Guaranteed Income: A False Promise of Happiness
Last week, there has been a lot of discussion about a recent research study, and I decided to share my insights, as some of you may not have heard about it yet. A groundbreaking study titled "The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States" investigates the impacts of providing a guaranteed income on various employment and lifestyle outcomes. The research involved 1,000 low-income individuals receiving $1,000 monthly for three years, compared to a control group of 2,000 participants who received $50 monthly. This study, which ran from 2020 to 2023, offers significant insights into the implications of unconditional cash transfers.
Core Findings
Reduction in Labor Supply:
The study found a decrease in total individual income by about $1,500 per year, excluding the transfers.
There was a 2.0 percentage point decrease in labor market participation among participants, with the rate falling from 62% to 60%.
Participants reduced their work hours by approximately 1.3-1.4 hours per week, from an average of 28 hours to about 26.7 hours. Interestingly, the partners of participants also showed a similar reduction in labor supply, reducing their hours by about 1.3 hours per week as well.
Impact on Leisure and Non-Work Activities:
The guaranteed income led to the largest increases in time spent on leisure activities, with participants spending an additional 3 hours per week on leisure.
Additional time was also spent on transportation and financial management, with participants spending around 0.5 more hours per week on these activities.
There was no significant effect on the quality of employment or investments in human capital, although younger participants (ages 21-30) showed a slight increase of 1.2% in pursuing formal education.
Household Dynamics:
The transfer caused a decrease in household labor supply by 4-5% relative to the control group. This included not only the participants but also other adult members in their households, with an average reduction of 1.3 hours per week per household member.
For every dollar received, total household income, excluding the transfers, fell by at least 21 cents, indicating a pooling of income and joint decision-making within households. This amounted to an annual reduction of around $4,100 in household income compared to the control group.
Housing and Mobility:
Participants were 4.1% more likely to move housing units, suggesting that the guaranteed income may have enabled greater flexibility and mobility in their living arrangements. Approximately 43% of participants moved housing units compared to 38.9% in the control group.
Moves to different neighborhoods (defined as different Census tracts) were the most common, with 36% of participants moving neighborhoods compared to 32% of the control group. Moves to different labor markets (different commuting zones) were less common but still notable, with a 1.9 percentage point increase in such moves among participants.
Lesson from the study
Despite the reduction in labor supply and increased leisure time, the study did not find substantial evidence of improvements in overall happiness or well-being among participants. The findings suggest that while guaranteed income provides financial stability, it does not necessarily translate into increased happiness. This aligns with the broader understanding that people's happiness is significantly influenced by their activities and social interactions, not just their financial situation.
Lessons from COVID-19 Stimulus Payments
The COVID-19 pandemic saw the U.S. government distribute several rounds of stimulus payments to provide immediate financial relief. The first round of payments, authorized by the CARES Act in March 2020, provided $1,200 per adult and $500 per child for individuals earning up to $75,000 per year. Subsequent rounds in December 2020 and March 2021 provided additional payments of $600 and $1,400, respectively. While these payments helped stimulate the economy temporarily, they did not result in significant long-term improvements in people's lives. Instead, they contributed to inflationary pressures, with the U.S. inflation rate rising from 1.4% in 2020 to 7% by the end of 2021.
Additionally, the enhanced unemployment benefits provided during the pandemic, which included an extra $600 per week from March to July 2020 and $300 per week from August 2020 to September 2021, led to reports of individuals leaving their jobs. The labor force participation rate dropped from 63.3% in February 2020 to 61.4% in April 2020 and remained below pre-pandemic levels through 2021. This reduction in labor supply led to widespread labor shortages in several industries, particularly in low-wage sectors like hospitality and retail.
Lessons from Lottery Winners
Lottery winners often serve as an example of why sudden, unconditional financial support does not lead to lasting happiness or positive outcomes. Statistics show that nearly 70% of lottery winners end up broke within seven years. Many lottery winners experience a temporary spike in happiness, but this often fades as they struggle with new financial pressures, strained relationships, and a lack of purpose. Behavioral patterns among lottery winners include increased spending on luxuries, poor investment choices, and sometimes even an increase in substance abuse. These outcomes again underscore the idea that money alone does not create sustainable well-being or meaningful progress.
Debates and Future Research
Advocates for Universal Basic Income (UBI) argue that different outcomes might emerge if studies were conducted under better economic conditions or with different payment amounts. For example, some suggest that larger or more permanent payments could yield better results. However, concrete data supporting these claims remain sparse. Critics point out that without detailed, robust research, it is challenging to substantiate the potential positive impacts of UBI. The current study's findings, conducted over three years with substantial sample sizes, cast doubt on the effectiveness of UBI in its current form.
A Personal Perspective
Personally, I have always thought that UBI is a bad idea. I believe that the beauty of life lies in having goals, experiencing failures and achievements, facing difficulties, and cherishing happy and sad moments. True progress comes from those who actively pursue their goals and take on responsibilities. Those who don't probably need more inspiration or knowledge rather than just unconditional cash support. This research validates my theory and feelings, showing that unconditional financial support alone does not enhance happiness or drive meaningful progress.
Conclusion
This experiment highlights a critical aspect of human nature: happiness is deeply tied to what we do, not just what we have. Guaranteed income offers stability and more free time, but true fulfillment comes from engaging in purposeful activities and building connections with others.
For me, it was always clear that money alone would not bring happiness. Many studies and a lot of data back this up. This raises an important question: why is there so much talk about Universal Basic Income (UBI)? Who is pushing this idea, and who stands to benefit from it?