What’s the impact on employment of giving a large amount of cash to people unconditionally? A new study by Eva Vivalt, Elizabeth Rhodes, Alexander W. Bartik, David E. Broockman, and Sarah Miller looks at this question. The motivation behind the work includes:
Much less is known about the impact of unearned income on other significant aspects of the labor market, such as job search, quality of employment, entrepreneurial activities, barriers to employment and disability, human capital formation, and labor market mobility. We also have limited understanding of how income affects other uses of a recipient’s time, or how recipients might trade off work and competing priorities such as home production, caregiving, leisure, and self care when more resources are readily available. These outcomes, which are difficult to measure using the administrative and survey data sets employed in existing research, can be important in predicting the long-run impacts of cash transfers, as well as being valuable to understand in their own right.
Their finding is that guaranteed income can lead to a reduction in labor-force participation and fewer labor hours for beneficiaries.
Here is the abstract of the report:
We study the causal impacts of income on a rich array of employment outcomes, leveraging an experiment in which 1,000 low-income individuals were randomized into receiving $1,000 per month unconditionally for three years, with a control group of 2,000 participants receiving $50/ month. We gather detailed survey data, administrative records, and data from a custom mobile phone app. The transfer caused total individual income to fall by about $1,500/year relative to the control group, excluding the transfers. The program resulted in a 2.0 percentage point decrease in labor market participation for participants and a 1.3-1.4 hour per week reduction in labor hours, with participants’ partners reducing their hours worked by a comparable amount. The transfer generated the largest increases in time spent on leisure, as well as smaller increases in time spent in other activities such as transportation and finances. Despite asking detailed questions about amenities, we find no impact on quality of employment, and our confidence intervals can rule out even small improvements. We observe no significant effects on investments in human capital, though younger participants may pursue more formal education. Overall, our results suggest a moderate labor supply effect that does not appear offset by other productive activities.
Here is the link.
The experiment takes place over three years. The income from the guaranteed income wasn’t taxed, and the beneficiaries didn’t lose any of their other benefits. The benefits represented an almost 40 percent increase in income (the average household was making $30,000, and the benefit was $11,400). The first effect is, of course, that people had more income. But the increase was less than the total redistribution amount due to the reduction in work. Also, it doesn’t seem that the beneficiaries used this guaranteed income to get better jobs. The beneficiaries did consume more leisure activities and considered more education (though this result doesn’t last).
Does it tell us something about those plans that would effectively give unconditional cash to people on top of benefits that they already receive? I think it may.
The summary of the paper tries to put an optimistic framing on the results, so it is better to read the paper.