Guaranteed paycheck: Does a 'basic income' encourage laziness?

Government programs promising a no-strings-attached monthly paycheck will lead to a lazy population, say some. But initial results from similar "cash transfer" programs in developing countries challenge the conventional wisdom. 

What would you do with a modest paycheck that showed up monthly, regardless of employment: Retire early? Change careers? Open that business you’ve always dreamed about?

This question lies at the heart of the growingly popular but contentious topic of Universal Basic Income (UBI), which proposes replacing often inefficient social welfare programs with a guaranteed paycheck for all, enough to afford at least the basic needs of food, shelter, and clothing. It's a counter-intuitive income model that challenges assumptions about effective compassion and induced laziness, but amid fears of an automated future, more economists are starting to take a hard look.

In a Reddit Ask Me Anything interview Monday, philanthropist and entrepreneur Bill Gates had the following to say on the matter:

Over time countries will be rich enough to do this. However we still have a lot of work that should be done - helping older people, helping kids with special needs, having more adults helping in education. Even the US isn't rich enough to allow people not to work. Someday we will be but until then things like the Earned Income Tax Credit will help increase the demand for labor.

Explicit in his answer is one of the widely accepted arguments against UBI: that many people, if given a no-strings-attached paycheck, will choose not to work. 

This summer, Switzerland overwhelmingly rejected a UBI referendum, with almost 80 percent voting against it. “If you pay people to do nothing, they will do nothing,” Charles Wyplosz, an economics professor at the Geneva Graduate Institute, told AFP.

But is that necessarily the case? Some economists say a mounting body of evidence regarding a poverty-fighting tool called “cash transfers” may suggest otherwise.

Cash transfers are just what they sound like: a gift of capital, often from an NGO to members of a population living in poverty. Narrow in scope, they generally target groups of a few hundred to a thousand individuals with sums that fall between a few hundred and a few thousand dollars. Some are one-time lump sums, and others recur monthly for a time. 

Proponents argue that cash transfers are effective for precisely the same reasons cash birthday gifts can be disappointing: they require almost no effort and often end up getting used on what the recipient needs, rather than what they desire. In these respects cash transfers resemble UBI with its flexibility and low overhead costs, although much more focused on helping people escape from poverty, rather than, say, surviving automation.

“We were really struck by the way the conversation on universal basic income comes from two totally disparate ends of spectrum,” Paul Niehaus, a co-founder of experimental cash transfer nonprofit GiveDirectly, told global development website Devex. “On one end, you have people from wealthy countries worrying about what is going to happen to people and their jobs because of automation. On the other end, you have people who are thinking about alleviating poverty and whether this very direct approach might be the right one.”

The GiveDirectly project, which started in October 2016, aims to give all 95 adults in a rural Kenyan village $22 dollars a month for the next 12 years. Many of the villagers were living on less than 75 cents a day, so in effect this is a proximation of a UBI.

Early evidence from a phone survey hints that rather than taking the windfall and relaxing, many participants use the funds to invest in business equipment, education, or food for their families.

“I feel I need to work harder and engage in other income-generating activities to get more money,” said one 70-year-old recipient.

GiveDirectly is just getting started, so its evidence is largely anecdotal, but a number of studies suggest that even one-time cash transfers can be effective in helping people escape poverty.

The Association of Volunteers in International Service (AVSI) Foundation gave a one-time transfer of $150, accompanied by four days of business skills training, to 15 of the poorest women in 120 Ugandan villages. Half of the 1,800 women received the cash transfer and training a year-and-a-half after the others. Comparing the group that received the money early with the one that received it later, research and poverty organization Innovations for Poverty Action (IPA) concluded that the program had a “transformative” economic effect, with monthly income almost doubling, consumption increasing by a third, and savings tripling.

Another study in Uganda, the Youth Opportunities Program, gave one-time grants averaging $382 per member to group proposals for vocational training programs and materials needed to practice a trade. Four years later, IPA found that participants were earning 41 percent more than a randomized control group, a figure that rose to 84 percent for women.

While both programs feature an element of training, the researchers stress the role personal choice plays in such cash transfers. Simply put, the best judge of what a person needs is that person themselves.

“You have to ask yourself: who is going to make a better decision about a business: the person on the ground who has to live with the consequences, or the white person in the local capital who designed the program having never farmed a day in their life?” University of Chicago economist Christopher Blattman, a researcher who was involved with both Ugandan projects, writes in an email to The Christian Science Monitor.

The “teach a man to fish” conventional wisdom is powerful, but it turns out that people are pretty good at teaching themselves to fish, if they want to be fishermen at all.

“There’s lots of evidence that job training does nothing, and it’s hard to do,” MIT economist Abhijit Banerjee tells the Monitor in a phone interview. “The more successful ones give people money to find training that fits them.”

A number of studies contribute to a growing recognition that recipients of cash transfers can generally be trusted not to frivolously fritter it away on destructive vices. A survey of 19 international cash transfer projects found that in almost all cases spending on alcohol and tobacco stayed basically flat, or even fell.

Such interventions are gaining popularity over what’s known as “in kind transfers,” where participants receive goods such as food or livestock. Mr. Gates, for example, is a big fan of living and reproducing capital, in the form of chickens, and has partnered with livestock charity Heifer International to donate more than 100,000 birds.

Despite the inherent attraction in donating concrete goods with a clear, constructive purpose, experts say that chickens aren't a clear-cut winner over cash. “Dollar for dollar, it’s not clear which will work better,” says Dr. Banerjee. “I don’t see a big advantage to giving physical cows.”

Compared to money, livestock is bigger and harder to transport. It can also be riskier. Banerjee recalls a program in Honduras where all the chickens died from chicken flu, for example. 

Other aid experts say that livestock are more useful to the young and able-bodied who live in rural areas, but neglect city dwellers and those who may be less fit.

According to Dr. Blattman, the choosing chickens over cash promotes “a false dichotomy. If you really wanted the cash you could sell the chickens. They’re the most liquid asset you can give a poor person. So if someone wants to be irresponsible they can be.”

“The short answer”, he says, “is that chicken supporters forget that poor people are reasonably savvy and can make their own decisions. And will.”

But despite the promising signs some see in such pilot programs, Blattman is the among first to warn against over-interpreting results from cash transfers, which target only the poorest and most vulnerable populations, to Universal Basic Income, which would likely be given indiscriminately to an entire population, including the middle class and the rich. 

“UBI is different because it goes to all (not just those with the potential or incentives to invest) and it is infinitely more expensive. It has a much harder cost-benefit test to pass than business start-up grants to the poor,” he says.

He explained the situations where cash transfers are most effective in a blog post: “If a poor person is enterprising, and their main problem is insufficient capital, terrific. If that’s not their problem, throwing cash will not do much to help.”

While the positive effect of cash transfers on the poor is growing clearer with each study, others worry about the effects it could have on society if scaled up to everyone. "Stripped of its essential role as the way to earn a living, work would instead be an activity one engaged in by choice, for enjoyment, or to afford nicer things," argued The National Review.

But some experts point out that the super-rich tend to retire later than those in the middle class, even though they have the option of stopping work earlier. Others take their fortunes and engage in work they find personally meaningful, such as Bill and Melinda Gates’s fight against poverty and childhood illness, among other causes. 

Nevertheless, everyone agrees that more data is needed.

GiveDirectly, which hopes its program in Kenya will serve as a direct test of UBI, admits that it’s hard to generalize from what we already know about cash transfers. “We have tons of evidence on the impact of cash transfers, but little to no evidence informing this conversation on universal basic income,” Dr. Niehaus told Devex.

When asked what he would do if he were in charge, Blattman has a simple answer. “I would spend a few million dollars and figure out the right answer before pretending I knew what to scale up.”

With experiments currently underway in Finland, and a handful of other locations, a clearer picture of the relationship between basic income and work may already be on the way.