This post originally appeared at https://www.badgerinstitute.org/the-harm-of-guaranteed-basic-income/

Unconditional cash did nothing to raise recipients out of poverty; Madison and Milwaukee have dabbled with idea

Results from the nation’s most comprehensive experiment in offering people a guaranteed basic income offer a warning to those places — including some Wisconsin cities — dabbling with the idea: Unconditional cash payments did nothing to permanently lift participants out of poverty and dependency.

A three-year study of 3,000 people in Illinois and Texas found that those paid a guaranteed income atop any other public benefits worked less, were less likely to work at all, and their households’ income fell relative to those not receiving unconditional cash payments.

The findings suggest that rather than enabling people to overcome financial barriers and find better work, unconditional cash payments detach them from work making it less likely that they will achieve self-sufficiency, potentially harming their longer-term economic well-being, and raising the cost of social welfare programs.

Guaranteed income programs, sometimes called “universal basic income” (UBI), are a type of social welfare in which beneficiaries receive cash not conditional on work or training. Interest has risen in recent years. Pilot programs have been tried in Madison and Milwaukee, among other places.

Advocates argue that cash payments can allow recipients to engage in longer searches for better jobs or to pursue education or entrepreneurial opportunities.

Critics argue payments diminish the incentive for recipients to find work or do things that allow them to eventually escape poverty. As income rises, the marginal benefit of an additional dollar falls. Recipients of unconditional payments thus may choose to work less and spend more time on leisure.

Findings from the two Wisconsin pilots have yet to be released.

But results from the OpenResearch Unconditional Cash Study, or ORUS,  published in a series of academic papers by the National Bureau of Economic Research this past summer, do not match advocates’ hopes.

Guaranteed income programs in Wisconsin

Several Wisconsin cities considered using COVID and taxpayer funds to launch guaranteed income pilot programs. Two did it.

Madison’s guaranteed income pilot began in September 2022. It provided $500 a month for one year to 155 households that were earning less than 200% of the poverty level. Another 200 households — applicants not selected for payments — served as a control group. The program was funded privately by the Madison Forward Fund. Researchers at UW-Madison and the University of Pennsylvania oversaw it. The program ended in August 2023.

Milwaukee’s pilot began in 2024. The Bridge Project has 100 participants. Eligibility is limited to expectant mothers in certain low-income Milwaukee ZIP codes. The program began as a two-year pilot with a $1.8 million grant from the Zilber Family Foundation and the New York-based Monarch Foundation. It was extended another year when the City of Milwaukee allocated $350,000 of American Rescue Plan Act (ARPA) pandemic relief funds.

The city funding was approved by the Milwaukee Common Council in October over the objection of Mayor Cavalier Johnson, who said funding “unconditional cash transfers is not sustainable” by the city. He wanted funding limited to private sources.

What did the ORUS study find?

The ORUS is the most scientific study of the response of lower-income individuals to unconditional cash payments ever undertaken. It was privately financed by OpenAI founder and CEO Sam Altman. Altogether, participants in the study received $45 million.

Each of the 3,000 participants was between 21 and 40 years old and had an income below 300 percent of the federal poverty level.

Participants were randomly assigned to one of two groups: 1,000 recipients each received a monthly check of $1,000, while a 2,000-person control group received $50 a month to encourage continued participation. The design allowed researchers to measure differences in participants’ choices through detailed time diaries and lengthy surveys concerning their finances and daily activities.

Researchers went to great lengths to ensure that the $1,000 cash payments did not result in the loss of benefits from other programs. Special legislation in Illinois, for example, protected the government benefits of those in the treatment group.

The study’s three-year period contrasted with most other pilots’ shorter length.  Some adaptations to changing economic circumstances occur gradually, and initial changes in behavior may not last. The three-year window allowed researchers to see whether participants’ work-leisure trade-off changed over time and whether recipients were left in a better position to exit poverty.

They weren’t. While working hours and employment rates for both groups were similar at the start of the study, by year three recipients were 2 percentage points less likely to be employed. They worked about 1.3 fewer hours a week — about 4% to 5% less — than those in the control group by the end of the study.

Others living in the same household as recipients also reduced the amount of time that they spent working.

Earnings and outside income (excluding the $1,000 monthly payments) of recipients fell relative to the control group. By the end of the study, the earned income of recipients was roughly $1,500 a year less than the control group. Other individuals in their households also earned less: By the end of the study, the household income of recipients was $2,500 a year less than the control group.

The study examined the jobs held by participants, including compensation, flexibility, stress levels and self-satisfaction, as well as studying investments by participants in education and training (such as obtaining a GED). Again, the results were negative. As the authors put it, “We do not find evidence of the type of job quality or human capital improvements that advocates had hoped might accompany the provision of greater resources.”

Researchers found that recipients spent the time they gained from not working on leisure. There was no increase in the amount of time recipients spent on activities that could benefit others, such as childcare, care for others, or community engagement, or that could benefit themselves over the longer run, such as job searches, exercise or other forms of self-improvement.

“Our results demonstrate that monthly cash transfers have a moderate effect” on reducing work, and the reduction “is not fully offset by substitutions towards other productive activities,” the research team summarized, adding, “We also do not find support for other hypothesized benefits to long-run employment, like an improved quality of job fit.” They conceded that it’s possible some participants “are making investments with payoffs that will take longer to observe.”

Additional issues with guaranteed income programs

Pilot programs like those in Madison, Milwaukee and the ORUS are useful in understanding how individuals respond to unconditional cash payments. However, they’re not “universal” as envisioned by advocates of universal basic income programs.

A true UBI would provide unconditional cash payments to a wide segment of the population. That would be extremely expensive.

In 2019, then-presidential candidate Andrew Yang proposed a Freedom Dividend program in which the federal government would provide $1,000 a month or $12,000 a year to every American 18 or older. The Tax Foundation estimated that would cost approximately $2.8 trillion a year, more than the combined budgets of the Social Security and Medicare programs at that time.

Even a more limited program would be extremely costly. The Census Bureau estimates that there are 50 million Americans 18 to 64 years old whose income is at or below 200 percent of the federal poverty level. Providing each with $1,000 a month would cost $600 billion a year.

If eligibility is limited on the basis of income, unconditional cash grants would result in the same type of income cliff as other social welfare programs. The prospect of losing eligibility as income from work rises would disincentivize participants from spending more time and effort trying to earn more or get ahead.

Pilot programs may also understate the negative labor supply effects from a true UBI program.

Guaranteed income pilot programs in the United States are undertaken in a broader society in which others receiving government-funded benefits are subject to pro-work incentives and requirements. The widespread disbursement of cash without work or training requirements may lessen the social stigma of freeloading. If so, the actual labor supply response to unconditional cash benefits would be much more negative than seen in the ORUS study.

Wisconsin voters signaled their disapproval for such programs in an advisory question on the spring 2023 ballot. Asked whether “able-bodied, childless adults” should be “required to look for work in order to receive taxpayer-funded welfare benefits,” 79.6% of Wisconsin voters agreed. A majority of voters in every Wisconsin county, including Dane and Milwaukee, favored such a requirement.

In late 2023, AB 146, a bill that would prohibit local governments from using taxpayer funds to finance guaranteed income programs, passed both houses of the Wisconsin Legislature. The bill was vetoed by Gov. Tony Evers, and Republicans were unable to override the veto.

Findings from the ORUS study are available on the OpenResearch website at https://www.openresearchlab.org/studies/unconditional-cash-study/study.

James Bohn is an economist with over 30 years of experience in government, business and academics. Most recently, he served as an assistant vice president and senior professional with the Federal Reserve Bank of Boston. Bohn holds a doctorate in business economics from Harvard University and is a CFA charterholder. He resides in the Milwaukee area.

Any use or reproduction of Badger Institute articles or photographs requires prior written permission. To request permission to post articles on a website or print copies for distribution, contact Badger Institute President Mike Nichols at mike@badgerinstitute.org or 262-389-8239.

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