No effect.

This section discusses UBI’s potential impact on labor supply and individual’s use of time.

A common worry about universal basic income is that it could reduce people’s incentive to work, thus causing a number of domino effects in the economy. The disincentive effect, for instance, could reduce productivity and the number of goods produced and increase the number of individuals who only rely on assistance to survive. The disincentive effect could also lead to inflation as businesses would need to pay higher wages to retain workers, and the higher wages would push production costs up, translating into increased costs for consumers. The evidence from existing UBI related schemes, however, negates many of these concerns and, overall, indicates that UBI-related programs have marginal effects on labor market participation.

Much of the concern about work incentives comes from four negative income tax programs in the United States and the “Mincome” program in Canada in the 1970s. These experiments had mixed results, with some economists pointing to negligible effects on labor supply (Hum & Simpson, 1993) and others pointing to large negative effects, namely from the Seattle-Denver experiment (Anderson & Block, 1993). The polarized literature divides roughly along ideological lines and is perhaps partly a result of the explicit political goals of the 1970s experiments (Widerquist, 2005). Later reviews of the literature point out that early studies tended to emphasize different parts of the results, and that the actual effects were likely complex (Widerquist, 2018).

What is clear from the North American experiments, however, is that a basic income guarantee could have different effects on different groups’ decisions to work. In cases where UBI led to a reduction in work, evidence often showed that individuals redirected the time they gained to other valued activities. For example, data from the Mincome program (Forget, 2011) found that female heads of household with young children dropped out of work at the highest rate to take longer maternity leaves. In both Gary, Illinois, (McDonald & Stephenson, 1979) and Manitoba, Canada, (Forget, 2018; Prescott et al., 1986) younger men reduced work hours to remain in school longer.

Evidence from more recent experiments confirms findings of minimal labour market effects in both low-income and high-income economies. Evidence from Alaska’s Permanent Fund Dividend and from the recent UBI experiment in Finland, for example, shows no significant effect on labor supply, employment level or working hours (Guettabi, 2019; Kela & the Ministry of Social Affairs and Health, 2019). In the case of the Alaska PFD, one explanation is that any disincentive effects from cash transfers might be offset by increased spending, which leads to increased demand for workers (Jones & Marinescu, 2018). There are some disputes, however, as to the extent that the Alaska PDF increases consumption (Hsieh, 2003; Kueng, 2015, 2018).

In low-income contexts, results from both UBI and other cash transfer programs consistently show no negative impact on labor supply. In some cases, there has even been positive impacts from investments in small businesses or from economic spill-overs to the local economy. A report from a basic income pilot in Namibia, for example, found a significant increase in income-generating activities among recipients of the cash transfers (Haarmann et al., 2009). In Kenya, adult labor supply was found to increase, and child labor found to decrease in response to the Cash Transfer Program for Orphans and Vulnerable Children (Asfew, 2013). Similar boosts in workforce participation and employment were reported for South Africa’s three targeted unconditional cash transfer programs (Samson et al., 2004).