A new study reveals what common sense could have predicted - giving Americans $1,000 per month disincentivizes them from working, causing them to work less - and earn less, over time.
According to the 3,000-participant, three-year study from the National Bureau of Economic Research, giving people $1,000 per month increased leisure time, as recipients spent less time on sleeping, child care, community engagement, caring for others, and self-improvement.
The study also found that recipients' income, not including the free money, reduced their incomes significantly, as "for every one dollar received, total household income excluding the transfers fell by at least 21 cents, and total individual income fell by at least 12 cents."
"The takeaway from the best study done so far about UBI in the United States is that handing out money isn't the solution to all our problems," Daniel Di Martino, a economics researcher and graduate fellow at the Manhattan Institute, told The Center Square. "In fact, sometimes it makes things worse."
The study’s authors noted mean-tested welfare encourages recipients to cut hours “to preserve benefits,” leading to advocacy for “unconditional cash transfer programs” without these distortions that would also allow individuals either to look for and secure higher-quality work or spend extra time on “productive non-work activities.”
Participants’ individual incomes declined $1,500 per year relative to the control group, excluding transfers, participants’ labor force participation was two percentage points lower, participants and their partners worked approximately 1.4 hours less per week. Participants spent their extra time on leisure, did not improve their quality of employment, and did not improve human capital investments such as training.
The study notes how during the 2020 Democratic primaries, candidate Andrew Yang proposed a $1,000 per month "Freedom Dividend," which he claimed "encourages people to find work" and "increases entrepreneurship."
The study found that while "participants exhibited more entrepreneurial orientation and intentions," that "this did not translate into significantly more entrepreneurial activity," as "very few people have the inclination to become entrepreneurs in general."
According to Di Martino, the study did not address inflation concerns, and remained open to unconditional cash payments in lieu of certain welfare programs.
"It's important to remark that this study doesn't look at the macroeconomic impact of UBI which would raise inflation and affect interest rates if implemented nationwide," he said. "Now the question that's more interesting is if the almost null effects of UBI are better (or less bad) than those of our existing welfare programs and whether it might be a good idea to replace them."
