Earlier this month, a cross-border team of North American economists published the results of a landmark study, probably the best and most careful yet done, of how low-income workers respond to an unconditional guaranteed income. Not so long ago this would have been a plus-sized news item in narcissistic Canada, for the lead author of the study is a rising economics star at the University of Toronto, Eva Vivalt. The economists, working through non-profit groups, recruited 3,000 people below a certain income cutoff in the suburbs of Dallas and Chicago. A thousand of these, chosen at random, were given a thousand dollars a month for three years. The rest were assigned to a control group that got just $50 a month, plus small extra amounts to encourage them to stay with the study and fill in questionnaires.
That randomization is an important source of credibility, and the study has several other impressive methodological bona fides. If you have an envelope to scribble on the back of, you can see that the payments alone were beyond the wildest dreams of most social science: most of the money was provided by the AI billionaire Sam Altman. But the study also had help from state governments, who agreed to forgo welfare clawbacks from the participants to make sure the observed effects weren’t obscured by local circumstances. Participant households were also screened carefully to make sure nobody in them was already receiving disability insurance. (Free money doesn’t discourage work among people who can’t work — or who absolutely won’t.) And the study combined questionnaire data with both smartphone tracking and state administrative records, yielding an unusually strong ability to answer difficult behavioural questions.
The big picture shows that the free cash — a “universal basic income” (UBI) for a small group of individuals — discouraged paying work, even though everybody in the study was starting out poor. Labour market participation among the recipients fell by two percentage points, even though the study period was limited to three years, and the earned incomes of those getting the cheques declined by $1,500 a year on average. There is no indication that the cash recipients used their augmented bargaining power to find better jobs, and no indication of “significant effects on investments in human capital,” i.e., training and education. The largest change in time use in the experiment group was — wait for it! — “time spent on leisure.”
Cynics will say that this was a lot of time and effort to spend discovering that people unconditionally paid not to work will do less work. But these people have never run into the UBI Paradox, as the liberal economist Noah Smith now has. The paradox is that intellectual supporters of basic guaranteed income are divided between those who think a UBI won’t discourage work at all, and those who think a UBI will discourage work and that this is precisely the point of a UBI. Often the same person will turn up in both groups at different moments, as you’ll find if you ever fall into conversation with them.
That’s why the outcomes in the Vivalt et al. study were greeted by most economists, including Smith, as bad for the prestige of the UBI idea. It’s obviously welfare-enhancing to you, personally, if you have a billionaire or a government pay you to exit the labour market and start pursuing avocations or dreams of idleness or addictions. But the cost of a UBI to the state, as Smith observes, goes beyond the staggering costs of the actual income and the harmful effects of the necessary taxes. If the public treasury also loses money from reduced labour-force participation, and there are no observable gains in human capital, a UBI is an even bigger recipe for fiscal suicide than the mere envelope-math suggests.
And yet Smith, who made some frowny faces over the Vivalt study on his Substack, was immediately met with a barrage of angry respondents who claimed that the study was exactly what they expected and desired. “UBI gives people more time not to work … to be human.” “People have more time to spend on leisure than being slaves at the office.” Smith rightly identifies these vapourings as emerging from a new “antiwork” tendency which believes that economic scarcity is a voodoo myth and labour markets a mere psychological swindle. These people are certainly “leftists,” but it almost feels like a gratuitous insult to old-school Marxists and democratic socialists to say so.
National Post