Guaranteed Income?: UBI and the Fight Against Poverty

A shrinking middle class, widening income inequality, and the prospect of technology displacing millions of American workers over the next two decades have a growing number of policymakers exploring programs to address the myriad socio-economic challenges these trends present. One idea that surfaces time and again is to provide funds to individuals, without condition, without means testing, and without work requirements or any other stipulations, to help cover basic life needs.

The concept, known widely as Universal Basic Income (UBI), has a long history but has remained on the sidelines of American political discourse for many years, occasioned by critics’ warnings of burdensome costs and a demotivated population unwilling to enter the workforce. However, at least two American cities foresee the perfect storm of socio-economic factors and, buoyed by recent research from the University of Chicago Harris School of Public Policy, believe it’s an idea worth exploring.

Stockton, California, will be the first U.S. city to test a program designed to provide citizens a guaranteed income. Starting in February, a test group of approximately 100 residents will receive $500 per month for 18 months through the Stockton Economic Empowerment Demonstration (SEED). The pilot program is being funded entirely through private donations and, according to the website, seeks to confront, address, and humanize some of the most pressing and pernicious problems our country faces: poverty, inequality, and widespread financial insecurity.

Meanwhile, Chicago aims to be the largest city to implement a guaranteed income program. In September, Mayor Rahm Emanuel and Alderman Ameya Pawar announced the creation of the Chicago Resilient Families Task Force to examine and formulate a basic income trial mode – a task force which includes Harris Public Policy associate professor Damon Jones. The task force, which released its report in early February, recommended providing 1,000 low-income Chicago families a guaranteed income of $1,000 per month.

The concept of UBI is hardly new. English philosopher and all-around Renaissance man Sir Thomas More brought up the idea of a guaranteed income in his 1516 treatise Utopia. In the late 1800s, American economist Henry George suggested the government be funded through a single land tax, with any surplus divided equally among the nation’s citizens. Free-market economist Milton Friedman started exploring the idea of providing basic income through a negative income tax in the 1940s. In 1969, President Richard Nixon tried (but failed) to pass the Family Assistance Plan, which would have given $1,600 annually to families with no income. So why, after early failures and many years of dormancy, is the idea of UBI suddenly back in fashion? 

“I think that there a couple of things that are at play,” said Professor Jones, who studies the cross-section of public finance, household finance, and behavioral economics at Harris. “One is that inequality is growing. Also, the labor force is going through structural changes with technology and automation. As a result, wages have been flat for the majority of people for a long time.”

Nowhere is this more evident than in the technology epicenter of Silicon Valley. While the area leads the nation in economic growth and currently enjoys record-low unemployment, a recent study shows that nine in 10 of the region’s workers earn less than they did in 1997, after adjusting for inflation. Moreover, the study found that since 1997, the share of middle- and high-wage jobs declined, while the proportion of workers in low-wage jobs increased by nine percentage points.

“The employment rate has been going down a lot, but in the long run, there are these questions about whole classes of jobs being replaced by robots. So that could build some support for these types of guaranteed income policies, particularly in places like the Bay Area, where they have obvious inequality and, rightfully or not, a disproportionate share of the blame for technological advancement and automation," said Jones.

Indeed, tech-sector leaders, such as Elon Musk and Mark Zuckerberg, are among UBI’s biggest cheerleaders. Chris Hughes, one of Zuckerberg’s partners in founding Facebook, was behind a $1 million grant that made the SEED program possible in Stockton. 

Despite the increasing urgency to develop, test, and enact policies that address income inequality, job displacement, and poverty, there remains strident and vocal opposition to the idea of universal basic income. 

Carmelo Barbaro, executive director of the Poverty Lab at the University of Chicago, now part of Harris, suggests that it is the universal aspect of universal basic income that is most difficult for many Americans to wrap their heads around. 

“The idea that people at the upper end of the income scale could be receiving a thousand dollars a month when they don't need it and those resources may be put to better use elsewhere I think is a concern for many people, and perhaps a valid one,” said Barbaro, who is also a member of the Chicago Resilient Families Task Force.

“On the other hand, universal programs tend to enjoy higher political support and tend to be protected from the whims of politicians over time,” he continued.

The country is a long way from a universal basic income program that is truly universal, however. The Stockton demonstration, for example, provides monthly payments to just 100 of its citizens. To gauge the viability of a broader, more universal program, the SEED designers randomly selected residents in a zip code with below-average incomes. Researchers will then hone the recipient pool to ensure that it “maximizes the ability to learn while prioritizing fairness and inclusivity.”

“So much of what makes universal basic income really exciting and potentially compelling is that it does away with so much of the segmentation that our existing safety net has relied on. It's not overly prescriptive. It's not overly requirement-heavy,” said Lori Ann Ospina, director of SEED. 

“We wanted to create the sentiment of universality, while still being realistic about limited resources and wanting to ensure that those resources help reach people who need help. With our selection strategy, we felt like we were mimicking the sense of universality, really making it accessible to a diverse group of people across the whole city, but also making sure that it does get households that will be positively impacted by it,” said Ospina.

But for cities like Stockton and Chicago to make their program truly universal and provide a basic income to every citizen within their boundaries, they will have to turn to taxpayers, and they are not always willing to bear those costs. 

The Poverty Lab's Barbaro argues that taxpayers are already incurring high costs by doing nothing.

"I think one thing that is important for people to understand, is that while programs like this are expensive, the status quo is very expensive, as well,” Barbaro said. “It's just that the costs are spread out and, in many cases, difficult to trace back directly to deep poverty. People living in poverty are more likely to experience homelessness and housing instability. Many suffer from worse mental health outcomes. In many cases, they are more likely to use emergency room services. They are more likely to be involved in the criminal justice system.”

“Those are all real costs borne by society,” he added.

For associate professor Damon Jones, the issue of cost comes down to our priorities, saying “There are a lot of other things that we continually spend a lot on, including the military. So we are somehow able to continue affording them." 

In addition to costs, many opponents to UBI point to unsubstantiated claims that unconditional payments will act as a disincentive to work. However, research conducted by Jones and Assistant Professor Ioana Marinescu of the University of Pennsylvania School of Social Policy and Practice (and formerly of Harris) shows that guaranteed income does not cause people to leave the workforce. 

The two examined the effect of unconditional cash transfers on labor markets using the Alaska Permanent Fund Dividend—a payout from a diversified portfolio of invested oil reserve royalties, established in 1982. They concluded unconditional cash transfers had no significant effect on employment, yet it increased part-time work.

Cash payments as a disincentive to work certainly do not apply in Stockton’s demonstration or Chicago’s proposed program. In both cities, the $500 guaranteed income per month will hardly cover all expenses incurred by even the most impoverished residents. Instead, the payment will provide much need stability and predictability. 

"It's been a real learning experience to see within the resistance to UBI, the kind of ingrained assumptions we have about people and their will to work, and their motivation. We don't give people a lot of the benefit of the doubt,” said SEED director Ospina. 

“Most people will continue working if they're able to,” Ospina continued, “but sometimes people face situations that make that impossible. UBI creates an opportunity to demonstrate more compassion for one another.” 

Editor’s Note: Since the interview, but prior to publication, Lori Ann Ospina moved on from the SEED project.