UPDATED 14.8.26
One solution for poverty is simply to give poor people enough money to meet their basic requirements. Various programs to achieve such a Guaranteed Basic Income (GBI) have been put forward over the years. What they generally have in common is that money flows from richer taxpayers to people living in poverty. What else they share is the concern, by many observers, that they will de-incentivize people to work, and that we can’t afford them.
The plans
One proposal for a GBI, which was supported by the conservative University of Chicago economist Milton Friedman in 1962, proposed that every person in need should receive an income supplement, which would replace all current forms of welfare payments. Such a program would in principle not increase the cost of welfare overall because of the cancellation of current welfare programs. In fact, it might even reduce that cost because of a simpler administrative cost.
More liberal-minded economists have proposed plans that would provide a baseline income without affecting other welfare streams. Some models would provide everybody with the same benefit, without the requirement of a means test. The tax system would take back money that went to people who earn more than the threshold. Other programs would benefit only the ‘means-tested’ poor. Some models propose a ‘negative income tax’ by which people below a certain income level receive money from the government instead of paying taxes.
What GBI projects have taught us
Our understanding of the effects of a GBI comes from a growing number of model programs. . There have been programs to provide ‘universal basic income’ in several cities in the USA and in one province of Canada. The various programs guaranteed annual incomes ranging from $17,445 to $48,446 for a family of four, and ranged in length from 3 to 5 years. Other types of programs have included the Alaska Permanent Fund Dividend and a program supported by the Eastern Band of Cherokees. The results are described in detail by the University of Pennsylvania economist Iona Marinescu here. The Canadian example is described here.
The Canadian study, called ‘Mincome’, reached conclusions largely similar to those derived from American and other international programs. In Mincome, carried out in the late 1970s, families in Dauphin, Manitoba, were invited to apply for a top-up grant if they had an income below a threshold of $16,000 in today’s dollars. Analysis at the time showed that, for the most part, people receiving the Mincome benefit continued to work when they received support. ‘Primary earners’ reduced their employment time only slightly (American studies have found declines of 0-4% in workforce participation). ‘Secondary earners’, often mothers, tended to take more time off, often to care for very young children. ‘Tertiary earners’, particularly adolescent males, worked significantly fewer hours. Follow-up analysis by Dr. Evelyn Forget of the University of Manitoba found that adolescent males working fewer hours when their parents received support were entering the workforce later because they stayed in school longer; Grade 12 enrollment went up during the Mincome project. A Finnish study similarly found that an income supplement helped some people find work with greater economic benefit.
Taken together, the results of the American and Canadian studies indicate that a GBI does not de-incentivize workers.
Other Benefits
In addition to its effects on workforce participation, receiving Mincome correlated with an 8.5% decrease in hospitalizations for both mental and physical issues. During Mincome, small businesses were better able to obtain bank loans, and poor people’s children visited the dentist for the first time. In the survey reported by Marinescu, school attendance, grades, and test scores for the beneficiary groups were higher than for control groups. Two rural states experienced an increase in the quality of nutrition. Data collected in one study showed that fertility (number of children born) decreased and birth weights increased in the affected low-income group.
One of the primary benefits of an income support program is its relative simplicity, as compared to increasing the patchwork of existing social welfare programs, with their needs dependence and administrative requirements, by both administrators and beneficiaries. A frequent comment made by analysts is that such programs largely remove the stigma of poverty.
Previous and current GBI programs have largely answered the questions, ‘what happens to workforce participation?’, and, ‘what happens in the community?’ We do need more and longer studies in ‘experimental economics’ to confirm and evaluate the outcomes, and to answer the further questions of what the level of support should be, what sort of programs are best, and whether this changes according to the type of community. These experiments should last at least 10 years to be informative.
The Big Question
But the question of cost remains. A GBI program for all of Canada similar to Mincome would be very expensive — from Parliamentary Budget estimates, it would cost around 3 – 4% of GDP. It is unlikely that there would be the political will to raise taxes to meet this target. But test programs could show that the net cost is far less. For example, there might be a significant reduction in health care costs, although the exact reduction in spending remains to be established (another reason for having further experimental programs of GBI). An increase in high school attendance, as seen in several studies, could improve economic and social health. As an extension of this, social scientists believe that there is a causal link between childhood poverty and adult poverty; a childhood in poverty leads to poverty in adulthood. If a GBI reduced childhood poverty, it might also increase the economic strength, and the tax base, of the country.
Another aspect is the current plague of homelessness. If a GBI reduces homelessness, it should also reduce the costs of related social support programs. It could put some of the homeless back into productive society. A long-term aim of a GBI should be to reduce poverty, and increase economic strength. Test programs would tell us whether that happens.
The opinions about guaranteed income programs, no matter how esteemed the economists and commentators who hold them, can be viewed in the light of the aphorism: “Thoughts without contents are empty. . . “. In other words, theories need data. Poverty remains one of Canada’s most costly social problems. We should rigorously examine possible solutions, such as would be provided by further GBI economic experiments, and follow the evidence wherever it leads.
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