UBI, I BI, we all BI

I scream, U scream, we all scream for a Universal Basic Income

Some people, possibly even many people, believe that a Universal Basic Income is an idea whose time has come. 2020 Democratic presidential candidate Andrew Wang made a UBI a central plank of his campaign. With the rise and rise of automation in manufacturing and AI reputedly coming for all our jobs, a UBI has been mooted as both a necessity and a perk of submitting to our robot overlords.

But the consequences, be they positive or negative, of a UBI have been hard to ascertain because the “U” part of the UBI makes any implementation eye-wateringly expensive. To date, UBI pilot schemes have really put the micro back into microeconomics. 2000 people in Finland and 125 people in Stockton, California do not make for a very large evidence base. Even the much reported on and Sam Altman backed UBI, which has just published results, was only with 1000 people.

All of this makes the GiveDirectly UBI scheme in Kenya all the more interesting. Superstar economist Abhijit Banerjee and an equally luminous list of co-authors have just published research findings at the two-year point (of a potentially 12 year scheme). Enrolling ~22,000 people, the scheme has three treatments and a control group of another 11,000 people.

Treatment 1, Short-term UBI (ST): Regular unconditional payments for two years. Approximately 8,800 adults across 80 villages received a transfer of US $0.75 nominal per day (or $1.88 at PPP) for two years. This is total of around $550 which is ~30% of median annual income.

Treatment 2, Long-term UBI (LT): The same structure and value of individual payments as the ST treatment except they last for 12 years. Over the full length of time, that makes a total payment of ~$3,285. There are 5,000 people across 44 villages in the LT treatment.

Treatment 3, Lump-Sum Transfer (LS): Recipients receive a one-time payment equivalent to the total amount of the short-term UBI payments. This $550 was paid via mobile money to approximately 8,800 adults in 71 villages at the start of the scheme (so two years ago). The LS treatment isn’t really a UBI but rather a once-off unconditional cash transfer.

Control: Around 11,000 people are in the control group across all the treatment villages and also non-treatment villages.

The two-year point was chosen for this study as all treatments had received the same amount of money. The ST treatment payments were just finishing, the lucky devils in the LT have 10 more years to run, and of course the LS money was paid out two years ago.

Here are three results that caught our eye.

1. Stable labour supply and a shift to self-employment:

Concerns that a UBI set too high might reduce the incentive to work often smack of puritanical finger wagging. And those concerns are frequently misplaced. The study found no significant reduction in how much people worked. Instead, there was a notable shift from wage employment to self-employment.

Interestingly a similar shift out of wage work was found by Blattman, Dercon and Franklin when studying factory workers in Ethiopia in 2019. Breaking news: Another economics paper confirms that low wage drudgery sucks and people choose not to do it if they don’t have to.

Unfortunately for UBI proponents, the impact was most pronounced with lump-sum payments. Score it as one for unconditional cash transfers. But more importantly, how many of these self-employment options are going to power an economic transformation? Whilst these small enterprises often make a positive contribution to household income (for example, setting up a small shop with the bit of extra money), the path to scaling up these enterprises up is rocky.

2. No inflationary pressure despite increased economic activity:

Despite the injection of cash, there was no evidence of inflation eroding away the bump in people’s purchasing power. With all the new micro-enterprises popping up, the number of items available for purchase in the treatment villages doubled. It seems the phased nature of (most of) the transfers allowed sufficient time for the market to adjust.

3. Improved mental health across the board

When you don’t have a lot of money it can be hard to think about much else. Valuable brain power is taken up deciding which essential expense (food, rent, clothing, medicine) is not quite as essential as the others. The good news is that all treatment arms of this program showed a reduction in depression and an improvement in life satisfaction, happiness, and well-being. Even though all groups had received the same amount of money at the time of the study, the LT treatment showed the largest effects. It’s easy to see how the security of more money in the future caused this stronger effect.   

With another 10 years to run, many more papers will be written about this particular UBI scheme. Given its size, even just at the two-year point, it’s one of the most significant in the field. But with all the good news reported above, let’s not forget this would be a very expensive program to roll out to anything close to Universal. Extending to all Kenyan adults (including these guys) would cost over $15 billion. That’s 14% of GDP and almost four times the annual education budget.

But for the ~22,000 Kenyans who are the lucky guinea pigs, a UBI certainly looks like a pretty darn good thing.