The idea of a Guaranteed Basic Income (GBI) has gained popularity as a possible way to combat inequality and poverty. Regardless of work status, GBI offers a fixed, unconditional cash payout to individuals. The anticipated yearly cost of implementing a $1,000 monthly GBI nationwide would be $2.8 trillion, more than the combined budgets of Social Security and Medicare.
Concerns regarding the effect of GBI on work incentives are brought to light by recent studies, such as the OpenResearch Unconditional Cash Study (ORUS). According to the 3,000-person ORUS study, GBI beneficiaries had a 4-5% lower chance of staying employed than non-recipients, and their household income decreased by an average of $2,500 per year.
These results imply that rather than enabling people to become financially independent, GBI may lessen employment incentives, lower household incomes, and increase reliance on welfare.
Insights from U.S. Pilot Programs
Recent US GBI program tests have shown a number of unfavorable effects, especially with regard to financial independence and employment rates. The OpenResearch Unconditional Cash Study (ORUS), which featured 3,000 participants in Illinois and Texas over the course of three years, is a noteworthy example.
Participants who got $1,000 monthly payments had a lower likelihood of staying employed than those in the control group, according to ORUS. In comparison to non-recipients, recipients reduced their weekly working hours by 4-5% by the third year of the trial, working an average of 1.3 hours less each week. Furthermore, it was shown that the recipients’ yearly household income was $2,500 lower than that of the control group, suggesting that guaranteed payments can lessen the incentive to retain or raise work-related income.
Impact on Employment and Household Income
The ORUS study’s results cast doubt on the idea that GBI can assist participants in finding more satisfying and well-paying jobs. According to the findings, participants’ work quality and skill acquisition did not significantly improve. The majority of participants decided to use their extra time from fewer work hours on leisure activities rather than professional training or education.
Moreover, the adverse effect on household income was not limited to individual grantees. GBI participants’ families also cut back on their working hours, which significantly decreased household income overall. This implies that the provision of unconditional income would lessen the incentive for recipients and other family members to seek further work or make investments in skill-development initiatives.
Case Studies: Pilot Programs in Wisconsin
Pilot projects were put in place in Madison and Milwaukee, Wisconsin, to investigate how guaranteed income affected low-income households:
- Madison trial Program: 155 households received $500 monthly payments for a year as part of Madison’s guaranteed income trial, which was started in 2022. Early data at the program’s end in August 2023 showed that participants had less working hours and had participated in fewer educational or skill-building activities, which was consistent with the ORUS study’s findings.
- Milwaukee Bridge Project: This initiative focused on pregnant women living in low-income areas. The current program’s preliminary data shows a comparable decline in employment incentives. Concerning the viability of employing public funding for such initiatives, Mayor Cavalier Johnson cautioned that depending on government resources could not be practical in the long run.
These results imply that GBI programs fail to fulfill their stated objectives of fostering upward mobility and financial independence when they lack incentives for employment or skill development.
Financial Implications of Guaranteed Basic Income
The massive financial load that GBI programs entail is one of the main issues surrounding them. For example, it would cost around $2.8 trillion a year to provide $1,000 a month to every adult in America, which is more than the combined budgets of Social Security and Medicare. Even more focused strategies would still cost around $600 billion annually, such as giving $1,000 a month to the 50 million Americans who make less than 200% of the federal poverty level.
| Scope of Program | Estimated Annual Cost |
|---|---|
| Universal ($1,000 to all adults) | $2.8 trillion |
| Targeted (Low-income adults only) | $600 billion |
| Current Social Security Budget (2019) | $1 trillion |
| Current Medicare Budget (2019) | $800 billion |
A national GBI program’s viability is called into doubt by the financial load shown in the above table. A large tax increase or the reallocation of funds from other important social programs would probably be necessary to implement such an expensive scheme, which could have a negative impact on the general populace.
Income Cliffs and Dependence on Welfare
The development of a “income cliff,” whereby individuals may no longer qualify for additional government help as their income rises, is another issue with guaranteed income systems. This may result in circumstances where people’s financial condition deteriorates as a result of raising their incomes, discouraging them from making improvements to their financial situation. A cycle of dependency is produced by this income cliff effect, which deters people from taking advantage of chances for financial advancement.
The ORUS study also showed that GBI beneficiaries lacked the drive to aggressively look for job, which resulted in a cycle of lower incomes and sustained welfare dependency. Given the requirement for ongoing government financing to finance guaranteed income programs, such a paradigm is fundamentally unsustainable.
Social Perceptions and Attitudes Toward Work
The possible influence of GBI programs on societal perceptions of work and poverty is a frequently disregarded concern. The social compact that links government support to initiatives for work and personal development may be undermined by unconditional cash transfers. Widespread implementation of guaranteed payments may lessen social pressure to work, which would ultimately result in decreased productivity and a greater reliance on assistance.
Nearly 80% of voters in Wisconsin agreed with the advisory question in the spring of 2023 that able-bodied, childless persons should have to look for employment in order to receive taxpayer-funded welfare payments, demonstrating this change in opinion. This robust response highlights the desire for welfare programs that encourage employment and self-sufficiency and reflects public attitude against unconditional cash handouts.
Main Issues with Guaranteed Basic Income
- Decreased Employment Incentives: According to studies like ORUS, GBI users frequently cut back on their working hours, which lowers household income overall.
- Expensive: GBI’s financial needs are substantial and may put a heavy burden on public coffers.
Income Cliffs: Unconditional benefits that are income-tested discourage people from raising their incomes, which leads to a protracted reliance on assistance. - Negative Social Effects: Long-term economic stagnation may result from guaranteed income, which may also threaten community norms for independence.
Although guaranteed basic income has the potential to help people financially and open doors for them, evidence from recent studies and pilot programs indicates that it may also have negative effects. The viability of GBI as a long-term solution to poverty is threatened by decreased employment incentives, falling household income, a rise in reliance on welfare, and the substantial financial load.
It could be wiser to look into options that support work, skill development, and financial independence in order to successfully address the underlying causes of poverty. In order to help vulnerable people attain economic stability and self-sufficiency, programs that combine financial assistance with incentives for employment and self-improvement can build a stronger and longer-lasting safety net.