Abu Dhabi, UAEFriday 22 February 2019

In Finland, money boosts happiness but not appetite for work

Initial findings of two-year experiment with a universal basic income show scheme did not increase people’s propensity to find work

Finland's capital Helsinki. A new approach to government welfare support has had mixed results. EPA
Finland's capital Helsinki. A new approach to government welfare support has had mixed results. EPA

The first results of Finland’s two-year experiment with a universal basic income are in, and if they’re confirmed by further research, they will probably hurt the unconditional income cause.

The trial run showed that “money for nothing” makes people happier but doesn’t inspire them to find work any more than traditional unemployment benefits would.

The Finnish experiment, conducted in 2017 and 2018 by Kela, the country’s social insurance institution, was extremely important for world policymakers looking at variations of unconditional income as a way to offset job losses brought on by technological change. So far, the only other large-scale experiment in a wealthy western nation that could have rivalled it took place in the Canadian province of Ontario; participants were recruited by April 2018 – but after a change of government, the trial is being wound down prematurely. This means the only solid data for researchers interested in how UBI works in industrialised nations are from Finland.

Perhaps the most important parameters for policymakers in those data concern the unconditional income’s effect on employment and on the government’s social spending. On both these counts, the Finnish experiment failed to produce a breakthrough for UBI proponents, in part because of its flawed design.

Finland paid 2,000 unemployment benefit recipients €560 (Dh2,328) a month without requiring them to go through the bureaucracy involved in applying for the traditional benefits and regardless of whether they landed a job. Given a median income of €2,900, this is well below poverty level. But recipients didn't have to give up other social benefits such as social assistance and housing and sickness allowances. They could even continue to apply for unemployment benefits if the amount due to them was higher than the basic income, a frequent situation for families with children. This worked to muddy the UBI’s effect: it didn’t really pull people out of dire poverty or rid them of the cumbersome welfare bureaucracy.

So far, Kela and a group of academics from Finnish universities studying the results of the experiment have only analysed one full year of data. It’s possible that data for 2018 will alter their conclusions but, based on 2017, UBI hasn’t increased people’s propensity to find work. People in the treatment group (UBI recipients) worked an average of 49.64 days in 2017, while people in the control group (those on traditional benefits) worked 49.25 days. There were no significant differences in their earnings, either.

The basic income recipients, on average, got €16,159 from the government in 2017, including the UBI; people in the control group received €11,337. This means the government spent an additional €5,000 per experiment participant to get the same labour market outcome. Few policymakers would be inspired by such a result.

Other parts of the study are less discouraging. The Finnish researchers also did a survey of treatment and control group members at the end of 2018 to assess their subjective sense of well-being after two years of the experiment. The survey showed significant improvements in how people felt about their health and prospects if they received the unconditional income.

The UBI recipients' self-reporting indicated they were more optimistic, more interested in finding full-time work and less stressed than their peers on traditional unemployment benefits. They even showed more trust in politicians (although still less than the general population).

The survey results should probably be taken with a pinch of salt because of the low response rate to the researchers’ questionnaire – just 31 per cent of the treatment group and 20 per cent in the control group. It’s possible that self-selection bias interfered: people who were relatively happy with the experiment responded in greater numbers than those who weren't. For example, 30 per cent of the respondents who had received a basic income were working at the time they were surveyed; only 25 per cent of the control group respondents were employed.

Intuitively, however, it seems right that people who feel secure about even a small income display more optimism and report they’re functioning better. And some hard data confirm this, too: UBI recipients only claimed an average of €121 in sickness allowances in 2017, compared with €216 for non-recipients.

The question governments need to ask is whether a “soft” outcome – considerably happier, less depressed people at the bottom of the income ladder – is worth a significant increase in social system costs. Obviously, a decrease in jobless rates or a demonstrable improvement in the quality of jobs the unemployed eventually land would be a much stronger argument for an unconditional income.

But in some advanced societies, more happiness also could be judged a desirable enough result to justify an increase in the tax burden.


Updated: February 11, 2019 01:09 PM