Primer on Universal Basic Income
What is Universal Basic Income (UBI)? In general, UBI is a type of cash transfer that is:oooo

Universal: every citizen receives the transfer regardless of employment status or income.
Unconditional: recipients have no restrictions on how they can spend the cash.
Basic: the amount will cover “basic needs” and will constitute a “living wage.”Long-Term: the cash transfers will last for the long term, e.g. entirety of the receipt’s life.

UBI isn’t an especially new idea; even Thomas Paine was an advocate.i The idea gained traction and elicited
debate in late 1960s (especially during the Nixon administration), but never really gained a foothold.ii
Where is UBI Receiving Policy Interest? Cities in Canada, Finland, the Netherlands, and the US have announced
pilot schemes to test the effects of the policy (generally, these are in very early stages). Governments inGermany, France, New Zealand, India, Scotland and Namibia have also expressed interest.iii GiveDirectly (acharity that distributes cash to the poor) has launched a comprehensive study on unconditional cash transfers inKenya.iv Most notably, Switzerland held a referendum on UBI in 2016, proposing each citizen receive a monthly
income of about $2700. The proposal was defeated (77% of voters opposed it).v
Who are Prominent Supporters? Prominent supporters include Mark Zuckerberg, Elon Musk and Nobel winningeconomist Angus Deaton.vi Warren Buffet supports a related program, the negative income tax, originally
popularized by Milton Friedman.vii
What are the Chief Points of Contention?
Proponents argue that UBI will reduce inequality, direct money to where it is needed most because the personwith the need is the best decision maker, avoid the bad incentives created by traditional welfare programs,
distribute more money because the administrative overhead costs are less, encourage dynamism and risk taking
in the economy, and offer an additional safety net for those who are seeing downward wage pressure fromautomation/globalization.
Critics claim that any meaningful basic income scheme will be prohibitively expensive, reduce incentives to work,
redistribute money away from those who need it most to those who already have jobs, and/or redistribute itaway from providing it where it is most needed (e.g. food stamps, social services) to bad or less good usage (e.g.
“they will drink it away”) because of bad choices. (More Detail Below) viii
What Does the Evidence Suggest?
As UBI has never been implemented (unless you count the extremely generous payments Gulf States make totheir citizens), we do not have a true case study to stress test the arguments for and against it. The pilot schemesthat are/will be tried in Canada, the United States, Finland, Scotland, Kenya, and the Netherlands will take years
to report their findings.
We do, however, have the results from numerous experiments looking at the impact of unconditional direct cashtransfers to poor households (i.e. no-strings transfers to cover basic needs for a period, but that weren’t universal
or long term), both in the developed and developing world. These include five experiments in the US and Canada
conducted in the 1970s, as well as over 50 experiments in the developing world.ix Findings from these studies are
regularly employed in debates on UBI.
These studies show an improvement in recipient economic conditions and wellbeing, a modest decrease inwork effort, and a tendency for recipients to spend the transfers productively.x However, the usefulness ofmost of these studies is limited by the fact that the transfers ended after a short time period (2-3 years) andwere only awarded to very poor households (not universal) – the studies were structured this way because they
were more focused on testing unconditional cash transfers, rather than something closer to UBI. And the richest

data comes from the developing world, so it is not clear how much can be extrapolated from the behavior oftransfer recipients previously earning less than $1.5 a day with citizens living in more prosperous economies.
Previous studies conducted on unconditional cash transfers and their differences to an ideal universal basic
income experiment:

Completed Pilots on Unconditional Cash Transfers*
Universal?

Basic?

Long Term?

Reciepients

Eastern Band of Cherokee, USA

No

No

Yes

15,000Madhya Pradesh, India

Yes

No

No

6,000

Seattle and Denver, USANo

Yes

No

4,800

Gary, Indiana, USA

No

Yes

No

1,799

Manitoba, CanadaNo

Yes

No

1,300

New Jersey, USANo

Yes

No

1,216

NamibiaYesYes

No930

North Carolina & Rural Iowa, USANo

Yes

No809

Location of Pilot

No completedstudy on
unconditional cashtransfers meets all
the criteria for whata UBI would looklike.

*From GiveDirectlyxi

To further flesh out what the studiesxii found:Developed World Studies
ooPositive effects on economic and general wellbeing. Treated households enjoyed better physical andmental health, educational performance, and homeownership rates.
A modest reduction in work effort. Primary earners worked about 5-10% less and were unemployed for
longer stretches of time. The reduction in working hours was much larger for secondary and tertiaryearners (15-30%), who devoted more time to child care and education.

Developing World Studiesoooo

No decline, or an increase, in hours worked, greater employment participation, and improved
employment outcomes. In the cases where hours worked declined, the attribution showed the reduction
to be mainly in the elderly and dependents.
An increase in savings and investment, with recipient households investing a portion of the proceeds inincome generating goods (livestock, agricultural productive assets etc.). Some studies also found that
incomes after the transfers had ceased were higher than when they began.
No noticeable increase, and frequently a decline, in consumption towards “temptation goods” (e.g.
alcohol, tobacco).
A general improvement in health, education, and female empowerment indicators, as well as a notabledecline in child labor.xiii

What would UBI cost if implemented in the US?
Below we take a rough cut at estimating how much it would cost to implement UBI in the United States. We firstlook at what it would cost to pay every American citizen the current poverty threshold ($12,000 a year – anamount less than half what the Swiss proposed implementing in 2016). This would end up costing ~ $3.8 trillion(or 21% of GDP and 78% of all tax revenues and contributions for government social insurance).
We next look at how much of this expenditure could be funded through scrapping existing social programs andreplacing them with a UBI (as some proponents argue). We first imagine the highly unlikely scenario in which allsocial spending (excluding infrastructure spending and education, but includes almost all other governmenttransfers to households including healthcare) is scrapped. This would free up about ~ 92% of the funds needed toimplement UBI. We subsequently imagine that only income support programs (disability, retirement & social
security, welfare, and unemployment benefits) are axed. This would yield ~ 37% of the required funding. Finally,excluding social security, retirement and disability from the list of replaceable programs leaves only 11% of thecosts for a UBI of $12,000 covered through replacing existing components of the welfare state.
Finally, we imagine two scenarios in which the payouts of UBI are reduced depending on the income level of thereceipt. For instance, in the first scenario, every $ of income earned will reduce UBI by 10 cents, meaning that if
you make $120,000 you will not receive a basic income, and if you make $60,000 you will receive only half (i.e.
$6000). While this is technically not a Universal Basic Income, it may offer a compromise solution between
securing the underlying goals of UBI and the constraints/concerns surrounding financing it. As you can see
below, this reduces the cost of implementing UBI significantly. However, even using a steep slope, existing
income support programs will fall short of fully financing UBI - and additional revenues will likely need to beraised.
Universal Basic Income for the United States
Cost of Implementing Universal Basic Income
Implementing UBI
paying the poverty
wage to all American
citizens would be very
expensive. Even axing
all current social
spending would
struggle to foot thebill.

Variants of Universal Basic Income% Tax Revenue% UBI Could Be Funded Through Replacing ExistingPrograms
All Social
Spending*All Income
Support (IS)(IS) ex Social
Security

USD, Billions% GDP

Every Citizen Paid $12,000 (Poverty Line)

3,866

21%

78%

92%

37%

11%

Every $ you earn reduces UBI by $0.10

2,431

13%

49%

147%

59%

17%

Every $ your earn reduced UBI by $0.15

1,912

10%

38%

186%

76%

22%

In the first variant, this means that if you make$120,000 you get no UBI, if you make $60,000
you get half, and if you make $10,000 you get 90%*The All Social Spending Number is based on OECD estimates of total social spending. It includes things like healthcare, medical services, pensions, welfare
payments, and food stamps, but excludes general services like infrastructure spending.

The sharper the slope
at which UBI falls withincome, the more
affordable it becomes.
However, even with anaggressive slope,
implementing UBI
would require raisingmore revenues thancan be acquired
through replacing
existing Income
Support Programs.

As perspective, the chart below shows OECD estimates for how much money would be made available perperson if developed economies replaced all social spending ex-health care with a Universal Basic Income(purchasing power adjusted). Even the most generous welfare states would struggle to cover the cost of apoverty-line basic income. Not to say it isn’t possible – just that incremental change in our social/taxation
systems wouldn’t get you there.

Social Spending* Per Person (PPP adjusted)$12,000$10,000$8,000$6,000$4,000$2,000$0
Denmark Norway Sweden Finland France Germany

Italy

UKUSA

Even if all social
spending ex
healthcare wasscrapped to fund aUBI program,citizens wouldstruggle to receivea poverty level
wage even incountries with themost extensive, andgenerous, welfarestates

Japan Australia Canada*ex-healthcare

More Details on the Pros and Cons for UBI
Other than to provide every citizen in an economy with an income to meet basic needs, and a buffer against
sharp personal financial downturns, supporters argue that UBI will help in:ooooooReducing Inequality: UBI is seen as a means to reduce inequality, which has risen in developed
countries. Proponents argue that it will help compensate for 3 decades of low wage growth, increase thebargaining power of labor relative to capital, and act as a non-intrusive, and potentially less politically
toxic, form of redistribution.
Directing Money to Where it is Needed Most: Traditional welfare transfers typically come withrestrictions as to how the money can be spent (e.g. foods stamps). This means that administrators andpolicy makers end up having to make choices for individuals as to where income support would be mostimpactful in their lives and apply such direction across the board, with limited ability to tailor toindividual circumstances. In contrast, UBI empowers the individual to decide how best to use the income
transfer given their particular circumstances and needs.
Minimizing Bad Incentives: UBI offers better incentives than more traditional welfare policies. Unlike
unemployment benefits or income support, there is no disincentive against seeking better paying
employment (as UBI will not be cut off as income rises – see appendix 1 for an illustration). Unlike theminimum wage, UBI should not make a set of workers prohibitively expensive for employers.
Supporting Economic Dynamism: UBI could support economic dynamism and innovation throughencouraging people to take more risks, lowering the entry costs for entrepreneurship/accessing
productivity enhancing skills, and encouraging workers to take the time to seek work better suited totheir interests, aptitudes, and sense of fulfillment.
Distribute More Money By Reducing Administrative & Overhead Costs: UBI is also seen as a means to
reduce/replace the large, bureaucratic, and inefficient welfare state with a simpler, more efficient, andless politically controversial safety net. This will reduce administrative and overhead costs, meaning thatmore money is actually distributed to those who need it as a percent of the welfare budget.
Protecting against Technological and Economic Disruption: UBI can assure many people a living wage
as automation, artificial intelligence, and globalization puts downward pressure on wages. UBI wouldoooalso provide greater economic freedom for dislocated workers, allowing them to invest in building newskills, rather than having to seek immediate (and likely lower paying) employment. Relatedly…
Combatting the Rise of Anti-Establishment and Populist Politics: The threat of anti-establishment
politics has led some to advocate for UBI as a means of updating capitalism and sharing its spoils more
equitably.
Compensating for Unpaid Work: Many socially valuable roles are not formally compensated in a market
economy (e.g. raising a child) and are predominantly performed by women. UBI is seen as a means tobegin to recognize, in monetary form, such roles, and rectify resulting imbalances in power, especially inthe third world.
Providing More Effective International Aid: Currently 700 million people live below the global povertyline ($1.9/day). Calculations from the World Bank and Brookings Institute approximate that it would
take $80 billion in direct cash transfers to lift these individuals above the global poverty line.xiv This isalmost half of what we currently spend on international aid (OECD’s budget alone is over $130 billion,
not including private donations).xv

Aside from philosophical arguments opposing redistribution or contesting any inherent right to a fixed income,
opponents argue that UBI will hurt in:ooooo

Being Prohibitively Expensive: Opponents argue that implementing any meaningful universal basic
income will be prohibitively expensive and unsustainable. For instance, the Swiss proposal of awarding
each citizen about $2700 a month would cost about 25% of GDP.xvi Critics further argue that the tax
hikes necessary to adequately fund UBI will likely be a significant drag on growth. We go through somenumbers for the US above.
Reducing Work Ethic: Conservative critics argue that UBI will significantly reduce incentives to work andencourage people to work fewer hours and have longer stints in unemployment.
Redistributing Money Away From Those Who Need It Most: Depending on how it’s done, UBI might act
as a net transfer away from people currently on welfare receipts to those who already have jobs. Whileraising taxes to pay for UBI will likely lead to a net transfer away from the wealthiest, it mightsimultaneously reduce support to those who need it most.
Redistributing Money Away from Providing What is Most Needed to Bad or Less Good Usage:
Unconditional cash transfers would mean that policy makers cannot try to ensure that the money
provided is spent towards providing essentials (e.g. food stamps, social spending) versus less impactful
or even harmful uses (e.g. people spending the transfers on “temptation goods” such as alcohol andtobacco).
Distracting From Improving The Existing Welfare State: Some liberal critics have argued that UBI is a
distraction from the more pressing issue of improving the existing welfare state. Critics are concernedthat UBI might undermine funding and support for improving tried and tested programs that took
decades to set up.

Appendix 1: An Illustration of Bad Incentives in Existing Income Support Programs
The chart below shows the effective after tax and transfer income of Americans earning up to 70k. There areseveral ‘cliffs’: points at which earning a bit more actually hurts you because you lose eligibility for a social
program.xvii

Disposable Income for Single Parent with One Child, in 2012
$60,000
Medicaid
income limit
for parent

CHIP
income limit
for freecoverage$50,000$40,000
CHIP income
limit forreduced-costcoverage$30,000$20,000$10,000$0$0$10,000$20,000$30,000$40,000

Pre-tax Earnings$50,000$60,000

Disposable IncomeTANF
incomelimit

Further Readings
Economist - Sighing for paradise to comehttps://www.economist.com/briefing/2016/06/04/sighing-for-paradise-to-comeFiveThirtyEight - What Would Happen If We Just Gave People Money?
https://fivethirtyeight.com/features/universal-basic-income/Economist - Basically unaffordable
https://www.economist.com/finance-and-economics/2015/05/23/basically-unaffordable
GiveDirectly - Research on Cash Transfers
https://givedirectly.org/research-on-cash-transfers
The Journal of Socio-Economics - A failure to communicate: what (if anything) can we learn from the negative
income tax experiments?
https://www.sciencedirect.com/science/article/abs/pii/S105353570400109X
Overseas Development Institute - Understanding the impact of cash transfers: the evidence
https://www.odi.org/sites/odi.org.uk/files/resource-documents/10748.pdf
Massachusetts Institute of Technology - Household Response to Income Changes: Evidence from an
Unconditional Cash Transfer Program in Kenya
https://www.princeton.edu/~joha/publications/Haushofer_Shapiro_UCT_2013.pdf

i https://www.economist.com/briefing/2016/06/04/sighing-for-paradise-to-comeii https://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600/
iii https://givedirectly.org/basic-incomeiv See ii
v https://www.nytimes.com/2016/06/06/world/europe/switzerland-swiss-vote-basic-income.html
vi https://www.cnbc.com/2017/12/27/what-billionaires-say-about-universal-basic-income-in-2017.html
vii See ii
viii https://fivethirtyeight.com/features/universal-basic-income/ix See ii
x https://www.jstor.org/stable/23050182?seq=1#page_scan_tab_contents
https://www.odi.org/sites/odi.org.uk/files/resource-documents/10748.pdf
http://siteresources.worldbank.org/EXTLACOFFICEOFCE/Resources/870892-1265238560114/OzlerPaper.pdf
https://www.sciencedirect.com/science/article/abs/pii/S105353570400109X
https://www.princeton.edu/~joha/publications/Haushofer_Shapiro_UCT_2013.pdf
xi See ii
xii https://www.sciencedirect.com/science/article/abs/pii/S105353570400109X
xiii https://www.odi.org/sites/odi.org.uk/files/resource-documents/10748.pdf
xiv https://www.brookings.edu/blog/up-front/2016/01/20/the-global-poverty-gap-is-falling-billionaires-could-help-close-it/
xv http://www.oecd.org/dac/development-aid-rises-again-in-2015-spending-on-refugees-doubles.htm
xvi https://www.ft.com/content/002af908-2b16-11e6-a18d-a96ab29e3c95
xvii http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-2012-MarginalTaxRates.pdf