UBI boosts employment, well-being, and reinforces positive societal feedback loops – Finland proves

[Tera, Jukka Maksimainen, James Manyika, and Navjot Singh, “An experiment to inform universal basic income,” McKinsey and Company, September 15, 2020, https://www.mckinsey.com/industries/social-sector/our-insights/an-experiment-to-inform-universal-basic-income, accessed June 25, 2023, GDS-LL]

However, to date Finland is the only country that has managed to complete a nationwide randomized control trial of a basic-income program. The research methods used were particularly diverse and included literature reviews, microsimulations, surveys, data linking, in-depth interviews, and media analysis. In this article, we highlight the insights that we found most interesting. More research is needed in this multifaceted and complex area, not least because of the many unanswered questions on how a universal basic income could be funded—and how it would interact with other sources of government assistance.2 It is also worth noting that the methods and conclusions of the Finnish study were not undisputed (see sidebar, “Research-based policy making”).

In Finland’s two-year study, a treatment group of 2,000 randomly picked, initially unemployed people received a guaranteed, unconditional,3 and automatic cash payment of a modest €560 per month instead of a basic unemployment allowance in similar amounts. Even with a housing allowance, which basic-income recipients were eligible for, this level of support was significantly below the incomes of most Finnish households (Exhibit 1).4 All other unemployed people, who continued to receive standard benefits, formed the control group.

Exhibit 1

Finland set its experimental basic income at a modest level.

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The final results from Finland’s experiment are now in, and the findings are intriguing: the basic income in Finland led to a small increase in employment, significantly boosted multiple measures of the recipients’ well-being, and reinforced positive individual and societal feedback loops.

A small increase in employment

In the design of the Finnish experiment, the main research question, agreed to by parliament in the enabling legislation, was the impact of a basic income on employment. Many policy makers assume that an entirely unconditional guaranteed income would reduce incentives to work. After all, the argument goes, why bother with a job if you can have a decent life without one? This assumption has led many countries to deploy active labor-market policies that require people on unemployment benefits to prove their eligibility continually and, often, to participate in some kind of training or to accept jobs offered to them.

Interestingly, the final results of Finland’s program, released this spring, found that a basic income actually had a positive impact on employment. People on the basic income were more likely to be employed than those in the control group, and the differences were statistically significant, albeit small. Concurrent changes in other unemployment policies make it difficult to ascertain, from this study, whether the basic income, the other changes, or both were responsible for the higher employment levels. However, something about the modest level of the basic income and the lack of conditions attached to receiving it seems to have motivated recipients to seek and accept work they otherwise might not have.5

A critical lesson of the Finnish experiment is the complexity of implementing a basic income. Policy makers need to decide how it should interact with a large number of other policies, such as child benefits, housing benefits, pensions, health insurance, and taxation; for example, in the Finnish experiment, basic-income recipients were eligible for housing allowances but not for basic social-assistance payments. Unless such linkages are streamlined, they could detract from a basic-income system’s potentially considerable savings in administrative costs.