par Robert Arnkil, Sari Pitkanen
Introducing a Universal Basic Income (UBI) in Finland is one of the strategic spear-head initiatives of the present Center-Right National Government of Prime Minister Juha Sipila. In the Government Programme UBI is seen as a measure to renew social benefits to be better adjusted to the changes in working life, increase the incentive to work and active participation, and to contribute to streamlining the whole benefit system, which now creates several income-, incentive and bureaucracy traps.
In order to explore the possibilities and effectiveness of such and initiative, a randomized controlled trial, an UBI experiment, will be launched in 2017. 2000 people as a target group and a control group will be sampled, and the target group will enjoy an UBI for two years. After that the results will be evaluated, and decisions about the fate of UBI made.
UBI experiment in Finland 2017-2018 in a nutshell
• Goal: To obtain information on the effects of basic income on the employment of persons participating in the experiment, and to survey other impacts of basic income.
• Level of basic income: EUR 560 €/month, tax free benefit. According to calculations, this should produce an adequate incentive effect encouraging people to accept temporary and part-time work.
• Target group: Persons between 25 and 58 years of age living in Finland who in November 2016 receive basic daily allowance or labour market support (the lower level of unemployment benefits, ie. not the earnings rated benefit, which is higher ) under the Unemployment Security Act.
Finland has suffered badly from the 2008 global economic crisis, due to high dependence on global export markets, and many pending structural changes in the economy and labour markets. Unemployment (now 8,9%), and especially long-term unemployment (60 % of all unemployed have been so for at least a year), has been on the rise since 2012, and only faint signs of economic recovery and levelling of unemployment are in the air.
Finland, typically of a Nordic country, has a large public sector, and traditionally belongs to a rather generous regime of social welfare, safety nets and benefits. But with the economic crisis and rising national debt, there has been mounting pressure on these benefits, and a demand to find solutions, which would deliver better results in peoples’ lives, with less cost.
The social security system – basic social benefits, unemployment benefits, housing allowances etc. – developed over the years, has become cumbersome and bureaucratic, riddled with overlap and incentive traps, where it is often not gainful to take up work vis-à-vis drawing benefits. So one of the big and persistent problems of Finnish unemployment and social benefits are incentive traps. The trap is when it is not profitable for an unemployed person to take up a job, as net income does not rise, or even diminishes. Several National Governments have tried to tackle these traps since the 1990ies by adjustments in taxation and social benefits.
The system is confusing and often frustrating for citizens, and for the social benefit system employees, too. Changes in work, the labour market, and the attitudes of people have rendered the social security systems often obsolete, and unfitting to the rise of irregular, part-time and temporary work, and the rise of self-employment. These are of course common challenges, mutatis mutandis, for all European countries, and around the world.
Some earlier solutions
Different solutions for different groups of people have been introduced before UBI. Various reforms on income have been introduced for people on disability pensions, and in salaried part-time work or as entrepreneurs. A special temporary law (in effect 1.1.2010 – 31.12.2016) was passed to encourage people on a National Insurance disability pension (maximum 740 € per month) to take up work. People in employment, or as entrepreneurs have a right for adjusted earnings-related daily allowance, if the work is part-time, or doing work on the side as an entrepreneur. A salaried worker can get an adjusted allowance if the work is less than 80% of a full time job.
From the beginning of 2014 a person getting an unemployment or housing benefit can earn 300 € per month without a reduction in the benefit. This ‘protected income zone’ has been proven to incentivise people to accept part-time jobs and gigs. On the other hand it has changed the incentive trap so that now people have rather worked part-time drawing an adjusted benefit, instead of raking up a full time job. Single parents are worst caught in this trap, as child benefits start reducing with increased income.
The Universal Basic Income experiment
One way to encourage working is the UBI. A discussion about basic income has been going on in Finland since the 1980ies. UBI is a departure from the traditional and prevailing means tested and work related Nordic welfare state policy.
The aim of UBI is to clarify the benefit system, cut down red tape, do away with the traps related to reconciling work and benefits, and prevent people of falling in the gaps of benefit systems.
The aim of a basic income, also called a ‘citizen salary’ has varied through the decades in Finland. In the 1980ies in Finland the aim was to offer meaningful active participation for people made redundant from industrial work. In the 1990ies the aim was to increase flexibility in the labour market, and support irregular and low income work. In the new Millennium the aim has been to improve incentives to work and offer better income security for people in irregular work or as entrepreneurs/self employed.
Models for UBI have been presented by a variety of actors, ranging from academic circles to different political parties. The proposals have varied in their relation to other social benefits, in the target groups, level of benefit, sources of funding like taxation, goals in relation to labour markets, social policy and the foreseen impacts in the society at large.
In the recent UBI models the important point of departure has been a renewal in income tax, so that the UBI benefit from middle and high-income earners would be recovered. This has been criticised for leading to a high marginal tax level, and disincentives.
UBI is seen to benefit particularly temporary workers, self-employed, aged, people with a diminished capacity to work, caregivers, and people in sparsely populated areas. In the UBI models of the last decade the aim has usually been cutting down the bureaucracy in social benefits, improve employment, and to increase self-governance and independent choices is life, and to support people in new types of jobs and entrepreneurship, now often left in a ‘shadow zone’ in terms of social security and benefits.
There are high hopes attached to UBI in terms of fostering employment, incentives to receive work, and in terms of supply and demand for work. Employment is expected to increase, as UBI combined with salaries guarantees the worker a reasonable income, and lowers the threshold, especially in the case of low income, variable sources of income and short temporary work. UBI is expected to lower the risk of recruiting in situations where new and inexperienced workforce is recruited, and where the productivity of the new recruits is uncertain.
A special investigation on UBI has been carried out by commission of National Government , coming up with four basic options: (1) a ‘complete basic income’ meaning an equal sum paid to all work-aged people, independent on the situation or income of the person, and (2) a ‘partial basic income’, an income which would substitute basic (means tested) social benefits, but not housing allowances or earnings-related employment benefits, (3) Negative income-tax model, where the UBI comes via the taxation system, so that people earning under a certain limit get an income re-distribution and (4) ‘a combination model’, a combination of the existing basic benefits of the National Insurance ( acronym Kela in Finnish) plus a ‘participation/activity’ extra, which would be paid for participating in some ‘societal work’.
The different models are seen to contain different strengths: The option 2, partial basic income, has been considered to be the most realistic one, option 1, the complete basic income best in promoting equality and combatting poverty, whereas option 3, negative income tax model is seen as the easiest to be realised, provided the national income registers, tax register and income redistribution systems can be combined. The option 4, ‘combination’, is supported by associations (NGOs) and municipalities in particular.
In August 2016 the Ministry of Social Affairs and Health (MSAH) proposed an experiment on UBI, to take effect from the beginning of 2017. The proposal is now a subject of an appraisal statement, due in September, by the social partners, ministries and other actors.
The UBI experiment will be launched as a ‘partial basic income’. According to the MSAH proposal, the ‘complete basic income’ is not politically and economically viable. The aim of the experiment would be to give incentives to take up work. 2000 unemployed would be chosen for the experiment, and participation would be compulsory. They would be chosen by a random sample from 25 – 58 years old lower level employment benefit receivers (called labour market support in Finland, i.e. not the earnings related unemployment benefit).
The UBI would be paid by National Insurance, and it would substitute the present basic social benefits, and the income should be equal to the lower level of employment benefits plus the basic level of social benefits. This would mean receiving 560 € of tax-free income per month. This is considered to give incentives to take up temporary and part-time work.
The participant in the experiment does not lose the UBI in taking up work, but other benefits (like housing allowance) would diminish with employment. If the participant to the experiment would get full time employment right from the beginning of 2017, (s)he would earn over 13 000 € extra income in the two years, in comparison to the comparison group, getting the lower level of employment benefits or basic social security, but not UBI.
Debate on the UBI experiment
The experiment has been criticized for neglecting the self-employed. One-person enterprises, self-employed, freelancers and grant receivers have increased in the new Millenium. The number of self-employed in Finland has increased from 37 000 to 157 000 in 2000 – 2015. The argument for including self-employed into UBI is that they are underemployed more often than salaried workers, working more often part-time, and are in a weaker position in terms of income security, occupational health care and social- and pension benefits. The income of self-employed is often irregular, and a larger part of them belong to the two lowest decimal income brackets.
It has also been criticized that the younger cohorts, people in work, and students are missing from the experiment. It has been suggested that a bigger sample of 10 000 would have been necessary, in order to get a richer picture of the UBI possibilities.
The proposed ‘partial UBI’ is also criticized because according to simulation analysis, the positive effects of a partial UBI are not necessarily realised, especially because there would remain a need to reconcile the housing allowance. Housing costs and the rental market are a major problem in Finland, especially in the capital city area. Taking up work could be further incentivised by lowering taxation of lowest incomes, or setting the UBI high enough to substitute also the housing allowance. 246 400 people received a housing allowance in 2015 in Finland (total populaiton of Finland is 5,3 million), and there has been an increase of 20% of receivers in just a year. The main reason behind this is increase in long-term unemployment.
The UBI experiment is estimated to cost and extra 7,5 meuros in the next 2 years. Critics have estimated that without changes in taxation, applying the UBI model to the whole population would result in anything from over 10 billion € in national economy deficit.
The complexity of the challenge of streamlining social benefits, adjusting them better to changes in the labour market and peoples’ lives, and to do away with incentive traps, has defeated several National Governments, initiatives and committees in the past decades. Over and over again the issue has created political debate, and several committees, experts and projects have sat over and proposed solutions, to only partial progress, so the UBI experiment and the fate of UBI is not necessarily born under lucky stars.
Nevertheless, it seems that there is political will, across the board, to at least try this, and then make judgements. The issue at hand is important and new results are badly needed. Doing reforms first with an experimental phase, is quite typical for Finland, but doing it using a randomized control group design, especially in such a complex issue, is quite unique. This raises also the question how well such a design is able to capture the issue at hand, and produce results that can be unequivocally interpreted. It is quite probable that the interpretation of the results will spark of a quite heated political debate. The verdict is open.