Universal Basic Income

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21 Aug, 2024

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Universal Basic Income (UBI) is a monetary welfare scheme that provides income support that is intended to reach all, or at least the majority of the population of a country with no or minimal conditions. The program works with the aim of poverty alleviation.

Simple UBI programs or systems can save administrative expenses, promote transparency, and aid in structural reforms by preventing a sudden reduction in benefits when earned income rises. Opponents, however, argue that they could compromise work ethics, come at a great financial cost, and take funds away from other areas of investment, health, and education.

What is universal basic income (UBI)?

Universal basic income is a scheme that aims to provide regular income to all citizens with no conditions, ensuring financial security.
This welfare scheme does not have any particular requirements and is provided to residents as additional cash.
The idea of implementation has been largely fueled by the continuance of extreme poverty, the precarious nature of labor, and the widening gaps in wealth and income.
However, UBI faces challenges of cost, work disincentives, and implementation. Similarly, even in cases of countries with enough financial funding, the rates may differ. For example, UK universal basic income may be different from Canadian universal basic income.

Universal Basic Income Explained

Universal basic income is a scheme that provides recurring cash payments to a country's residents by its government. The payments could be monthly or yearly. This welfare scheme does not have any particular requirements and is provided to residents as additional cash. The idea of implementation has been largely fueled by the continuance of extreme poverty, the precarious nature of labor, and the widening gaps in wealth and income.

It is a welfare scheme that would be provided to everyone, independent of their ability or willingness to work. The best way to think of UBI is as a platform of support rather than a safety net. UBI has different objectives depending on the legislator, institution and the individual putting it forth. Since universal basic income would guarantee everyone is safe and is able to meet their basic requirements, some view it as a promotion of freedom. On the other hand, some argue that it is anti-paternalistic since it gives people the freedom to spend their money in any way, they see fit.

The income mechanism could potentially reduce government expense by providing a guaranteed income and eliminating social safety net programs. UBI's funding and pitch strategies determine how long it can last. Some regard it as a means of guaranteeing that individuals possess the means to satisfy their most basic needs. On the other hand, some regard it as a possible substitute for the social safety net initiatives already in place.

Examples

Let us look at a few examples to understand the concept of a universal basic income program better.

Example #1

Let us take the example of Dan, a resident of XYZ country. Dan, living in a country with UBI, receives a regular income of $10,000 a year and a few hundred dollars monthly from the government.

Unlike earlier, the combined income covers his basic needs like housing, food, and healthcare. Prior to the UBI scheme, he found it difficult to manage medical bills and tough to find enough money for fresh produce. Now, he is able to afford good quality produce and live a healthy life that invariably reduces his medical bills.

Dan experiences reduced financial stress, increased freedom in employment choices, and improved well-being through UBI.

Example #2

This piece of information gives an insight into the positive effect of Canadian universal basic income and its discontinuance due to economic issues.

In the late 1970s, the province of Manitoba in Canada implemented the Manitoba Basic Annual Income Experiment (MINCOME), a program that provided a guaranteed annual income. While the program was limited to certain populations in many cities, it was different in Dauphin, Manitoba, where every resident had the opportunity to participate. Families without any other sources of income received payments that amounted to 60% of their annual income, which was considered the threshold for being classified as low-income.

A long-term study conducted by an expert who closely examined the Dauphin experiment revealed interesting findings. The study found that only two specific demographic groups showed reduced levels of employment when they participated in the MINCOME program. These groups were young, unattached males aged 15 to 19 and mothers of newborn children. Their rates of work decreased because their families no longer relied on them as heavily to find jobs while they were still in high school, supporting their families.

The study further demonstrated a significant impact on the healthcare system. Hospitalization rates had decreased by 8.5%, which was particularly significant for individuals living in poverty. However, due to an economic crisis, the MINCOME program had to be discontinued after a few fiscal years.

The idea of a guaranteed annual income is considered a crucial tool for improving the health outcomes of low-income families. Researchers have found it encouraging that whenever experiments are conducted, participants are asked about how they utilize the money. They tend to spend it on reasonable things such as reducing debt, investing in education, and improving their overall quality of life.

Pros And Cons

Some of the pros and cons of implementing UBI are given as follows:

Pros

The universal benefits of UBI address the problem of exclusion and inclusion errors in the needs-based targeting. Universality guarantees that everyone is covered by design, resulting in a significant extension of coverage by doing away with qualifying requirements.
The universality factor lowers transaction costs, gets rid of stigma for recipients, and provides a steady stream of income that has long-term positive effects on both the individual and the economy.
Compared to most programs, it is more labor-compatible since it eliminates the price effect of labor transfers, preventing a decrease in labor supply to prevent a decrease in benefits.
Voters and beneficiaries would benefit from the full income distribution; universality may also increase the political sustainability of initiatives.

Cons

Social assistance may be limited and progressively provided; implementing UBI could expand coverage but may flatten the amount of distribution. This means that more people may receive less money, potentially impacting vulnerable groups negatively.
In emerging nations with large populations and limited resources, providing a sufficient level of basic income to meet everyone's needs can be very costly. Even in cases of countries with enough funding, the rates may differ. For example, UK universal basic income may be different from Canadian universal basic income.
In countries with complex and diverse political systems, building consensus and support for UBI among various stakeholders can be difficult.
Resistance may arise from those who enjoy current welfare schemes.
Issues related to identification, targeting, monitoring, delivery, and accountability can affect the quality and reach of the old programs and pose challenges for implementing UBI.
Implementing UBI effectively would require reliable data and technology, along with strong institutions, to prevent leakages, corruption, and exclusion errors.
UBI may have the potential to reduce work motivation and discourage skill acquisition, which could lead to lower productivity and efficiency. It may also foster a state of dependency, feelings of entitlement and laziness among recipients and discourage participation in social or civic activities that benefit the common good.

Universal Basic Income vs Minimum Wage

The differences between minimum wage and UBI are as follows:

Key points	Universal basic income	Minimum wage
Concept	Universal Basic Income is a policy that provides a regular and unconditional income to all citizens, irrespective of their employment status.	Minimum wages are the minimum remuneration an employer must pay wage earners for their work during a specific period. An individual contract or a collective agreement cannot decrease them.
Goal	Its primary goal is to ensure financial security for individuals by offering a consistent income stream and to cover basic needs. UBI does not hinge on employment.	Its purpose is to prevent worker exploitation by ensuring that employees receive a decent income. It directly impacts employment wages by setting a minimum acceptable level that employers must meet.
Effect on the employment	UBI is designed to complement existing income and social welfare systems, offering an additional layer of support without directly impacting employment wages.	The minimum wage serves as a regulatory mechanism in the labor market, aiming to protect workers' rights and promote fair compensation practices.
Purpose	UBI enhances their freedom and choices, allowing them to pursue personal and professional goals without financial constraints by providing individuals with a guaranteed income. It does not directly affect employment wages.	By enforcing a minimum wage, governments strive to establish a basic standard of income to support workers and prevent exploitation in certain sectors or industries.

Frequently Asked Questions (FAQs)

1. When will universal basic income start?

The start date for universal basic income differs in each country and region because it depends on their specific plans and rules. The dates of countries with universal basic income differ due to administrative and monetary abilities.

2. What countries have a universal basic income?

Examples of countries with universal basic income include Finland, Canada, California and Kenya have tried or implemented universal basic income. However, the programs differed in terms of benefits, beneficiaries etc.

3. How to apply for universal basic income?

The process for applying for universal basic income may not necessarily be the same everywhere. Generally speaking, people need to follow the rules set by the organization or governments running the program. This might include activities such as filling out forms, showing documents, and meeting certain requirements.

4. Is universal basic income socialism?

Whether universal basic income is considered socialism depends on how a person looks at it. Some think it's a way to share resources and help people; in that sense, it may seem like a socialistic idea. However, this could be just a welfare ideology from the government.