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Is Universal Basic Income an Effective Way to Eliminate Poverty?
By admin November 7, 2018

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The exponential advancement of computing power and artificial intelligence has galvanized heated debates on Universal Basic Income (UBI) in recent years. People are concerned that technology will take away low-paying human jobs and leave poor people worse off. UBI is seen by the Silicon Valley as one of the proposals to cure inequality and poverty in the world.

Theoretically, UBI is defined as “periodic and unconditional cash payments to all citizens”. This is not a new idea, however, it is gaining popularity in the past decade. Ten years ago, only 12 percent of Americans were in favor of a universal basic income. The number this year is 48 percent, according to a recent survey conducted by Northeastern University and Gallup.

Supporters of UBI look at it as a way to eliminate poverty and ameliorate social inequality. They find UBI benefits workers by enabling them to quit unsatisfying jobs and find better ones. Additionally, they believe that UBI will allow low-income people to decide how to spend their money, instead of forcing everyone into the social welfare programs designed by governments. On the other hand, opponents of UBI contend that giving people money without any string attached will decrease their incentives to work and encourage wasteful spending. The proposal is also considered extremely costly for governments and too idealistic. As Luke Martinelli, a researcher at the University of Bath Institute for Policy Research, put it: “an affordable UBI is inadequate, and an adequate UBI is unaffordable.”

Some empirical studies may shed insights on the debates of UBI. A recent study from the University of Chicago and the University of Pennsylvania indicates that UBI will not discourage people from working. This study examined the only large-scale UBI experiment in the United States, a government-backed program that has given dividends from the Alaska Permanent Fund to Alaska residents for the past 25 years, and concluded that UBI has no significant effect on employment, it even increases part-time jobs by 17 percent.

Pioneers around the world are experimenting with the idea of UBI, trying to gauge its impact on the economies and individual behaviors. In Finland, the conservative government proposed to provide UBI for those receiving unemployment benefits. It is not considered a truly “universal” basic income program as it only targets a certain group of people, and the full outcome of the program is not yet available. Hamilton, a city in Ontario, Canada, with about 551,000 people, is another example of UBI experiment. Its UBI scheme, which is funded by the provincial government and has been carried out for more than two years, provides a basic income of up to 17,000 Canadian dollars for all 1,000 participating individuals –plus a 6,000-Canadian-dollar supplement for those with a disability. The main goal of this project is to test whether this kind of UBI is more effective in reducing poverty than the city’s existing social security system.

In the developing world, UBI and similar cash transfer programs have offered a more promising outlook in poverty reduction. The 2016–17 Economic Survey by Indian Ministry of Finance estimates that an annual transfer of 7,620 rupees ($120) to 75 percent of India’s population, at a cost of 4.9 percent of India’s GDP, will push most India’s absolute poorest above the 2011–12 Tendulkar poverty line. The survey also reveals insights about UBI implementation. For example, distributing a UBI through a banking system is better than cash because it can reduce pilferage, and is easier to administer.

Although achieving true universality is still fiscally and politically challenging, more UBI experiments in specific contexts are needed to add substantial rigors to the ongoing debates.

 

FURTHER READINGS:

Universal basic income policies don’t cause people to leave workforce, study finds

The Paradox of Universal Basic Income

India’s Universal Basic Income

Benefit or burden? The cities trying out universal basic income

Universal basic income: U.S. support grows as Finland ends its trial

Who Really Stands to Win from Universal Basic Income?

Critics of universal basic income argue giving people money for nothing discourages working — but a study of Alaska’s 36-year-old program suggests that’s not the case


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