[Public Policy] Understanding the Finnish basic income experiment

Universal basic income

The concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes has been a part of academic discussion and  deliberation for quite a long time. However  its feasibility analysis by the Economic Survey 2016-17 and recent endorsement of a minimum income guarantee for every poor person in India by Rahul Gandhi, has brought UBI to the limelight of popular political economy.

The core idea of Universal basic income is that every person, just by virtue of being a citizen and without any other precondition should be entitled to a basic income to cover his/her needs. Thus UBI is based on three principle components – Universality, Unconditionality and Agency, i.e. respecting the poor persons’ decision making ability. Though one can argue UBI’s necessity based on social justice, poverty reduction and employment ; without any empirical evidence it is too large and ambitious target to achieve. In this regard the  Finnish basic income experiment (2017-18) provides an important initial thrust to analyze the idea of basic income at a practical level, so as to learn and reshape it to suit the Indian context.

Through this experiment, the Finnish Government wished to find out whether a social security model based on a basic income could promote more active labour participation and provide a stronger incentive to work than the existing system. Prior to the start of the experiment a thorough evaluation was done on the suitability of various universal basic income models, namely an unconditional full basic income, a partial basic income, and a negative income tax etc. Eventually the partial basic income model was chosen, under which 2,000 people randomly selected from a pool of 175,000 unemployed Finns, aged 25 to 58 were provided 560 euros per month.  The experiment designed and administered by the Social Insurance Institution of Finland (Kela), costed the Finnish government about $22.7 million.

The Huffpost while interviewing one of such Finnish beneficiaries Tuomas Muraja, found out that:

Since losing his staff job as a journalist in 2013, Muraja has struggled to find permanent work. Every month he was trying to scramble together money for his rent of about $2,270 from freelance writing gigs, which came sporadically and often paid late. The government’s basic income scheme gave him freedom. He could keep the cash, even if he found work, and he wouldn’t have to contend with the constrictive bureaucracy of Finland’s complex welfare system.

“When you feel free you are creative, and when you are creative you are productive, and that helps the whole of society,” said Muraja, who has written a book about his experiences with the trial.

The Social Insurance Institution of Finland (Kela) in its report on the preliminary results have stated that in 2017 the employment aspects showed no significant effect. However the real benefits and outcomes of the test so far have been seen in terms of improved health and well being of the beneficiaries.

On the basis of the register data analysis, there is no statistically significant difference between the groups as regards employment. However, the survey results showed significant differences between the groups for different aspects of well being. The results are in no way contradictory. Even if the basic income had no effect on employment status one way or the other, it may still have significant effects on well being.

According to the report, the recipients were no better or worse at finding employment during the first year of the experiment and there are no statistically significant differences in this regard compared to national figures. However among the basic income recipients, 56% thought they would find employment within the next year if they were unemployed or were to become unemployed. This  meant that the basic income recipients had developed a stronger confidence in their chances of finding employment due to the assurance of a fixed source of basic income. Thus proving an important argument in favour of UBI i.e. a person with this newly gained confidence would be able to bargain in the labour market and no longer be forced to accept any working conditions. This would reduce the workers’ exploitation.

The basic income beneficiaries showed clearly better performance with respect to health and well being. Those who received the income benefits experienced significantly fewer problems related to health, stress and ability to concentrate. They were considerably more confident in their own future and their ability to influence societal issues. The circumstances that keep individuals trapped in poverty are varied but a stable mental and physical health can prove to be a large improvement towards human development.

As part of the test, recipients were also asked about their support for basic income. They were asked whether a basic income should be introduced as a part of the social security system in Finland. A clear majority of the respondents agreed with the statement that with a basic income it would make more sense financially to accept a job offer. 72% of the basic income recipients considered that a basic income would make it easier to start one’s own business. 85 % agreed that a basic income should be introduced as a permanent part of the social security system. This evidently clears our apprehensions and misconceptions that UBI reduces the incentive to work. Infact a basic income can be an impetus to start one’s own business.

The results presented in the report are preliminary and hence it won’t be prudent to draw any firm conclusions about the effects of universal basic income. However this experiment by the Finnish government is a push for further deliberation on the policy aspects of UBI both at national and global level. If implemented diligently, universal basic income can be a game changer in India’s social welfare programme and fight against poverty. Implementation of UBI however will require a strong JAM (Jan Dhan, Aadhar and Mobile) system and a clear measure of the fiscal costs associated with it. Despite its challenges Economic Survey concludes that UBI is a powerful idea whose time, even if not ripe for implementation, is ripe for serious discussion.




The Social Insurance Institution of Finland (Kela)

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