Cover of EconPol Working Paper 61

Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment

Jouko Verho (VATT Institute for Economic Research), Kari Hämäläinen (VATT Institute for Economic Research), and Ohto Kanninen (Labour Institute for Economic Research)

Replacing minimum unemployment benefits with a guaranteed basic income of equal size has minor employment effects in an advanced country, researchers from the Finnish VATT Institute for Economic Research and the Labour Institute for Economic Research find. The study examined 2,000 benefit recipients in Finland who were randomized to receive a monthly basic income between 2017 and 2018. The experiment sought to remove potential welfare traps that unemployed persons face by diminishing administrative barriers through a monthly basic income combined with a considerable improvement in the monetary incentives for employment. The authors of the study find that the 95% confidence interval of the first-year primary outcome estimate, measured in annual employment days, ranges from -2.3 to 5.4, concluding that the experiment had minor employment effects at best.

Abstract

This paper provides evidence that replacing minimum unemployment benefts with a basic income of equal size has minor employment effects at best. We examine an experiment in Finland in which 2,000 beneft recipients were randomized to receive a monthly basic income. The experiment lowered participation tax rates by 23pp for full-time employment. Despite the considerable increase in work incentives, days in employment remained statistically unchanged in the frst year of the experiment. Moreover, even though all job search requirements were waived, participation in reemployment services remained high.
 

Citation

Jouko Verho, Kari Hämäläinen, and Ohto Kanninen: "Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment", EconPol Working Paper 61, March 2021