Experiments show the effect is statistically insignificant.

The NIT experiments authorized by the federal government, which were the first randomized control trials in the social sciences, took place from 1968 to 1982. The first experiment took place in urban areas in New Jersey and Pennsylvania (1968–1972, n=1,216), with subsequent experiments in rural areas of Iowa and North Carolina (1970–1972, n=809), Gary, Indiana (1971–1974, n=1,799), and Seattle, Washington (1970–1978, n=4,800), which was extended in 1972 to Denver, Colorado (GiveDirectly 2016). The Seattle/Denver Income Maintenance Experiment, referred to as SIME/DIME, was the largest and longest-running of the four. In SIME/DIME, about half of the 4,800 participants were guaranteed an income of $25,900 in 2013 dollars (Price and Song 2016), which was the most generous of the experiments. All experiments varied different combinations of tax rates and guarantee levels (e.g. a guarantee of 75 percent of the federal poverty line with a 50 percent tax rate on earned income) to study effects on work (Burtless 1986). A detailed breakdown of the features of each income maintenance experiment is listed in the table below from Hum and Simpson (1993):

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Simultaneously, from 1974 to 1979, Canada launched a similar experiment in the province of Manitoba called Mincome. While the two sets of programs share many common features, the United States NIT program differed in some ways from Canada’s Mincome experiment. First, the Mincome program included a saturation site—the small rural town of Dauphin—in which all 10,000 residents were eligible to participate, in addition to a randomized sample in Winnipeg that mirrored the U.S. experimental design. Second, the experiment was originally conceived as a first step in an eventual universal basic income (to complement Canada’s universal healthcare system), rather than a replacement or reform of existing welfare programs. Third, the Mincome experiment offered 60 percent of the poverty line (or low-income cut-off ) for Canada across the board, rather than varying the guarantee and tax rate levels within a sample. The project and payments ran for four years, but due to insufficient funding, data collection ceased after two. The data that had been collected was archived and largely unanalyzed for decades, until Evelyn Forget analyzed the untouched data in 2011. Forget and her colleagues collected the data from tapes, archived boxes, and a population health database to determine the influence of income supplements on health outcomes.

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EFFECTS ON CONSUMPTION

There is no systematic evidence on the effects on consumption across the NIT experiments because consumption was not measured in the standard data that was collected. However, the rural NIT in Iowa and North Carolina showed positive impacts on the quality of nutrition (Salkind and Haskins 1982), suggesting an increase in spending on food.

EFFECTS ON EMPLOYMENT, HOURS, AND EARNINGS

The NIT experiments were a complex intervention, and the net impact on labor supply is hard to predict ex ante because it depends on whether the NIT is more or less generous than the existing welfare and tax system. Two countervailing forces are at play: On the one hand, many of the NIT treatments provided a higher level of income guarantee than other safety net programs, and this was especially true for the SIME/DIME experiment. This higher income guarantee should induce a decrease in labor supply due to the income effect; when people have a higher unearned income, they choose to work less.

On the other hand, the tax rate on the income guarantee was often smaller than the implicit tax rate on benefits in the existing system, which should stimulate work through an incentive effect known as the substitution effect. To clarify, the implicit tax rate on a benefit is the number of cents that are taken away from that benefit when a recipient earns an additional dollar of labor income. A 100 percent tax rate would mean that each dollar earned resulted in one dollar of benefit taken away: existing benefits often had implicit taxes close to 100%. In the NIT experiments, the tax rate was not 100 percent but ranged between 30 and 80 percent; i.e., between 30 and 80 cents of benefits were taken away for each dollar earned.

We will now discuss the overall impact of the NIT experiments on labor supply, before turning to estimates of the income and substitution effects that come out of these experiments.

The NIT experiments had a negative impact on employment among treated families (those who received the benefit), but this effect was generally not statistically significant (Robins 1985); only the SIME/DIME experiment showed a statistically significant effect, with a 4 percentage point decline in the employment rate. The SIME/DIME experiment was the most generous, and had the largest sample size (Burtless 1986), so it makes sense for the impacts to be larger and more significant. However, because NIT recipients underreported earnings in order to get a larger benefit payment, the impacts of NIT on employment are likely exaggerated (Robins 1985; Burtless 1986; Ashenfelter and Plant 1990). Another issue that likely contributed to an overestimation of labor supply effects is selective attrition: Ashenfelter and Plant (1990) show that treated families who received no payment (because they had higher outside earnings) and therefore likely had no labor supply response to the NIT were more likely to leave the experiment, affecting the sample.