Wageningen University of Life Sciences and Research Centre Development Economic Chair Group The Impact of a Basic Income on Labour Supply and Work Performance Evidence Based on Student Experiment MSc Thesis Development Economics By Veronika Hudáková Supervised by Prof. Gerrit Antonides and Dr. Rein Haagsma Wageningen, the Netherlands February, 2015 i Table of Contents List of Tables ............................................................................................................................................ iv List of Figures ........................................................................................................................................... iv Acknowledgements .................................................................................................................................. v ABSTRACT ................................................................................................................................................ vi CHAPTER 1: INTRODUCTION ................................................................................................................... 1 CHAPTER 2: BASIC INCOME AND ITS SOCIAL AND POLITICAL ASPECTS .................................................. 4 2.1 THE CHARACTERISTICS OF A BASIC INCOME ................................................................................. 4 2.1.1 The Facts about Basic Income ................................................................................................ 4 2.1.2 The Dimensions of Basic Income ............................................................................................ 5 2.1.3 Administration of Basic Income ............................................................................................. 6 2.2 COMPENSATORY JUSTICE .............................................................................................................. 8 2.3 CLAIMS ABOUT BASIC INCOME ..................................................................................................... 9 2.3.1 Basic Income and Economic Equality ..................................................................................... 9 2.3.2 Political Feasibility of Basic Income ...................................................................................... 11 2.3.3 Economic and Environmental Sustainability of Basic Income .............................................. 12 2.4 SUMMARY ................................................................................................................................... 13 CHAPTER 3: ECONOMIC AND PSYCHOLOGICAL IMPACTS OF BASIC INCOME ...................................... 14 3.1 THE EFFECT OF BASIC INCOME ON THE INDIVIDUAL .................................................................. 14 3.1.1 Welfare Programs and Work Incentives............................................................................... 14 3.1.2 Perception of Leisure as Normal or Inferior Good ............................................................... 16 3.1.3 Impact of Intrinsic Motivation on Work Effort ..................................................................... 19 3.2 THE EFFECT OF BASIC INCOME ON THE MARKET ........................................................................ 20 3.2.1 The Impact of Basic Income on Labour Supply .................................................................... 21 3.2.2 The effect on Wages and Prices ........................................................................................... 22 3.2.3 Discussion ............................................................................................................................. 23 3.3 THE EFFECT OF BASIC INCOME ON THE ECONOMY .................................................................... 24 3.3.1 Economic Sustainability ........................................................................................................ 24 3.3.2 Affordability .......................................................................................................................... 25 3.3.3 Savings from Welfare Programs ........................................................................................... 26 3.3.4 Discussion Part ..................................................................................................................... 27 3.4 EXPERIMENTS AND EXAMPLES .................................................................................................... 28 3.4.1 Basic Income Survey ............................................................................................................. 28 3.4.2 Pilot Project in Namibia ........................................................................................................ 29 3.4.3 Alaska Permanent Fund Dividend ........................................................................................ 30 3.4.4 The Experiment with Lottery Winners ................................................................................. 31 ii 3.4.5 Negative Income Tax Experiments ....................................................................................... 32 3.4.6 Psychological Experiment ..................................................................................................... 36 3.5 HYPOTHESES ................................................................................................................................ 37 3.6 SUMMARY ................................................................................................................................... 38 CHAPTER 4: METHODOLOGY ................................................................................................................. 40 4.1 THE EXPERIMENT ......................................................................................................................... 40 4.1.1 The Aim of the Experiment................................................................................................... 40 4.1.2 Description of the Sample .................................................................................................... 41 4.1.3 Design of the Experiment ..................................................................................................... 41 4.1.4 The Activity ........................................................................................................................... 42 4.2 QUESTIONNAIRE .......................................................................................................................... 43 4.3 DATA COLLECTION ....................................................................................................................... 43 4.4 DATA ANALYSES ........................................................................................................................... 43 4.5 SUMMARY ................................................................................................................................... 43 CHAPTER 5: RESULTS ............................................................................................................................. 45 5.1 ANALYSIS FOR HYPOTHESIS 1 ...................................................................................................... 45 5.2 ANALYSIS FOR HYPOTHESIS 2 ...................................................................................................... 46 5.3 ANALYSIS OF MOTIVATION ......................................................................................................... 48 5.4 SELECTION BIAS ANALYSES .......................................................................................................... 49 5.5 SUMMARY ................................................................................................................................... 50 CHAPTER 6: SUMMARY AND CONCLUSION .......................................................................................... 51 6.1 SUMMARY ................................................................................................................................... 51 6.2 EVALUATION AND CONCLUSION ................................................................................................. 52 APPENDIX .............................................................................................................................................. 54 Appendix A: Printable Word-Search Puzzles Topics .......................................................................... 54 Appendix B: Word-Search Puzzle Example........................................................................................ 55 Appendix C: Questionnaire................................................................................................................ 56 Appendix D: Control Group Booklet .................................................................................................. 57 Appendix E: Treatment Group Booklet ............................................................................................. 64 Appendix F: Flyer for Inviting Research Participants ......................................................................... 71 Bibliography ........................................................................................................................................... 72 iii List of Tables Table 1: Count for the Decision to Participate ...................................................................................... 46 Table 2: Group Statistics .......................................................................................................................