Hello,
This study is from some months ago and I'm slightly surprised that I don't see it on the forum.
"The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States" (I'm reading that it was funded "by the founders of ChatGPT".)
Full article be found here.
The abstract makes the results sound more bad than good? However, the conclusion (on page 32) says that the results are both good and bad for UBI: (bold mine)
Our results provide support for both sides of this debate.
On the one hand, we do find that the transfer we study generated significant reductions in individual and household market earnings. The reductions in individual labor supply we observe are smaller than what has been documented in some settings (e.g., Golosov et al., 2023), but larger than what has been observed in others (e.g., Imbens, Rubin and Sacerdote, 2001; Cesarini et al., 2017). The spillovers onto other household members–who also reduced their labor supply in response to the transfer–implies the total amount of work withdrawn from the market is fairly substantial. Further, we do not find evidence of the type of job quality or human capital improvements that advocates have hoped might accompany the provision of greater resources, and our confidence intervals allow us to rule out even very small effects of the transfer on these outcomes.
On the other hand, we find that participants showed more interest in entrepreneurial activities and willingness to take risks due to the transfers, which could improve future earnings and lead to additional economic benefits over time. And, exploratory analysis of subgroups suggests that not all responses to the transfer were identical: older participants experienced very little change in either labor supply or human capital, while younger participants reduced time spent working but appeared to pursue more education. Finally, the fact that some of the transfer was used to reduce work shows the high value that participants place on leisure at the margin.
What do you think?
- Is the large body of evidence showing the pros of UBI, specific to low-income countries?
- Does this study potentially show something important about UBI in the US? Is UBI in the US a bad idea? Or at least, are there cons of UBI that need to be carefully guarded against or minimized? (And if so, how do we minimize those cons?)
- What would a future US study on this look like? Was this one missing something? (Was the amount of money too small?)
I'm not an expert so if I am missing something, forgive me. I am posting here in hopes to learn.
Thank you :)
By definition, a UBI takes a pool of money and redistributes it equally to everyone in a community, regardless of personal need. However, with the same pool of total funding, one can typically deliver more efficient benefits by targeting people with the greatest need, such as those in dire poverty or those who have been struck by bad luck.
If you imagine being a philanthropist who has access to $8 billion, it seems unlikely that the best way to spend this money would be to give everyone on Earth $1. Yet this scheme is equivalent to a UBI merely framed in the context of private charity rather than government welfare.
It would require an enormous tax hike to provide everyone in a large community (say, the United States) a significant amount of yearly income through a UBI, such as $1k per month. And taxes are not merely income transfers: they have deadweight loss, which lowers total economic output. The intuition here is simple: when a good or service is taxed, that decreases the incentive to produce that good or service. As a consequence of the tax, fewer people will end up receiving the benefits provided by these goods and services.
Given these considerations, even if you think that unconditional income transfers are a good idea, it seems quite unlikely that a UBI would be the best way to redistribute income. A more targeted approach that combines the most efficient forms of taxation (such as land value taxes) and sends this money to the most worthy welfare recipients (such as impoverished children) would likely be far better on utilitarian grounds.
Thank you for your insights Matthew, that all makes a lot of sense and helps me understand.
I wonder if there is an income bracket low enough in the US, where UBI focused just for that group, would have net positive impact. (This study was $29,900 average household income for the participants.) Or, if there is going to be a net negative for UBI in the US just no matter... even before getting detailed about potential counter-factual scenarios.
Funny that UBI seems to do better than more targeted approaches, in low-income countries... but in high-income countries, even for the poorest within those countries, more targeted approaches may be the better option.