain a wealth of data. But the contextual differences and the particular setup of the trials are often under-analyzed in the debates on the effectiveness and the impacts of UBI. The results also tend to be skewed, with certain impacts of UBI being assigned a heavier weight in disregard of the context. Take the Finnish trial that provided 2,000 people with a €560 monthly pay.
The trial is often quoted as having little impact on employment. About 18% and 27% of participants got a job over 2 years, showing little difference with the control group. Yet this trial specifically covered the young and the long-term unemployed – a group facing high and well-known barriers in (re)entering the labor market.
The results, although valuable, should be cautiously extrapolated to the general population. The same applies to impacts on well-being and equity. The main point is that all trial results require coherent analysis to guide decisions based on systematic rather than selective interpretations of UBI impacts.
Understanding Universal Basic Income (UBI)
The idea of providing a basic income to all members of society goes back centuries. The 16th-century English philosopher and statesman Thomas More mentions the idea in his best-known work, Utopia.
While the federal government provides financial support for low-income Americans through the earned-income tax credit (EITC), Temporary Assistance for Needy Families, and other programs, a system of universal income has never taken hold in the United States. The concept rose to the national consciousness around 2020. The renewed interest has to do with fundamental changes to the economy—namely, the growth of automation—that threaten to leave many Americans without jobs that pay a subsistence wage.
In 2023, researchers at OpenAI—a leading artificial intelligence (AI) research organization—and the University of Pennsylvania published a working paper analyzing the impact of the technology on the labor market. Per their analysis, 80% of the U.S. workforce could have at least 10% of their work tasks affected by large language models, a type of AI that can process and generate text. According to the study, 19% of workers could see 50% or more of their tasks impacted.
Supporters of universal basic income believe a guaranteed payment from the government can help ensure that those who are left behind by this economic transformation avoid poverty. Even if government-sourced income isn’t enough to live on, it could theoretically supplement the income from the lower-wage or part-time jobs they are still able to obtain.
Proponents also believe that a universal payment system would make it easier for people to receive assistance who are in need but have trouble qualifying for other government programs. Some Americans seeking disability insurance payments, for example, may lack access to the healthcare system, thereby hindering their ability to verify their impediment.
Criticism of Universal Basic Income (UBI)
Despite its promise to curtail poverty and cut red tape, Universal Basic Income still faces an uphill battle. Perhaps the most glaring downside is cost. According to the nonprofit Tax Foundation, a $1,000-a-month Freedom Dividend for every adult would cost $2.8 trillion each year (minus any offsets from the consolidation of other programs).
The ones in favor propose covering that substantial expense, in part, by shrinking the size of other social programs and imposing a 10% value-added tax (VAT) on businesses. Also ending the cap on Social Security payroll taxes and putting in place a tax on carbon emissions that would contribute to this guaranteed income plan.
Whether that set of proposals would have been enough to fully offset the cost of a hypothetical Freedom Dividend remained in question, however. An analysis by the Tax Foundation concluded that these revenue-generating ideas would only have covered about half its total impact on the Treasury.
Among the other criticisms of UBI is the argument that an income stream that’s not reliant on employment would create a disincentive to work. That, too, has been a subject of debate. The ones in favor have suggested that the plan to provide $12,000 a year wouldn’t be enough to live on. Therefore, the vast majority of adults would need to supplement the payment with other income.
What we’re missing
Critical things are lacking.
Alternative and adjacent policy ideas need serious exploration. We need to think of Universal Basic Services as an alternative approach and carbon price-and-dividend as adjacent to UBI. Cases have been made for all but, moving forward, they need to be assessed against the same targets and desired impacts.
Key gaps exist in the understanding of UBI as part of a system rather than a standalone game-changing solution.
First, largely uncovered are the links of UBI with minimum wages, pensions, and severance pay. Second, the interplays of UBI with societal agendas (e.g., its gendered outcomes, impacts on inequalities or political participation) and international frameworks (e.g., if and how UBI feeds into the Sustainable Development Goals (SDGs) or the climate commitments) are under-analysed. All require stronger knowledge to inform comparative analysis and debates on trade-offs.
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Data on UBI exists but it has loopholes and blind spots. The flow of data – between the developing and developed countries – and its use face obstacles. Valuable insights are lost in the silos of different policy experiments and jurisdictional limits.
And lastly, as often, much work remains to be done to connect the worlds of knowledge and policy on UBI if the intent is to move ahead smartly. The former holds data, the latter holds the power of acting upon it.
UBI implementation across different countries
The key differences in implementation include the scale of the programs (national vs. local), the target population (all residents vs. low-income), the funding sources, and the duration of the trials. The results also varied, with some programs showing improvements in health, education, and social outcomes, while others had more mixed findings.
More research would be needed to determine which countries have achieved the greatest success with UBI at a larger scale. The limited sample size makes it difficult to definitively say which countries have seen the most success overall.
Sam Altman’s basic income study
OpenAI CEO Sam Altman conducted a basic income study that gave low-income residents $1k each month for three years, making it the largest such study in the US yet.
The results are now in — and at a time when AI is driving the conversation surrounding basic-income programs and the future of work.
How did the study work?
It involved 3k residents of Texas and Illinois with annual incomes less than $28k, per Business Insider.
Altman — a billionaire — put up $14m and raised an additional $46m to fund the study.
How did participants spend the money?
Those who received $1k spent an average of $310 more per month. This largely went to basic needs (e.g., rent, food, and transportation) — but they were also more willing to help others financially.
This aligns with an Austin, Texas, study that gave 135 households $1k per month for a year: They spent over half on rent, followed by basic needs, bills, investments, and giving to others.
Other impacts of the study…
… included a 20% decrease in problematic drinking, greater agency over where they lived, and the ability to pursue a new field or hold out for a better job. They still worked, though perhaps slightly less.
But while stress and food insecurity decreased in the first year, that faded over the next two.
"Cash alone cannot address challenges such as chronic health conditions, lack of childcare, or the high cost of housing,” the report found.
Why it matters
Altman has a vested interest in exploring what happens in a world where AI replaces jobs, and has long proposed studying basic income programs as a possible solution.
But, as the study found, they aren’t a magic bullet for poverty, and they often face pushback. Tying them to AI could render them dead in the water if AI never advances enough to replace human workers, or if it creates new jobs.
Economist Michael Strain told NPR that a better idea might be offering tax credits to lower-income workers.
The takeaway is, that more money gives people more freedom to improve their lives. But how do we ensure that for everyone?
Final Remark: the idea of UBI has attracted significant attention since 2020, particularly given ongoing developments in artificial intelligence and automation. However, further studies and pilot programs will have to be designed, implemented, and run for some time before moving ahead with this idea. And, needless to say that each country will have to adjust it to the particular taste of their local and national economies as well as their political scenario.