Universal Basic Income and Inequality: An Economic and Behavioral Science Analysis. Introducing

Income inequality, USA, 1963-2014 PAZ MARÍN CÁNOVAS & ALEXIA TEFEL ESCUDERO 22.5

ree money. Even though this 20 sounds like a radical idea, it is F in fact a real economic concept that has gained a lot of attention 17.5 around the world in recent years. Universal basic income (UBI) is, ac- 15 cording Rose, “a model for provid- ing all citizens of a country or other geographic area with a given sum 12.5 of money [periodically], regardless of their income, resources or em-

ployment status”. Under universal 10 Share of total (%) basic income, individuals would 1970 1980 1990 2000 2010 receive around US$650 per month from the government, and they Pre-tax national income | Bottom 50% | share | adults | equal split could spend this money in any way Pre-tax national income | Top 1% | share | adults | equal split they choose, disregarding the their employment status. There are al- which is somewhat similar to basic skills that could help them adapt ready some countries that are ex- income, as a way to reduce welfare The idea of to today’s workforce. perimenting with universal basic costs and bureaucracy. all citizens Other supporters of the idea say income as a way to reduce poverty Nevertheless, the idea has gained receiving that universal basic income could and inequality among individuals. momentum in recent years with “no-strings- help alleviate poverty and reduce The idea of all citizens receiving Silicon Valley tech titans such as attached” income inequality, which in recent “no-strings-attached” money is Elon Musk and Mark Zuckerberg. money is not a years has widened considerably in not a new concept. In 1797, phi- They advocate that universal basic new concept. developed countries like the Unit- losopher proposed income could provide a cushion to Nevertheless, ed States. In the graph below, we that “every person, rich or poor,” the millions of people who could this idea can see the gap between the top should receive payments “to pre- lose their job due to automation has gained 1% and the bottom 50% widen- vent invidious distinctions”. Ad- or robots. It is clear that automa- momentum in ing. In 2014, the top 1% earned ditionally, in 1967, Martin Luther tion is changing the future of work, recent years 20.2% of all national income in King Jr. fought for a “guaranteed and therefore some in Silicon Val- the country, whereas the bottom income...pegged to the median ley say that universal basic income 50% gained 12.6% in comparison. of society”. also could give workers an opportuni- On the other hand, universal basic endorsed the , ty to retrain for new jobs and gain income also has many critics. They 28 |29

say that, if people know that they a trial about three years ago, in of the well-being of the population. will get paid regardless of whether early 2017. The case of Finland Is the However, in the case of Finland, they are working or not, this will caught the attention of many so- implantation of neither the sample was suffi cient- actually disincentivize people from ciologists, economists, moralists, this measure ly representative nor did the study getting another job, and will, in and multi-millionaires around a solution achieve the expected results from turn, reduce the overall productiv- the world. Managers of the tech- to alleviate an economic point of view. ity of the country. nological giants of Silicon Valley, different social In addition, we have the horizon Additionally, many also wonder such as Mark Zuckerberg or Elon or economic that many sociologists and econ- how the government will pay for Musk, did not hesitate to support problems in an omists fear, since they affi rm that such spending. For instance, if in it. Especially taking into account effective way? work cannot be reified only as a the US, where the population is the future they see: one marked by source of income, but rather it so large, the government were to the lurking technological changes must be understood as a means provide universal basic income, and by the automation of work, of personal self-realization. As the the amount they would have to which can cause a massive unem- famous economist and Oxford pro- spend would be in the trillions of ployment. fessor Ian Goldin states: “UBI will dollars per year. And even if this The objective of the study was to undermine social cohesion. […] In- claim were to be plausible, labor observe if the implantation of this dividuals not only obtain income, economists have argued that the measure could provide a solution but also meaning, social status, basic income would actually have to diff erent social and economic skills, social networks and friend- to be bigger than US$650 for it to problems, which have not been ships through work”. Even though have a signifi cant impact on peo- alleviated in an eff ective way until many followers of this measure af- ple and the economy. now. These would be the inequal- fi rm that it would not bring prob- Furthermore, research from the ity of opportunity when seeking lems, and that it would not imply Organization of Economic Coop- employment, social inequalities, a devirtualization of work, we can- eration and Development (OECD) and the diffi culties of leaving the not underestimate the sociological shows that if the existing system of job market. Another objective was eff ects that it would suppose. social and unemployment benefi ts to impulse the well-being of the To this day, the proposal is still was eliminated or reduced to pay population, which is also a priority valid. This is due to the fact that for a basic income, poverty rates matter of the Finnish state. this Nordic country, although for could actually increase rather than The experiment consisted in the many years admired for its eco- decrease, as some people initially random selection (i.e. not volun- nomic system, and also for its ed- think. tary) of 2,000 unemployed people ucational system, is going through Among the countries that have aged between 25 and 58 to benefi t diffi cult times, both economically started universal basic income from this “universal basic income” and socially. Unemployment is on trials are the Netherlands, Kenya, with 560 euros tax-free, regardless the rise, reaching fi gures that until Canada, the United States, and of whether they were actively seek- then were unknown to them, and Finland, with this last one having ing work or not. xenophobia has more and more completed the trial in the end of The results indicated that there groups of citizens who support it 2018. Later in this essay, we will was no increase in employment because it is linked to the increase study the results of the UBI trial in levels; the percentages barely in the immigrant population with Finland and and discuss whether it varied. However, it was claimed the decrease in job off ers. actually accomplished what it was to have achieved higher levels of For this reason, the Finnish gov- aiming for and if it is a good mea- well-being in the population. But ernment does not rule out the sure to reduce inequality. are these the expected results? Are measure; it has stated that it would they solid enough to be taken into like to introduce 800 euros per UNIVERSAL BASIC INCOME-THE account in the assessment of the month for the entire population, FINLAND TRIAL CASE STUDY implementation of this measure? regardless of the level of income. nce this economic measure Taking an overview of the diff erent To be able to act with caution, it entered into policy discus- results and studies on the mini- still wants to carry out more stud- O sions, the Finnish conser- mum wage, we can affi rm that it ies like the one in 2017 because, as vative Sauli Niinisto launched does have positive results in terms we pointed out a few lines above, the contextual factors are so varied Better Financial Wellbeing Those who received basic income felt better about their fi nancial wellbeing

Test Group Control Group

50 and so determining that no result people are aware that there is a can be interpreted as definitive. time limit for the money they are 40 For now, the government will carry receiving, so they are inclined to out an experiment, similar to those keep their work or other sources in Utrecht and Canada, in which a of income. But when they are told 30 small group of Finns will receive that they will receive money indefi - 550€ per month. nitely, they will respond diff erently. From the standpoint of philosophy 20 IS UNIVERSAL BASIC INCOME of science alone, microscale exper- A GOOD METHOD TO REDUCE iments fail us as a tool of grasp- 10 INEQUALITY? ing most macroeconomic and hen the results from Fin- macrosociological eff ects, such as

land’s experiment were changes in the employment rate. 0 W released, initial findings These changes have signifi cant im- showed positive eff ects on health pact on the individual decisions of and stress, but no improvement people. In order to observe and an- and the arguments pertaining to in the work status of participants. alyze such eff ects, we would need People with the economic effi ciency are not as “There is no statistically signifi- an experiment on the scale of an universal important. Sociological and eco- cant diff erence between the groups entire country and lasting longer basic income logical justice and the elimination as regards employment,” research- than this trial. Therefore, this and could take of poverty remain their primary ers including Olli Kangas wrote in the other previous trials are not more time to concerns. the report. “However, the survey re- reliable in determining whether look for a job, Still, there are also negative aspects sults showed signifi cant diff erenc- universal basic income will sup- invest in their to take into account. For instance, es between the groups for diff erent port laziness or creativity. education and some of the main concerns are aspects of wellbeing”. Having said this, we can draw development, its costs and impact on the labor Finland’s publication of the ex- some of the positive and negative or start their market. Also, redistribution or re- periment results in early May of aspects that could bring about own business allocation of resources is not a sol- 2020 shows that UBI has no visi- UBI if it were implemented as a id foundation for human dignity, ble eff ects on job search, but that it social policy, based both on the and UBI could weaken employee does increase the perceived mental general concept and the results motivation to work, resulting in a wellbeing of those who receive it. from the experiment in Finland. decrease in productivity. Moreover, With improvements seen in health As it was previously mentioned, some of the critics of universal ba- and stress, it’s clear that the results the participants in the trial in Fin- sic income point out that there off er something for advocates and land experienced less stress and is an observed lack of negative critics of basic income alike. This better health than people not in impact of automation on employ- being said, the government’s aim the control group. Additionally, ment, noting how when some jobs to “promote more active participa- in theory, the UBI would be more are made obsolete by automation, tion” and “provide a stronger in- transparent in comparison to exist- other professions are created in centive to work” doesn’t seem to ing social benefi ts, there would be their place. Similarly, globalization have been met, even if success can no need to give it up aft er getting a has also created more jobs than it be found in other areas. job, and it could give some margin has harmed, therefore concerns However, an analysis of universal of safety to employees whose job is about automation leading to rising basic income can be drawn with threatened by automation. People unemployment seem unfounded, the general idea of the UBI con- with universal basic income could since in the last century techno- cept and the recent results of the take more time to look for a job, logical progress has created more experiment in Finland, showing invest in their education and devel- jobs than it has eliminated, and both positive and negative aspects. opment, start their own business, the scale of the progress is histor- First of all, it is important to point or work less and use the time for ically unprecedented. out that the conditions in these ex- other purposes. Nevertheless, despite the advan- periments are diff erent than those The main arguments made by the tages or disadvantages that uni- of the real UBI. In the experiment, UBI advocates are ethical ones, versal basic income may bring in 30 |31 Self-perceived assessment of health Recipients of Finland’s basic income reported better health than those who didn’t receive it

Test Group Control Group

50

this particular allocation occurred. concept itself expresses how mon- 40 Of the two, we could say that pro- ey is given to everyone regardless cedural fairness is more concerned of their status. Because of this, we with equality of opportunity for can say that the inequality they are 30 economic advantage and deserv- trying to reduce is the inequality ingness, or whether the rules of of outcome rather than inequality the game take into account the in- of opportunity. When measures 20 dividual’s’ efforts. Furthermore, like these are considered, the root we know that economics does not of the problem is not really being provide judgements about what is addressed correctly. By giving out 10 fair, but it can clarify how institu- money to everyone without regard- tions (the rules of the game) aff ect ing the eff ort they make and caring inequality, the tradeoff s in the fair- about whether this is fair, this is ness of outcomes, and which pub- actually a disincentive for people lic policies can address unfairness to make more eff orts to be produc- the labor market and a country’s and how. tive and progress in life. productivity, when it comes to Inequality in outcomes should not For these and many other reasons, evaluating whether implementing be a consequence of exogenous if universal basic income is im- a policy like this might help reduce circumstances such as a person’s plemented, it will not actually be inequality, the results are not so fa- gender or family background, but a good policy to reduce inequality vorable. rather a refl ection only in diff er- because it is not tackling the core Based on behavioral economics ences in eff ort and choices of indi- of the problem. In order to reduce concepts, there are two types of viduals, as well as luck. Therefore, inequality of opportunity, we need fairness: substantive and proce- one of the main questions that inclusive institutions that can har- dural. The main difference be- economists have tried to answer in ness all the latent talent from all tween the two is that, to make a relation to this topic is how we can the diff erent people in a society. So, substantive judgement about fair- measure and implement equality ultimately, what matters for eco- ness, all concerns are about the al- of opportunity. nomic prosperity, for success and location of the resources. In turn, Universal basic income is a poli- failure, is inclusive institutions; po- to make procedural evaluation, we cy that is mainly concerned with litical projects that organize people require knowledge of the rules of the allocation of resources, rather collectively in a way that is rational the game and other aspects of why than the rules of the game. The for society as a whole.

PARA SABER MÁS: Hernández, Esteban, y Barnés, Héctor G. (2015), “La Cara Oculta De La Renta Básica: lo que revela el experi- mento fi nlandés”, El Confi dencial, 10 Dec. 2015, www.elconfi dencial.com/alma-corazon-vida/2015-12-10/la-cara-oculta-de-la-ren- ta-basica-lo-que-revela-el-experimento-fi nlandes_1117294/; Kangas, Olli; Jauhiainen, Signe; Simanainen, Miska y Ylikännö, Minna (eds.) (2019), “ Experiment 2017-2018 in Finland. Preliminary Results”, Ministry of Social Aff airs and Health, Helsinki; Kela (2020), “Results of Finland’s Basic Income Experiment: Small Employment Eff ects, Better Perceived Eco- nomic Security and Mental Wellbeing - Press Releases”, Kela.en, Social Insurance Institution of Finland, 6 May 2020, en www. kela.fi /web/en/press-releases-media/-/asset_publisher/iOlErAd3fOTY/content/re-of-the-basic-income-experiment-small-employ- ment-eff ects-better-perceived-economic-security-and-mental-wellbeing; King, Martin Luther (1967), Where Do We Go From Here: Chaos or Community?, Beacon Press, Boston; Linke, Rebecca (2018), “Negative Income Tax, Explained”, MIT Sloan, 7 Feb. 2018, en mitsloan.mit.edu/ideas-made-to-matter/negative-income-tax-explained; OECD (2017), “Basic income as a Policy Option: Can it add up?”, Policy Brief on The Future of Work, OECD Publishing, Paris; Paine, Thomas [1797 (1999)], Agrarian Justice. Agrarian Justice, digital edition in www.grundskyld.dk; Rouse, Margaret (2020), “What Is Universal Basic Income (UBI)?-Defi nition from WhatIs.com.”,WhatIs.com, en whatis.techtarget.com/defi nition/universal-basic-income-UBI; World Inequality Database (2014), “USA–WID–World Inequality Database”, World Inequality Databas, en wid.world/country/usa/.