Targeted help or universal income?

UBI would let people decide for themselves

Megan Jenkins
Mar 5 · 6 min read

Last week Senator Bernie Sanders announced his plan to roll out a federally-funded universal program for childcare and early education if he is elected president. Sanders stated, “Childcare must be guaranteed for every child regardless of their parents’ income, just like K-12 education.” The plan would come with a price tag of $1.5 trillion that would be raised through tax hikes on wealthy Americans. Other candidates like Senator Elizabeth Warren have made similar proposals to create federal programs for daycare and early childhood education.

Childcare is expensive and can create a real financial strain for many families. According to Care.com’s annual cost of care survey, more than 70 percent of families report spending over 10 percent of their income on childcare. Many respondents (especially moms) reported making career changes, like scaling back their hours or leaving the workforce altogether to save on childcare expenses.

One of the underlying goals behind proposals to provide universal daycare is to increase economic opportunity for young families, particularly low-income ones. Expanding economic opportunity is one of the most important challenges of our time. In addition to the high cost of childcare, many young people looking to build their careers and start families are also burdened by student loan debt and unable to afford housing in cities with the best job opportunities.

In response to these economic challenges, policymakers have proposed programs that would make childcare free, increase the federal minimum wage, and forgive student loan debt. The goal behind each of these programs is worthwhile — to give American families economic stability by using federal funds to target pressing problems. But what happens when these problems change, and the federal bureaucracies created to address yesterday’s problems are unable to adequately address today’s realities?

Rather than piling on new federal programs, a better way to empower families and workers to address their problems would be through Universal Basic Income. A federal UBI program would provide people a fixed payment every month and would leave it up to them to decide the best way to use that money. This approach would provide a more flexible safety net that would empower people to pursue their own goals.

The primary benefit of Universal Basic Income is that it would respect individual autonomy by allowing people to use the money on what they value most. That means families could decide for themselves whether to invest in childcare, pay down student loan debt, or save up for a college fund. Since every family’s needs are different (and since those needs change over time), UBI would provide a more flexible solution.

University of Richmond professor Jessica Flanigan has written about the benefits of UBI over increasing the minimum wage. While a minimum wage hike would benefit those who already have jobs, a UBI would help everyone, including caregivers whose work is currently unpaid. She writes:

Ultimately, the advantage of these programs over a $15 minimum wage is that they benefit all citizens and do not disproportionately benefit workers and burden employers. And unlike other costly redistributive policies such as student loan forgiveness and universal healthcare, UBI is better suited to reflect each person’s distinctive circumstances, preferences, and personal values.

In addition to respecting each person’s preferences, a UBI also has the benefit of not tying people to traditional employment arrangements. As we continue to see growth in the gig economy and non-traditional work, it will be crucial to provide a social safety net for workers that doesn’t rely solely on employers to offer benefits. A more flexible approach could also translate into greater worker mobility if workers are free to pursue opportunities that help them reach their career goals without being tied to one full-time job. Finally, a UBI could also help address concerns that workers will be increasingly automated out of a job.

Despite the benefits, some have argued that providing everyone with a basic income will create incentives for people to stop working altogether or to spend the money poorly. But these arguments don’t hold up after reviewing the existing research on cash transfers.

First, a UBI would be unlikely to completely negate the financial incentive to work for the vast majority of people. For example, former presidential candidate Andrew Yang’s proposal to create a “Freedom Dividend” would have paid out $1,000 per month to each adult in the U.S. That would equate to $12,000 per year for a single person (less than the federal poverty line) or $24,000 for a couple. Most people would likely still need to work to make ends meet.

And existing research suggests that people tend to keep working after receiving cash transfers, although they may change the type of work they do. A recent Vox article reviews cash transfer experiments across the world and suggests that that basic income could also have a host of other benefits.

Source: Vox

Several experiments with cash transfers have already been tried in the U.S. Alaska’s Permanent Fund, which provides checks to residents every year raised through oil royalties, did not affect employment, but has helped reduce poverty and has led people to have more children. A program in North Carolina provided revenue from a tribal casino to members of the Eastern Band of Cherokee Indians. Researchers found that recipients continued to work about the same amount, but also had improved education and mental health outcomes.

Other countries have also experimented with basic income with similarly positive results. In Canada, a 1970s experiment with basic income found that recipients saw a decline in doctor visits and hospitalization, as well as an increase in high school graduation rates. In Finland, 2,000 unemployed people received checks for 560 euros per month for two years and reported being happier, less stressed, and feeling more trust toward social institutions. Germany, the Netherlands, Iran, Kenya, Namibia, China, and India have all tried similar experiments.

Research on the effects of a UBI is ongoing across the world. One particularly exciting project is being led by Y Combinator Research, which is undertaking a massive randomized controlled trial that will provide $1,000 a month to individuals in the U.S. for up to five years. The researchers will then collect data on how these individuals spend their time and money to understand how cash transfers impact mental and physical health, subjective well-being, financial health, decision-making, involvement in politics, effects on crime, and effects on children of those who receive a basic income.

The other looming question about actually implementing a UBI is how to pay for it. Some claim a UBI could be financed by cutting other welfare programs in favor of the more straightforward cash transfer approach. Others argue that a UBI would be too expensive, and would not be an effective replacement for current welfare programs. And others still have suggested a negative income tax or a carbon dividend as more promising avenues to fund a basic income.

The structure for how we finance a UBI will matter greatly in determining who will benefit and who will pay the costs. Researchers at the OECD and the American Enterprise Institute show in separate studies that replacing existing benefits with a UBI would likely benefit the poor at the expense of the elderly. Enacting a UBI would require difficult conversations about which programs should be kept in place and which should be replaced with a cash transfer approach.

Figuring out how to finance a UBI on a nationwide scale will be complicated, but that doesn’t mean we should disregard the idea altogether. One thing is clear — we need to rethink our safety net to make it more flexible to respect people’s autonomy better and to allow for continued innovation in how workers make their way in an ever-changing workforce. Basic income presents a promising idea to help us reach those goals.

The greatest strength of a universal income is that it doesn’t require an ever-larger bureaucracy to decide who should receive support and what the conditions of that support should be. Instead, a UBI represents a more flexible safety net that gives Americans economic stability and the freedom to make decisions for themselves about the best way to spend it.

The Benchmark

A publication by The Center for Growth and Opportunity at…

Megan Jenkins

Written by

Research director @cgousu.

The Benchmark

A publication by The Center for Growth and Opportunity at Utah State University

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