Over at AEI, Kevin Corinth comments on the new UBI study I mentioned on Monday. He summarizes the main result:
In a carefully conducted randomized controlled trial involving 3,000 participants, the authors find that giving low-income families $12,000 annually reduced the share who work by two percentage points.
He then reminds us that it isn’t a new finding:
The new study is the latest in a line of recent research finding significant employment loss from giving people cash. Earlier this year, a study published in the Quarterly Journal of Economics found that lottery winners in the United States reduced their earnings by $0.50 for every dollar of lottery winnings. A different working paper exploits the fact that in 2021, families with young children received more money from the Child Tax Credit than families with older children, and found that higher payments reduced employment among the younger families who received higher payments.
The employment declines in these studies are important, despite the fact that they are based on short-term cash infusions that likely understate the effect of a permanent, nationwide policy. They suggest that a true Universal Basic Income (UBI), layered on top of existing benefits to low-income families, would reduce work effort. But they are only the tip of the iceberg when it comes to employment concerns.
But then he continues with a difficult reality for those thinking about the best way to help lower income families. On one hand, we know that unconditional cash (let’s say $12,000 a year) for every adult is terribly expensive ($3 trillion annually) and creates disincentive to work. On the other, phasing the benefits as families earn more creates even more disincentives to work:
An extensive academic literature shows that phasing out benefits does a lot more to reduce work than simply transferring the same amount of cash to everyone. The reason is that phasing out benefits imposes a penalty on working. Every dollar you earn causes you to lose some of the benefits you were previously receiving. So whatever employment loss the latest studies find from a pure cash transfer, the ultimate employment effect would be much larger for a realistic policy that phases out benefits for higher income families.
Herein lies the problem with recent policy efforts to adopt unconditional cash transfers.
He is right. The whole thing is here.