Could universal basic income be the solution to high unemployment?

Over the last year, the concept of a universal basic income (UBI) has come to the fore and moved much closer to becoming a serious government proposal. That’s due in no small part to Europe’s first national trial, taking place in Finland, in which 2,000 unemployed citizens have been given free cash by the government. The idea behind universal basic income is to see whether an unconditional income that remains in place if an individual finds employment might incentivise people to take up paid work.

In this article, we’re going to explore whether a universal basic income could help to reduce levels of unemployment. We will discuss some of the potential pros and cons of this approach and take a look at the results generated by the Finnish trial to date.

What is a universal basic income?

Universal basic income is a liveable sum of money each and every citizen will receive from the government every week or month, regardless of their circumstances and with no strings attached. With struggling welfare systems and ongoing austerity measures, proponents of UBI argue that it could help to stimulate entrepreneurship and improve living standards in the poorest sections of society.

Importantly, as universal basic income is unconditional, it would be received by everyone, whether they are rich or poor, working or unemployed. Even if their circumstances were to change drastically, they would still receive UBI.

The unemployment problem

Unemployment is already a major issue in many countries around the world. Although UK employment is currently at a record high, wages have been stagnating and there are growing concerns about the impact of Brexit, income disparity and technological advancements that threaten many lower skilled jobs. In fact, a 2013 study by researchers at Oxford University found that 47 percent of jobs could be at risk of automation by 2030.

Even when the global economy is healthy, unemployment still poses a major problem in much of the world. To address unemployment, underemployment and wage stagnation, some politicians and prominent business leaders are backing the idea of a universal basic income.

What are the potential benefits of UBI?

Supporters of UBI argue it that would:

  • Give some power back to the workers, enabling them to negotiate better rates of pay or wait for a better job to come along safe in the knowledge that their living expenses are covered.
  • Stimulate entrepreneurship by giving unemployed and employed workers the time and money to try out business ideas.
  • Remove the existing welfare problems that keep people trapped in poverty.
  • Reduce the administrative complexity, costs and bureaucracy associated with existing welfare systems.
  • Give low-income couples the confidence to start families in countries with low birth rates.
  • Provide a much-needed fall-back in a recession to reduce the impact felt by some sections of society.

And the cons?

Of course, any change that’s quite so fundamental will also bring some disadvantages. UBI detractors argue that it would:

  • Drive inflation that would negate any improvement in the standard of living for the poorest in society.
  • Be too expensive. A UBI that would eliminate poverty would not leave enough money for other public services and result in higher taxation.
  • Remove the incentive to work. Some recipients might prefer to live an easy life on UBI rather than getting a job.
  • Lead to less public money being received by the most deserving and more going to those who are already well off.

What have we learned from the Finnish trial?

The UBI trial in Finland has been discontinued after two years. It saw 2,000 unemployed Finns receive a UBI of €560 (£475) a month, with no requirement to seek or accept employment during that time. Any of the 2,000 who did start work would continue to receive the same amount.

The trial found that those who received the universal basic income were healthier and happier, but it did not get them into work. In fact, the pilot found that the recipients were no more likely to find work than a control group who did not receive the payments.

Inevitably, the results raise questions about whether UBI could be a solution to high unemployment. It’s also questionable whether giving money solely to those who are unemployed can really qualify as a ‘universal’ basic income at all. Clearly, there’s still more work to do.

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