Why Guaranteed Basic Income Could Do More Harm Than Good: The concept of Guaranteed Basic Income (GBI) has become a prominent topic in discussions on poverty alleviation and economic equality. The proposal is to provide all individuals with a fixed, unconditional monthly cash payment, regardless of their employment status. A nationwide implementation of $1,000 per month is estimated to cost $2.8 trillion annually, a sum that exceeds the combined budgets of Social Security and Medicare.
While GBI aims to offer financial relief, recent studies, including the OpenResearch Unconditional Cash Study (ORUS), have raised concerns about its potential impact on work incentives. Findings suggest that GBI may reduce employment and household earnings, increasing reliance on welfare instead of promoting financial independence.
Insights from U.S. Pilot Programs
Recent U.S. pilot programs have provided valuable insights into the effectiveness of GBI. A significant study, the ORUS, involved 3,000 participants across Illinois and Texas, examining the effects of $1,000 monthly payments over three years.
Results from the ORUS study revealed that recipients were less likely to remain employed compared to those who did not receive GBI. By the third year, recipients worked 4-5% fewer hours weekly, leading to an average decrease of $2,500 in annual household income. These findings suggest that GBI may have unintended consequences on employment patterns and overall earnings.
Impact on Employment and Household Income
Contrary to the belief that GBI could lead to better-paying jobs and skill development, the ORUS study found that participants did not significantly improve their job quality or acquire new skills. Instead, most recipients used the time gained from working fewer hours for leisure activities rather than personal development.
The negative effects of GBI were not limited to individual recipients. Family members of recipients also reduced their working hours, resulting in a decrease in total household income. This indicates that unconditional cash transfers may reduce the motivation for not only recipients but also their family members to pursue additional employment or skills development.
Case Studies: Pilot Programs in Wisconsin
Several pilot programs in Wisconsin have further explored the potential benefits and drawbacks of GBI. In Madison, a program launched in 2022 provided $500 monthly payments for one year to 155 households. Early data from the program showed that participants worked fewer hours, similar to the results found in the ORUS study.
Similarly, Milwaukee’s Bridge Project targeted low-income expectant mothers, and preliminary data indicated a reduction in employment incentives among recipients. These findings have raised concerns about the long-term sustainability of GBI programs, especially when considering the reliance on public funding.
Financial Implications of Guaranteed Basic Income
One of the key criticisms of GBI is the financial burden it imposes on governments. For example, providing $1,000 per month to every adult American would cost approximately $2.8 trillion annually, which exceeds the combined budgets of Social Security and Medicare. Even a more targeted approach—providing $1,000 per month to 50 million low-income Americans—would still cost around $600 billion annually.
These financial demands pose significant challenges to the feasibility of a national GBI program. The cost could require substantial tax increases or the reallocation of funds from other critical programs, which could adversely affect the broader population.
Income Cliffs and Dependence on Welfare
Another issue with GBI is the creation of an “income cliff,” where recipients lose eligibility for other forms of government assistance as their earnings increase. This can create a situation where individuals are financially worse off if they attempt to improve their income, disincentivizing them from pursuing opportunities for financial growth.
The ORUS study demonstrated that recipients were less motivated to seek work, leading to reduced earnings and long-term reliance on welfare. This creates a cycle of dependency, making it difficult for individuals to transition to self-sufficiency.
Social Perceptions and Attitudes Toward Work
The social impact of GBI programs is another factor to consider. Unconditional cash transfers could erode the societal expectation that government assistance is tied to employment efforts and self-improvement. If GBI becomes widespread, it could reduce the societal pressure to work, leading to lower productivity and increased welfare dependence.
This shift in societal attitudes was evident in Wisconsin’s 2023 advisory question, where nearly 80% of voters believed that able-bodied, childless adults should be required to seek work in exchange for welfare benefits. This strong response reflects a public preference for welfare programs that encourage work and self-sufficiency.
Main Issues with Guaranteed Basic Income
- Reduced Employment Incentives: Studies like ORUS show that GBI recipients tend to reduce their working hours, resulting in lower household income.
- High Costs: The financial requirements of GBI are immense, placing significant strain on government budgets.
- Income Cliffs: GBI creates disincentives for recipients to earn more, resulting in prolonged dependency on welfare.
- Negative Societal Impacts: GBI may reduce the societal pressure to work and lead to long-term economic stagnation.
While Guaranteed Basic Income holds potential as a means of providing financial relief, the evidence from recent studies and pilot programs suggests that it may have negative consequences, such as reduced work incentives, dependency on welfare, and significant financial strain. To effectively combat poverty, it may be more practical to consider alternative approaches that incentivize work, skills development, and financial independence, ultimately helping individuals achieve long-term self-sufficiency.
