The debate around universal basic income (UBI) has recently gained massive attention and momentum worldwide as a way of streamlining various contemporary economic and social-political challenges. UBI is where every citizen unconditionally and universally gets a regular cash payment regardless of their employment status, income, and other qualifying factors to promote their quality of life and basic living standards for all (Tereshchenko, 2023). The five defining attributes of the UBI model are periodic (distributed in regular payment), cash payment (paid as cash), individual (paid to every citizen), universal (to everyone), and unconditional (no associated requirement for the payment qualification) (World Population Review, 2023). Therefore, UBI mainly promotes the appetite for promoting social justice by addressing the ever-expanding social inequalities. For this reason, UBI primarily involves an aspired societal ideal and not merely a program (World Bank, 2020). UBI also inclines to diminish the impacts of massive losses from technological advancements and pandemics (BER Staff, 2020). As of now, no country has fully implemented the UBI. However, many have debated, launched, and tested UBI programs, particularly to assist the neediest populations (World Bank, 2020). High cost, work disincentivizing, and inflation are among the leading challenges making it difficult for many countries to fully implement the UBI.
Positive Impact of UBI on the Economy
The UBI’s significance mainly lies in its potential to address poverty and social inequality. Addressing poverty and inequality means individual freedom and autonomy promotion, enhanced innovation, improved creativity, and promoted social and economic stability (Tereshchenko, 2023). Providing a basic income is essential for reducing inequality by offering a safety net among economically disadvantaged populations, allowing poor people to effectively pursue their life’s goals and aspirations (Tereshchenko, 2023). UBI also allows citizens to take greater risks, like starting new business ventures, advancing their education, and engaging in creative endeavors (Straubhaar, n.d). A UBI product is also a result of superior social and economic stability through the reduction of the contemporary labor market instability and insecurity manifested by increased unstable low-remunerated work, job insecurities, and increased automation (Tereshchenko, 2023). In market conditions, the UBI is essential for equitable wealth and power redistribution and a balanced economic resources distribution, thereby promoting social cohesion and trust.
According to Scott Santen, an economic security project founding member, a UBI for every adult at 1,000 dollars per month and 300 dollars for every child can completely eradicate the United States poverty (ProCon.org, 2021). In Brazil, the poverty level has dropped to the lowest mark in four decades after distributing a UBI worth 100 dollars a month to approximately twenty-five people starting in March 2020 (ProCon.org, 2021). Namibia tried the UBI program between 2007 and 2012; there was a reduction in the household poverty rate from 76 percent to 37 percent after only one year (ProCon.org, 2021). The child malnutrition rates in Namibia decreased from 42 percent to 17 percent in only six months after the implementation of the UBI program (ProCon.org, 2021).
The same encouraging results happened in India after undertaking a UBI trial between 2013 and 2014. There was a significant overall health improvement through an increased ability to afford medication, improved sanitation, promoted access to clean and safe water, and reduced anxiety levels (ProCon.org, 2021). Other countries that have tried UBI and realized positive results are Manitoba, Canada, and Finland (ProCon.org, 2021). Behind various societal challenges are poverty, social inequality, and isolation issues, which the UBI program has proven significant in addressing.
UBI has also proven highly effective in promoting positive employment opportunities growth and reduced school dropout rates. Additionally, UBI focuses on protecting people from stagnating wage growth rates, poor wages, and job insecurities brought about by the impact of technological advancements and short-term contracts (Straubhaar, n.d). Roosevelt Institute researchers implemented a UBI program and noted that it is critical to promoting output, employment opportunities, and wages (ProCon.org, 2021). For instance, the Alaska Permanent Fund implementation has increased the UBI recipients purchasing power and contributed to 10,000 extra jobs in the state (ProCon.org, 2021). With the UBI program, people are confident in leaving a bad job and waiting for a fair one. A UBI program trial in Canadian Mincome found that the participants were likelier to remain in school longer and complete their education than those not involved in the pilot program (ProCon.org, 2021). Therefore, UBI motivates people to remain in school and acquire training essential for improving their skills.
The UBI program is also highly critical among the non-working population, particularly the mothers and caregivers, which improves the traditionally unpaid roles. UBI makes all types of work equally deserving of payment. A properly designed UBI system minimizes gender-based inequality since payment represents the bigger share of women’s income (ProCon.org, 2021). Among the working parents and guardians, the UBI minimizes their working hours, allowing them more time to spend with their children and undertake household duties. For instance, SEWA Bharat, a women and children’s rights empowerment organization UBI program in India undertaken between 2013 and 2014, found that the target population empowerment was essential in ensuring they take more role in household decision-making (ProCon.org, 2021). Another similar UBI trial in Namibia assisted in reducing women’s dependency on men and transactional sex (ProCon.org, 2021). In Mincome Canada, the UBI program reduced emergency room visits due to domestic violence (ProCon.org, 2021). All these positive social accounts are made possible by the UBI as it focuses on closing the income-inequality gap between women and their counterparts men.
Negative Impact of UBI on the Economy
The UBI takes money away from the neediest population and distributes it to everyone, increasing poverty levels by depriving additional support for the neediest population (JRF, 2022). Poverty-stricken populations experience various hardships, constituting the main target of the existing anti-poverty and equality promotion policies like food stamps, special assistance programs, and medical aid (ProCon.org, 2021). In most cases, UBI programs dislocate such program funds and distribute them to all citizens. Therefore, instead of addressing income inequality, UBI can increase poverty and social inequality as it distributes the income from the bottom needy to everyone.
Luke Martinelli, a University of Bath Research Associate Professor, noted that the losses attributable to UBI programs among the bottom poor are proportionally bigger than the bottom three income quantiles (ProCon.org, 2021). Related research by OECD in Finland, France, and the U.K. noted that instead of minimizing the overall number of people in poverty, the BUI changes the income-poor population composition, thereby not being efficient for poverty reduction (ProCon.org, 2021). Compared to targeted welfare programs, UBIs are mainly not cost-effective since many people require more than cash (JRF, 2022). For instance, UBI does not add skills or cure poor health and other poverty-associated aspects.
Another UBI setback is that it is way too costly. A 2018 research indicated that the U.S. would require a 1,000 dollar monthly payment to every adult citizen, amounting to 3.8 trillion dollars annually (ProCon.org, 2021). This figure was about 21 percent of the 2018 GDP and approximately 78 percent of the 2018 tax revenue (ProCon.org, 2021). The UBI model also proved highly expensive and practically unaffordable in Finland, which meant an increased government deficit by 5 percent of GDP; in the U.K., it would cost about 211 billion dollars (ProCon.org, 2021). Research in other countries like Germany and Switzerland also confirmed that UBI is expensive.
UBI has also been documented to cause reduced motivation to work and negatively impact the economy through labor and skills shortages. Earn for work is a motivation for working cooperatively, gaining skills to increase employability, and becoming successful (World Bank, 2022). Paying people universally and unconditionally for doing nothing would lead to reduced economic output. A vibrant economy depends on people’s motivation to work. Such motivation requires some form of future uncertainty; offering guaranteed to pay income security through UBI removes this uncertainty, and hence people will not be motivated to work (Doar, 2022). UBI trials between the 1960s and 1970s in the U.S. indicated that the participants recorded fewer work hours than others (ProCon.org, 2021). In 2016, the Swiss government declined the UBI trial implementation since it would not motivate many people to work, exacerbating labor and skills shortages (ProCon.org, 2021). Therefore, UBI can easily collapse due to deteriorated economic output.
The UBI will also likely cause inflation and undermine the economy’s safety net. The sudden upsurge in consumer spending caused by the UBI can exacerbate inflation, further deteriorating the basic income payment value since people will have more disposable income (Doar, 2022). Most economies, like the U.S., have long been driven by innovativeness and industriousness. The UBI can compromise that drive since many people are not motivated to work (Doar, 2022). Since UBI is mainly unaffordable, it can easily destabilize the social safety net’s successes. It will do so by altering the distinctive U.S. government relationship with its people and increasing taxes or national debt, if not both (Doar, 2022). More so, it would be ineffective in improving the current U.S. safety net’s largest weakness, incentives to work.
Reflection and Conclusion
The above literature indicates that UBI is a timely financial social security model for reducing poverty, supporting people to pursue further education, engage in innovation and entrepreneurship, and other opportunities for advancing societal welfare. Countries that have tested UBI have recorded many benefits ranging from poverty reduction, economic growth stimulation, increased entrepreneurship, and reduced bureaucracy. However, these trial projects are only conducted on limited scope (World Bank, 2022). Large-scale UBI implementation can record different outcomes due to the distinctiveness of various economic regions and motivations. More so, UBI can potentially address income inequality by supporting the traditionally underpaid population through caregiving and mothers’ parenting roles. Nevertheless, it is critical to balance such support with the society’s motivation to engage in meaningful and productive work that effectively contributes to economic growth and development.
UBI implementation can realize a better welfare system and promote consumer spending. However, the costs associated with large-scale UBI programs are significant and might require serious economic policy adjustments like tax increases and resource reallocations (Doar, 2022). The high cost of UBI implementation also means a reduction in other essential public service offerings. The disincentivization of the work aspect of UBI will cause reduced economic productivity and associated labor shortages, which is dangerous to any economic stability and growth. Besides, using the example of the various countries that have tried UBI as examples, it is clear that the current economic statuses do not match the UBI policy. Moreover, the UBI rollout in the entire economy can exacerbate economic challenges instead of producing benefits since it is not financially viable.
Therefore, I debate that UBI has yet to become inevitable in many countries. Instead, it should supplement the existing public assistance programs, which have proved efficient in various parts of the world. Governments can realize additional mileage in promoting social equality and fairness with a comprehensive and coordinated analysis. However, rolling UBI out in the entire economy is practically not feasible, and it means more economic challenges than benefits.
References
BER Staff. (2020, February 25). Unboxing universal basic income. Berkeley Economic Review – UC Berkeley’s Premier Undergraduate Economics Journal. https://econreview.berkeley.edu/unboxing-universal-basic-income/
Doar, R. (2022, November 21). Universal basic income would undermine the success of our safety net. George W. Bush Presidential Center. https://www.bushcenter.org/catalyst/are-we-ready/doar-universal-basic-income
JRF. (2022, July 21). Is universal basic income a good idea? Joseph Rowntree Foundation. https://www.jrf.org.uk/report/universal-basic-income-good-idea
ProCon.org. (2021, February 25). Universal basic income pros and cons – Top 3 arguments for and against. https://www.procon.org/headlines/universal-basic-income-top-3-pros-and-cons/
Straubhaar, T. (n.d.). On the economics of a universal basic income. Intereconomics. https://www.intereconomics.eu/contents/year/2017/number/2/article/on-the-economics-of-a-universal-basic-income.html
Tereshchenko, S. (February 23, 2023). The Global Importance of Universal Basic Income (UBI) Manifestation. Available at SSRN: https://ssrn.com/abstract=4368245
World Bank. (2020, February 4). Exploring universal basic income: A guide to navigating concepts, evidence, and practices. https://www.worldbank.org/en/topic/socialprotection/publication/exploring-universal-basic-income-a-guide-to-navigating-concepts-evidence-and-practices
World Population Review. (2023). Countries with Universal Basic Income 2023. https://worldpopulationreview.com/country-rankings/countries-with-universal-basic-income
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