According to The World Bank, more than 9% of the world’s population — roughly 689 billion people — lives in extreme poverty. That means much more than just earning less than Americans would consider a living wage.
These hundreds of millions of people live on less than $1.90 per day. More than 2 out of 5 people worldwide live on less than $5.50 per day — below one-sixth of the U.S. poverty line.
There have been all kinds of proposals to deal with the problem of global poverty. The World Bank has a program that focuses on creating jobs in developing countries. Other charitable organizations aim to help people through food aid or education.
But lately, more and more people are looking at a much simpler approach: Just give people money.
This idea — simply making cash payments to everyone — is called universal basic income. And for such a simple idea, it shows a surprising amount of promise.
What Is Universal Basic Income?
In a nutshell, universal basic income (UBI) is any payment made to every person in a particular group — for example, every adult in a city — without any other requirements attached. But within this definition, there’s room for many different variations.
For example, universal basic income can pay a fixed amount to every individual or every household. The payments can be monthly or yearly. And perhaps most significantly, UBI can be an add-on to existing government benefits, such as Social Security in the United States, or a replacement for them. These details make a vast difference in both the cost and impact of a UBI program.
Many news stories about UBI compare it to another type of national income program called negative income tax (NIT). NIT works like income tax in reverse. If your income is below a certain level, you receive money on Tax Day instead of paying it.
Economist Milton Friedman proposed this idea in his 1962 book “Capitalism and Freedom” as a way to provide a guaranteed minimum income for all Americans. The rule for Friedman’s NIT plan was simple: The less money you earned, the more you would get from NIT. People with no income at all would receive the maximum benefit.
The primary argument in favor of both UBI and NIT is the same. They’re an effective and efficient way to fight poverty and improve people’s lives. The crucial difference between the two plans is who benefits from them.
UBI makes equal payments to everyone regardless of income. But NIT only gives those with the lowest incomes enough extra money to survive.
Purposes of Universal Basic Income
The most obvious purpose of universal basic income is to lift people out of poverty. However, proponents of UBI point to other benefits as well.
They argue that providing a minimum guaranteed income would help reduce income inequality and all the social problems that go with it. And it provides a social safety net for workers at risk of losing their jobs due to issues like increasing automation.
Providing a guaranteed income isn’t the only way to reduce poverty. However, it’s probably the simplest.
In the United States, the government currently funds dozens of different welfare programs, such as subsidized housing, home heating aid, and Supplemental Nutrition Assistance Program (commonly called SNAP, which is a replacement for food stamps).
With a UBI or NIT program, the government could simply send one check to each person and let them spend the money on whatever they needed.
Helping people this way has benefits for both people and governments. In a 1968 TV interview about his NIT plan, Friedman pointed out that people must fight their way through layers and layers of bureaucracy to file for different types of benefits under the current system.
That creates a lot of work for them and a lot of expense for the government. Universal basic income, which automatically goes to everyone, would require much less red tape.
Another advantage of UBI is that it reduces social stigma. In wealthy countries, many people scorn those who receive government benefits as “freeloaders.” This public shaming can be so severe as to prevent people from applying for the benefits they need.
With UBI, everyone within a given population gets the same benefit, so no one needs to feel shame for taking it.
Income inequality is a problem of its own, separate from poverty. Numerous studies by happiness economists (summarized in a 2012 review by the New Economics Foundation) show that people tend to be unhappier in countries where the distribution of wealth is less equal.
And while inequality leads to unhappiness mainly for the poor, it doesn’t improve happiness for the rich. For instance, a 2012 paper published in the American Economic Review shows that telling people their salary is below average makes them less happy, but telling them it’s above average doesn’t make them happier.
Universal basic income can soften the extremes of income inequality in two ways. First, UBI sets an income floor — a minimum level no one can fall below. And when UBI programs are funded by taxes on the highest earners, they also slightly reduce extremes of wealth at the top end of the scale.
Most proposed UBI programs would make only a tiny difference for the rich, but they could be life-changing for the poor.
In the U.S., many people are talking about universal basic income as a way to support workers who could lose their jobs to automation. Business leaders like Elon Musk and Andrew Yang have predicted that new technologies will put millions of people out of work. They argue that UBI is the best way to support these workers, at least until they’re able to find jobs in the new economy.
But automation isn’t the only force that can cost people their jobs. Workers can also lose jobs due to offshoring, in which companies move operations overseas to take advantage of cheaper labor there. They can suffer when businesses shut down due to a major disaster like the COVID-19 pandemic of 2020 and 2021. Or they can simply lose jobs in a garden-variety recession.
The social safety net provided by UBI can help all these displaced workers. It can also offer options for people stuck at jobs they hate solely because they need the money.
With UBI to fall back on, these people could take a chance on changing careers, going back to school, or even starting their own businesses. And if some of those businesses thrive, that could benefit the economy as a whole.
The Surprising History of Universal Basic Income
The first recorded attempt at any form of UBI or NIT began in the English village of Speenhamland in 1795. Soaring grain prices were driving poverty up in England at the time, and the parish authorities responsible for providing aid to the poor were swamped.
So local authorities took a new approach: They paid every man in the town enough money each week to bring his income up to a subsistence level. The amount depended on the number of people in his family and the current price of bread. This program, known as the Speenhamland system or the Berkshire Bread Act, soon spread throughout most of England and Wales.
Although it succeeded in feeding the poor, policy wonks criticized it harshly. Economist Thomas Malthus argued in a 1798 essay that the soaring population in rural areas indicated the system encouraged couples to have children before they earned enough to support them.
Economist David Ricardo argued in 1817 that the system would discourage work, causing food production to fall and making poverty even worse. And an 1834 commission argued that the system kept people in poverty by allowing employers to pay their workers less than a living wage, knowing that the parish would make up the difference.
These criticisms influenced later UBI and NIT proposals in the 20th century. For instance, when President Richard Nixon proposed a Family Assistance Plan in 1969 to create “a floor under incomes” for low-income families, he made a point of including a work requirement so no one could claim the plan encouraged idleness. His plan eventually became the basis of the modern earned income tax credit.
Nixon also began a series of experiments in different communities across the country to test the effects of NIT on the population. Around the same time, the Canadian government was also conducting experiments with a program called Mincome.
In the small town of Dauphin, Manitoba, poor residents received the equivalent of about $15,000 in today’s U.S. dollars for a family of four. This payment took the place of all other welfare benefits.
Unfortunately, the earliest analyses of U.S. NIT experiments didn’t look promising, and the Mincome experiment petered out before anyone had a chance to write a final report. However, more recent analyses of these trials suggest they had mostly positive results.
In a 1987 summary of the U.S. experiments, Alicia Munnell of the Federal Reserve Bank of Boston found that participants reduced their work hours only slightly. They did not spend significantly more on luxury goods, and they kept their kids in school longer.
Likewise, in 2011, economist Evelyn Forget published a paper on Mincome in the journal Canadian Public Policy that described the program as a success. Forget concluded that in Dauphin, residents’ health improved and kids stayed in school longer. Meanwhile, employment remained mostly unchanged.
How UBI is Changing Lives in the Modern World
In the 21st century, the concept of universal basic income has begun to attract more widespread interest. New basic income experiments are completed or in progress all over the world. And already, they’ve produced some eye-opening data about the power of UBI.
From 2011 through 2013, the nonprofit GiveDirectly ran a trial of cash payouts in rural Kenya. It tested both lump-sum and monthly payments of different sizes.
People who received either type of payment accumulated more assets, earned more money from other sources, and had better mental health than those who didn’t. Domestic violence decreased.
Those who received lump sums invested in assets, such as livestock and better roofs. Those who got monthly payments invested in nutrition. And a follow-up study found that the recipients were still financially better off more than two years later.
The same organization is now running a longer-term UBI trial, started in 2016 and set to continue until 2028. This time, 20,000 recipients across 197 villages are receiving the equivalent of $22 per month.
That’s not a large amount of money, yet it can make an enormous difference in a developing country. According to The New Yorker, these payments have already transformed at least one village, bringing better roads, improved sanitation, electricity, and new businesses.
From 2012 through 2013, the organization SEWA Bharat conducted a study of basic income in the Indian state of Madhya Pradesh. Researchers gave residents of one village a basic income for one year, then compared them with residents of a neighboring village who got nothing.
They found that the villagers who received a basic income used the money to invest in new livestock and home upgrades, such as modern toilets, running water, and cleaner cooking fuels that produce less indoor air pollution.
They worked more, earned more, saved more money, ate better, drank less alcohol, and improved their overall health. And their children — especially girls — were more likely to stay in school.
Many of these positive effects lasted five years after the cash transfers ended.
From 2017 through 2018, the government of Finland gave 2,000 randomly selected unemployed people a monthly stipend of 560 euros (about US$638). They could collect this money even if they later found a job. The government then compared these people to a control group of 5,000 unemployed people who did not receive a stipend.
The results of this study show that the basic income program had only a slight positive effect on employment. However, it had a significant impact on well-being. Compared with the control group, members of the test group had better health, less stress, and more confidence in their future.
The government of Ontario, Canada, conducted a trial of basic income around the same time as Finland.
More than 4,000 randomly selected low-income people in three Ontario communities received tax credits of up to CA$16,989 per year (about US$13,350) for a single person. Couples received up to CA$24,027 per year (about US$18,900). This benefit dropped by $0.50 for every dollar they earned.
The test was supposed to run for three years, but the government cut it short after two years due to its high cost. However, a 2020 report on the trial by researchers at McMaster and Ryerson Universities found that the money improved recipients’ lives in numerous ways.
Their finances, food security, housing stability, and physical and mental health all improved. Most of those who were working before the program started continued to work, and many found more secure and higher-paying jobs.
Another experiment with giving people free money took place in Vancouver in 2018. A group called Foundations for Social Change selected around 50 newly homeless people to receive a one-time payment of CA$7,500 (about US$5,800).
Then it conducted follow-up surveys every few months to see how the money had changed their lives. It compared them to another group of a similar size that had not received a cash payment.
The people who received money did not spend it all at once. Instead, they spent it over time, primarily on necessities like housing, food, transportation, and utilities. Contrary to a common assumption, their spending on alcohol, drugs, and cigarettes dropped by 39%. They improved their food security and moved into stable housing faster.
Foundations for Social Change found that the project had saved the city shelter system $8,100 per person — about $600 more than the initial payment — just in the first year.
Across the U.S., numerous UBI trials are in the works, in progress, or just wrapping up. In March 2021, USA Today reported that six city governments — including St. Paul, Minnesota; Richmond, Virginia; and Compton, California — had UBI programs in place.
Another eight cities had programs scheduled to start in 2021, and 25 more were actively considering them. Some of the programs have private funding, while others use a mix of private and public funds.
One recently completed UBI trial took place in Stockton, California. In 2019, the city launched a program called the Stockton Economic Empowerment Demonstration, or SEED. It provided 125 randomly selected residents in low-income neighborhoods with a guaranteed income of $500 per month, raised from private donations, for 24 months.
The preliminary findings from the trial, released in March 2021, show it had tremendous benefits for participants. The cash payments smoothed out fluctuations in their monthly income and relieved financial scarcity. Participants were most likely to spend the extra cash on groceries, utilities, and transportation, with less than 1% of the payments going to alcohol or tobacco purchases. They saw significant gains in employment and in overall health.
On SEED’s community dashboard, recipients talk about how the money has affected their lives. Participants say they have paid off credit card debt, paid overdue utility bills, bought shoes for their kids, and had dental work done. Recipients also report lowered financial anxiety and better mental health overall.
One other UBI trial is taking place without any government involvement. In Oakland, California, tech firm Open Research is conducting a universal basic income test involving 1,000 randomly selected people with below-average incomes across two states. These individuals will each receive $1,000 per month for three years. Another 2,000 people will not receive money and will serve as a control group.
The firm plans to conduct regular surveys of both groups. Questions will involve finances, behavior, mental and physical health, and time use. Open Research hopes to learn how a guaranteed income affects risk-taking behaviors, crime, children’s development, social engagement, and long-term financial stability.
In 2007, the groups AVIS Uganda and Innovations for Poverty Action gave 1,800 poor Ugandan women cash grants of $150 each along with business skills training. Some of them also received training in forming self-help groups for ongoing support.
The women who received income without group training increased their earnings by 67% within a year. Those who also received group training increased their earnings by 150%.
In another part of the country, one-time donations of about $382 to young people resulted in more job training, investment in capital, and significant earnings increases. Among male recipients, these gains were temporary. However, among women, they were long-lasting.
In the wake of these successful UBI experiments worldwide, the concept is gaining some ground in the United States. According to CNBC, Google searches on the topic increased 50-fold between 2015 and 2019.
Politicians like Bernie Sanders and Alexandria Ocasio-Cortez have expressed support for the idea. During his 2020 presidential campaign, Yang offered a specific proposal for a $1,000-per month “Freedom Dividend.”
However, others disagree about the pros and cons of universal basic income. Some suggest that giving people free money discourages productive work and lowers their sense of self-worth. Others say it’s a waste to give money to both poor people and rich people who don’t really need it. And some say it’s a nice idea in theory, but it’s far too expensive to be practical.
It’s still unclear whether UBI could work in the U.S. Any program to give Americans a guaranteed income would undoubtedly face numerous hurdles, both practical and political. However, given the successes UBI has had in the past and in modern experiments, it’s certainly worth having a debate about.