Finland Tests Universal Basic Income
Universal basic income has been talked about for decades and Finland is the forerunner in what may be a much needed rewiring of the social welfare system. The experiment in Finland is an experiment for a reason. No one can easily predict what the result will be, simply because this has never been done before. But in essence, this universal basic income experiment asks this question: When you give people the ability to make a choice, what will they choose?
What is basic income?
The idea behind universal basic income is based around three key concepts: no conditionality, no means-testing and equal payments. It's a set income available to everyone, regardless of joblessness, wages, social status, and is unconditional; it's also intended to be cost neutral through a scheme of income redistribution. Basic income will reduce the bureaucracy of welfare payments significantly, streamline an otherwise complicated benefits system and is advocated as a necessary response to the changes in the labour market and recent stagnancy in Finland's economy.
How will this experiment work?
The Finnish experiment starting January 2017 involves 2000 participants who are randomly selected from Kela's database. Kela is the Social Insurance Institution of Finland. They will be paid an unconditional sum of €560 per month. Due to budgetary and time constraints all those selected are currently unemployed and excludes pensioners and students. This increases the sample size, also improving the accuracy and usability of data.
With the current social welfare system, citizens lose their unemployment benefits once they start working, which tends to discourage their search for work. The trial's implementation will show if unemployed people are encouraged to seek employment when income is guaranteed, no matter their conditions of employment. This means that any further income they earn themselves will be in addition to the tax free basic income sum.
What are the benefits of basic income?
Universal basic income gives people a reliable monetary platform that they can fall back on. When people are between jobs or in the midst of entrepreneurial ventures, income is often unpredictable, and applying for unemployment benefits is a long and bureaucratic process. Basic income encourages entrepreneurship and innovation; it takes the pressure off people to find any work that will pay the bills and allows them to freely pursue work or study in other fields. This is a definite advantage, as studies in psychology show that productivity and workplace satisfaction is much higher when people are intrinsically motivated. However, universal basic income would also be a motivator for those extrinsically motivated (monetarily driven).
Individuals also would not fall into the welfare trap (which is that payments cease as soon as a person is employed), simply because universal basic income doesn't create one. For the unemployed in the current system, the opportunity cost of returning to work is often too high when compared with financial return. The marginal increases in income are not motivating enough. On the other hand, such extrinsically motivated people would find universal basic income as a motivation to return to work and productivity, not a discouragement or a hindrance. This is because basic income removes the disincentive to work that the current social welfare system employs. Essentially, the more you work the more money you get.
An important key feature about universal basic income is that it doesn't discriminate. It gives everyone a choice, regardless of age, ethnicity, employment, social status, wealth.
What are the possible disadvantages?
It has been said that it's an expensive scheme, as country wide implementation is likely to cost double what the current social welfare system costs. Critics say that people will not work without incentives and that the basic income will not cover the basic needs of those who are living with disabilities or illnesses.
Universal basic income is intended to be cost neutral as an income redistribution scheme. The scheme is an experiment and no one can predict the outcome with certainty. Any kinks will have to be ironed out.
Critics of this experiment claim people will not work without incentives as humans are inherently lazy. However, there have been psychological studies showing that intrinsic motivation is much more conducive to productivity than extrinsic, that people are more likely to work together when monetary distributions are equal, and the majority of people are not averse to work. It is important to note that even though some may choose not to return to work, they often engage in other tasks beneficial to society, such as spending more time with their children, engaging in further study, volunteer work or starting entrepreneurial ventures. All of the above support society, albeit not in the traditional means of a paid 9am – 5pm job.
The fact that basic income will not cover the basic needs of those with disabilities or illnesses is an important one. How can it promote equality when not all citizens begin on a level playing field? However, universal basic income is a reduction in disparity. It is yet to be seen how this will develop but there may still remain certain eligibility for other social welfare payment schemes depending on an individual's situation. Rather than viewing it as 'basic income' for 'basic needs' perhaps it would be better to understand it as a 'citizen's wage'.
What will the outcome be?
We can see universal basic income trial in Finland is not just a challenge for economists, it's an interesting delve into the human psyche. The complexity of human behaviour, diversity of individuals' situations and numerous other factors to consider make for an interesting debate and a wide variety of forecasts. Universal basic income has been debated for years and it is a divisive topic. Hopefully the experiment in Finland will shed new light on the pros and cons of this approach.
You can read more about the Basic Income Experiment 2017 - 2018 at http://www.kela.fi/web/en/basic-income-objectives-and-implementation(Link to another website.)