North American basic income pilots in the news

Large sidewalk mural reading, "What would you do if your income were taken care of?"

(Image source)

There were two interesting developments around universal basic income schemes in north America this week.  (I’ve previously covered some other stories in this space here.)  First, the government of Ontario confirmed that it plans to launch a UBI pilot project in early 2017.  Notably, the pilot was designed by a conservative political strategist, and follows on the earlier success of a social pension program for the elderly.

[Strategist Hugh] Segal’s interest in the idea was sparked in the mid-1970s. A series of news stories documenting high rates of seniors living in poverty in the province – including one report of some resorting to eating pet food to get protein in their diets – had ramped up pressure on lawmakers to address the issue. The response was a basic income policy for seniors in the province.

The policy sent poverty rates among seniors in Ontario downwards, from the low 30s to 5%, and sparked a slew of ripple effects. “Food security went up, longevity went up, independence of the healthcare system in terms of needing long-term care, all those indicators went up,” said Segal. The program soon spread across the country.

Second, Marginal Revolution pointed to a new paper by David Price and Jae Song evaluating the Seattle-Denver Income Maintenance Experiment (SIME / DIME), which gave several thousand US families up to $25,900 in annual grants over 3 – 5 years in the 1970s.  Because of some program rules involving taxation of outside income, the average increase in an individual’s income during the treatment period was about $2400 annually.  The authors used data from the Social Security Administration to track the earnings of the experiment participants over the next 40 years.  Their findings are somewhat counterintuitive:

We find that treatment caused adults to earn an average of $1,800 less per year after the experiment ended. Most of this effect on earned income is concentrated between ages 50 and 60, suggesting that it is related to retirement. Treated adults were also 6.3 percentage points more likely to apply for disability benefits, but were not significantly more likely to receive them, or to have died. These effects on parents, however, do not appear to be passed down to their children: children in treated families experienced no significant effects in any of the main variables studied.

They find that treated adults were slightly less likely to work whilst receiving the grants, but no less likely in the period immediately after the program ended.  There’s some circumstantial evidence that the reduced lifetime earnings might have been caused by earlier retirement, although it’s also possible that time out of the labor force during the SIME / DIME program years led to lower wages afterwards.

For me, the headline point about this experiment was that it actively discouraged work effort during the program period by taxing non-grant income at marginal rates of 50% – 80%.  This is a bad design choice if you care about continued engagement with the labor market, and it’s not clear to me why the program’s designers made it.  At any rate, this is very different to most modern proposals for a universal basic income, which are intentionally not conditioned on recipients’ employment status.  If the drop in lifetime earnings was driven by time out of the labor market during the SIME / DIME program period, it should be clear that these results aren’t generalizable to UBI proposals which are employment-agnostic.  Of course, if the program lowered lifetime earnings due to early retirement instead, the concerns raised here may still be relevant.  I’m hard pressed to understand how receiving receiving an extra $2400 for 3 – 5 years in the 1970s would affect one’s retirement decisions potentially decades later, however.


Cash transfer programs aren’t just for low income countries

Eduardo Porter had a fantastic article in the NYT last week about the myth that welfare programs make their recipients lazy and entitled.  He highlights recent research from a team of MIT and Harvard economists which finds that cash transfer programs in low income countries don’t discourage people from working, and connects this to other studies which find the same result for American welfare programs.  In particular, most of the ostensible success of the 1990s welfare reforms were attributable to the strong economy, and poverty increased again with the recessions of the 2000s.  Meanwhile, pushing people off welfare probably led to worse outcomes for children who grew up in poverty.

If the evidence base for cash transfers in low income countries is so strong, should we expect to see the same effects in high income countries?  My prior on this is that we should, and there seems to be an increasing amount of evidence supporting this position.  Aside from the study that Porter mentions on the Mothers’ Pension Program, which took place in the early 20th century, I’ve found two relatively more recent studies that evaluate the use of cash transfers in North America. One looks at a town in Manitoba where poor residents were given basic income grants for four years in the late 1970s.  People with no other sources of income were given grants up to 60% of the poverty line, and people with some outside income received smaller grants on a sliding scale (the precise value is not specified in the study).  Evelyn Forget analyzed administrative data from the town some years later, and found that grant recipients experienced a range of benefits.   They were less likely to be hospitalized for work-related injuries, car accidents, domestic abuse, or mental illness.  Children’s test scores increased, even as their dropout rates decreased, and more adults went back for continuing education.  While there was a small decrease in hours worked, this mostly came from mothers of young babies and teenagers, who are arguably investing in other types of human capital by raising children or staying in school.

The second study tracks a group of children in North Carolina who were members of the Eastern Band of Cherokee Indians, and whose families began receiving an extra US$4000 per capita each year after a casino was build on their land in the mid-1990s.  Researchers found that the grants lowered rates of behavioral and economic problems among treated children, and improved their relationships with their parents.  It also increased personality traits that are correlated with financial success later in life, like conscientiousness and agreeableness.  (The researchers don’t discuss the grants’ impact on children’s incomes or educational achievement in this paper, although I assume they’ll do in future work if they have the data.)