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Not So Basic Income

Basic income right now is such a hot topic that it’s pretty much the bitcoins of policymaking. The idea is extremely simple, and that makes it extremely appealing: Governments give money to their citizens simply for being their citizens, and just enough of it that they don’t starve. As simple as that. With all the concerns regarding the widening income inequality and unemployment due to increased automation, it seems like the best thing since sliced bread!

In an attempt to pioneer the scheme, or at the very least to figure out the potential consequences, the Finnish government took action. About a year ago they decided to give 2,000 people, chosen completely randomly out of the pool of unemployed people, money. The control group in this experiment on the other hand, with nearly 197 thousand people as of October.

The experiment is significant in the sense that it’s what a basic income plan would look like in reality. The lucky participants did not actually volunteer for it, they simply received a bulky mail that detailed how the experiment would proceed. They receive roughly 560 euros each month, for two years. Participants don’t have to report how they spent the cash.

That’s it. Free cash.

The immediately apparent difference between unemployment benefits and free cash for these people is that unemployment benefits can be lost. If you find work, then you no longer receive any benefits whatsoever. The perverse incentive here makes it such that the unemployed population is a bit discouraged from finding work if they don’t find it to be as reliable as the benefits. Especially true for Finland, given that “without [increases for caring for children under the age of 18], the amount of the unemployment benefit is on average EUR 697 per month (21.5 x EUR 32.40).”

Notice how this is actually more than what people get in the basic income experiment. Yet, basic income cannot be lost like these benefits. If you are a part of the experiment and you find work, you don’t actually stop getting these payments.

Although two thousand seems like a large enough sample, policymaking is a bit too nuanced to consider the results of this experiment at face value. The problem stems from the fact that is that nobody actually knows how exactly to model this, let alone make concrete predictions. Unfortunately, whatever we learn from this tiny experiment, we may not be able to extrapolate to a larger scale.

Effects such as changes in the unemployment rates, inflation, or GDP growth are affected by a practically infinite amount of factors. Taking this experiment to 10,000, or a million people may have consequences that are completely chaotic. Roope Mokka, the founder of a Helsinki based think-tank called Demos Helsinki that the prime minister’s office turned to when they started working on basic income, thinks that if anybody’s claiming to know how much a basic income system would cost the average taxpayer, they are simply lying. The German government decided in 2013 that they had no feasible means of financing a scheme like this at a national scale, so Finland probably has it worse.

One other drawback of this experiment is also that the people chosen were not initially employed, so it cannot tell us how this extra money would influence the working behaviour of them. Universal basic income, which is the idea that everybody in a country receives basic income, requires even further experimentation and analysis to be considered feasible by policymakers.

In addition to these concerns, the implementation is not necessarily so straightforward either. Some right-wing supporters of the idea have noted that a basic income system could streamline the welfare system and reduce the bureaucratic burdens. Although unemployment benefits could be replaced by a program such as this, social welfare programmes in Finland are so extensive that a great deal of the population receives benefits exceeding what basic income could bring them.

Marjukka Turunen, who oversees this experiment, works for a government institution called KELA that handles social welfare programmes ranging from paternal care to student support, pension subsidies to unemployment. KELA goes as far as paying for travel expenses in case you need treatments as a part of the sickness or incapacity benefits. Turunen himself notes that one reason why he doesn’t believe it will ever be implemented universally is because the Finnish government would never wipe out all of these welfare systems that have been developed, and are still being developed, to replace it with a single payment.

We will soon see how the Finnish experiment turns out, and also whether or not that leads to more experimentation. It seems that people who are working on basic income trials are already well aware of the potential effects of such schemes; the Finnish government seems to be taking their time to come up with an incremental scheme that will ‘ease into’ what could ultimately become universal basic income. What’s left, is convincing the policymakers!


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