February 12, 2019

First results of Finland’s universal basic income experiment revealed

First results of Finland’s universal basic income experiment revealed

Finland’s two-year experiment with a state-sponsored universal basic income (UBI) has so far revealed that people receiving the benefit are no more likely to find work than if they were receiving traditional unemployment benefits. However, their sense of well-being increased.

Ugo Colombino writes for IZA World of Labor that “High unemployment and job insecurity are in part a consequence of the Great Recession following the economic and financial crisis of 2008–2009. More fundamentally, however, they are a byproduct of automation and globalization.”

He notes that “[c]urrent social policies may not be adequate for achieving the goals of redistributing the gains from automation and globalization, providing efficient buffers against economic shocks, and advancing the reallocation of jobs and skills,” and as such “[u]nder certain circumstances, an unconditional basic income might be a better alternative for achieving those goals.”

Finland’s experiment provides the only real data for how UBI works in industrialized nations since Ontario, Canada, announced it would be winding down its basic income pilot after a change in government. Policymakers around the world are therefore keen to see the results. 

The Finnish experiment, conducted in 2017 and 2018 by Kela, the country’s social insurance institution, paid 2,000 randomly selected unemployment benefit recipients aged between 25 and 58 €560 ($635) a month. The median salary in Finland is just under €2,900 per month so the UBI payment was well below the poverty level. UBI recipients were still able to access other benefits.

Based on analysis of the 2017 data, people receiving the UBI spent on average only about half a day more in employment per year than the group who didn’t receive it. The government therefore spent an additional €5,000 per recipient to achieve the same labor market outcome. 

The news was not all bad, though. A survey of the subjective well-being of the participants indicated they were more optimistic, more interested in finding full-time work, and less stressed than their peers on traditional unemployment benefits. This was confirmed in the data: UBI recipients claimed an average of €121 in sickness allowances in 2017, compared with €216 for non-recipients.

Jo Ritzen has recently considered how a basic income could improve happiness in labor markets affected by automation: “Basic incomes would be happiness increasing, if they would be set at a level comparable to present-day social assistance. However, affordability is unlikely without a substantial tax increase and the associated happiness decrease. But even if basic incomes were affordable, then there are questions about their long-term happiness effect. First: work is more than the income it generates. It provides for a social structure. Second: the choice for a basic income would be free to the individual. However, there is no guarantee that employment will be available for the same individual when they decide to seek employment, as skills tend to degrade when not used. A basic income then becomes a trap: easy to get into, but difficult to get out of.”

Read more IZA World of Labor articles on the role of happiness and the labor market.