Finland’s Landmark Trial Finds Basic Income Brings Happiness But Not Jobs

(Bloomberg) -- A landmark study conducted in Finland shows that giving the unemployed free money doesn't provide the boost to the jobs market that some had hoped it would. But it does raise happiness levels.

The final results, published on Wednesday, are in line with initial findings released in February 2019. The main conclusions suggest that a basic income improves the mental well-being of recipients and makes them feel more secure with their finances.

Interest in the concept has resurfaced since lockdowns across much of the globe destroyed millions of jobs, depriving many people of a living wage. Even in Finland, a Nordic bastion of welfare, the Covid-19 crisis has overwhelmed the country's jobless benefits system. A number of economists including Nobel laureate Angus Deaton argue that some form of basic income fights the kind of wealth inequality that ultimately tends to destabilize societies.

In Finland, Prime Minister Sanna Marin isn't planning to introduce a basic income, as such. Instead, her five-party coalition wants to look into a negative income tax, whereby low income earners would stop paying taxes to the government and instead receive a payment.

Using the Data

The country's minister of social affairs and health, Aino-Kaisa Pekonen, said the latest study results “can also be used when reforming the social security system.”

Participants in the study received 560 euros ($600) per month. Those included were part of a randomly selected group of 2,000 jobless people aged between 25 and 58, who got free money from the state from 2017 to 2018.

“This was a big carrot, and we can see it didn't fully work,” Kari Hamalainen, chief researcher at the VATT Institute for Economic Research, said on a webcast. Implementing a universal basic income for all citizens “would be expensive. If we had a universal basic income, we'd have to incorporate taxation” and based on these results “it would be unsustainable.”

The original aim of the Finnish study was to explore new ways of distributing social security in a world in which more workers are threatened by automation and fewer are likely to take on traditional nine-to-five jobs. Many regard the current system of jobless benefits as too rigid and fear it dissuades people from taking on temporary or part-time work.

Preliminary results had already dispelled the idea that recipients of free money would work less.

“The scheme did not have negative effects on employment,” said Anthony Painter, chief research and impact officer at the Royal Society for the encouragement of Arts, Manufactures and Commerce, a U.K. charity. “If anything, it was positive -- an important rebuke to those who think it would lead to more people being lazy.”

In the first year, 18% of study participants found work, roughly in line with the control group. In the second year, 27% of those getting a basic income worked, just 2 percentage points more than the control group. The results in 2018 are somewhat skewed by a model introduced by the government penalizing jobless people who didn't actively seeking work.

The study's results are based on employment data, interviews as well as responses to a questionnaire.

Signe Jauhiainen, research manager at the social insurance institution Kela, said that the results can be used to revamp social security, for instance by “increasing certainty over incomes, by reducing the amount of applications people need to file.”