One look at Brown’s article “Finland Wants to Replace Welfare Programs with a Minimum Income for All Residents” will have you believe that “one of the world’s best functioning welfare states”, might be looking to digress from its usual welfare policy and adopt a more cost effective, employment encouraging, basic income scheme.
Click-bait title aside, Brown elaborates on what is currently just a policy experiment with two basic income models; a Partial Model, which is similar to what is already in place; housing benefits and income support packages intact. And the Full Model, whereby unemployment, health and housing benefits pensions, maternity allowances etc are all suspended in exchange for a higher tax free wage, equivalent to the benefits lost. This income would be unconditional and would not involve being means-tested for benefits[1].
The Finnish Social Insurance Institution is optimistic that this will boost employment rates, when, for example, out-of-work claimants are no longer afraid to take up short-term job offers for fear of losing benefit entitlement. Moreover, no means-testing would also lead to lesser families stuck in poverty traps where benefit withdrawal erodes any increase in earnings. Also, the vast bureaucratic apparatus associated with social services could be eliminated or in Lissa Hyssala’s words, “it would simplify the welfare system, which currently includes an array of overlapping programs and benefits”.
Seems promising. BUT.
When Goldhill, says “it may sound counterintuitive….”[2], I can’t help but tune out the latter half of that statement. To me, it is exactly that. Counter-intuitive.
Drawing a parallel for if such a scheme were to be introduced back home (Pakistan), as pessimistic as it may sound, I believe, that an unconditional income might just push individuals towards a state of “long term workless-ness”. As pointed out by Gaffney[3], the scheme assumes an unrealistic division of labour between government and market. It assumes a world of perfect markets inhabited by perfectly rational individuals with perfect foresight and perfect mobility where the government’s role is to ensure economic security by redistributing income and then letting everything fall into place itself.
For those who would argue that Pakistan is hardly a good parallel for Finland, Gaffney gives the example of single parents in the UK, who till 2008, if unemployed, were part of a scheme similar to that proposed in Finland. They had no obligation to actively seek work even though tax credits ensured that they would be significantly better off if employed. Data shows that employment rates remained relatively low in that period till 2008, when obligations to look for work were imposed. By 2014 the employment rate outside London had risen from 57% to 61%. In London the increase was dramatic from a lower baseline: from 45% to 57%.
Long story short; incentives matter.
So where does that leave Finland? Unconditionality can lead to workers opting out of the labor market. And conditionality would see the return of means-testing and bureaucracy. Well, some mild investigative journalism later, it turns out it leaves Finland unperturbed.
The proposed scheme recently entered a decisive stage and the draft legislation has been presented for public discussion[4].
[1] http://www.independent.co.uk/news/world/europe/finland-to-consider-introducing-universal-basic-income-in-2017-a6963321.html
[2] http://qz.com/566702/finland-plans-to-give-every-citizen-a-basic-income-of-800-euros-a-month/
[3] https://www.theguardian.com/commentisfree/2015/dec/10/finland-universal-basic-income-ubi-social-security
[4] https://www.bloomberg.com/view/articles/2016-08-31/finland-s-basic-income-experiment-is-too-timid
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