Does Universal Basic Income Work?

A new study conducted by OpenResearch, a non-profit of which Sam Altman sits on the board of directors, provides the latest data on universal basic income (UBI).

Researchers worked with two non-profits in Texas and Illinois to conduct a cash transfer program that distributed $1,000 per month to 1,000 low-income individuals over a 3-year period.  They transferred $50 per month to 2,000 low-income individuals as a control.

Participants reported average household income of ~$29,900, so the $12,000 per year transfer represented a ~40% increase in yearly income.

The cash transfers helped recipients but also raised red flags on the use of UBI as a policy tool to help families escape poverty in the medium and long-term.

The cash transfer program assisted participants in paying for basics (e.g., food, rent, and transportation) and gave them greater flexibility (e.g., reduced spending volatility, higher savings, and higher instances of moving homes or neighborhoods).

But it was not a cure-all.  Recipients of the transfers worked less and had longer periods of unemployment, earned less excluding the transfers, achieved no improvements in net worth or long-term financial position, reported no durable health improvements across a variety of measures, and experienced no improvement in their quality of work.

The reduction in working hours was mostly due to increased leisure time and not due to pursuing more education, with a possible exception among younger recipients.  On the increase in leisure time, the researchers concluded:

“While decreased labor market participation is generally characterized negatively, policymakers should take into account the fact that recipients have demonstrated – by their own choices – that time away from work is something they prize highly” (p. 31).

Of the $950 net increase in monthly income, an average of $310 went toward higher expenditures (over half the dollar increase went toward food, rent, and transportation), $210 on increased leisure (working less), $30 on higher savings, and $60 on higher debt.  There was a significant unexplained amount that may be unmeasured consumption.

On the limitations of UBI as a policy tool to alleviate poverty, the researchers stated:

“Time-limited cash transfers may be a tool to increase spending on basic needs, reduce consumption volatility, improve financial health, and strengthen households’ ability to weather financial shocks in the short term, but policymakers interested in increasing wealth or improving long-run financial outcomes may want to consider either more permanent transfer programs or other policy options” (p. 7).

The study leaves open questions. For example, whether larger transfers would have created more meaningful impact. Even with the $12,000 yearly transfers, households were still well below the US median household income. Or, if the transfers were permanent, whether participants would have made different choices to create long-term benefits.

Links to the study and 3 NBER working papers are here.