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Fail or Success? How To Interpret First Results From The Finnish Basic Income Experiment?
by Minna Ylikännö, Prof. Olli Kangas | 05.04.2019

The first results of the Finnish Basic Income (BI) Experiment were published in the beginning of February 2019[1]. The second releases took place the 2 and 4 April[2]. According to the results, the benefit mimicking basic income did not have any significant positive or negative employment effects when compared to the control group, i.e. those not included into the experiment. There are several possible reasons for the zero results received during the first year.

Firstly, employment results were based on data from one year, i.e., data for 2017 that was the first year of the experiment. It may be that the effects (if there are any) will be visible in the second year – which we do not yet have data for. Data for the latter part of the year 2017 displays a slightly increasing trend in the employment rate vis a vis the control group[3]. Since there always is a time lag before behavioural effects become visible, we have to wait data for the year 2018.

Secondly, we must keep in mind the specific characteristics of the target group of the experiment. Both the treatment group (2,000 persons) and the control group were drawn from the unemployed job seekers receiving basic unemployment benefits from the Social Insurance Institution of Finland (Kela) in November 2016.  The unemployed who are not entitled to the earnings-related unemployment benefit (that are not a members of voluntary funds or their right to the benefit has expired due to long-term unemployment or they do not yet fulfil the employment condition) can qualify to unemployment benefits paid by Kela[4]. Kela’s ‘basic security’ benefits (basic unemployment allowance and labour market subsidy) are not income-related. In principle, the labour market subsidy is income-tested and the duration is unlimited.

Thus, the experiment was targeted either to the long-term unemployed or those with very short working histories. Most probably, the experiment had yielded different results, if it had included also those unemployed receiving earnings-related unemployment benefits, not to speak about low-income earners, free-lancers and micro entrepreneurs[5].

A third possible explanation is that people do not react on monetary incentives as strongly as is usually supposed e.g. in the economic literature. But once again, we must keep in mind the specific characteristics of the target group. It may be that this group would react more strongly on services than on income transfers.

The fourth explanation to the zero result may relate to the possibility that the effects of the basic income counteract each other.  In the treatment group, the strong monetary incentive to accept jobs (€560 net a month) might have increased employment, while the less stringent conditionality might have made the BI receivers ‘lazier’. Thus, these opposite effects may have repealed each other resulting in the zero outcome.

Too strong an emphasis on labour market behaviour?

The proponents of the BI disagree with the above view of laziness. On the contrary, they argue that by empowering people and giving them freedom to choose for themselves the outcomes are more positive than what is achieved through sanctioning the unemployed. As desired outcomes of basic income, they emphasize not only the increased activity in the labour market, but also increased wellbeing of the citizens.

When the Finnish government decided to launch the basic income experiment, its main interest was in the employment effects. The government wanted to see if BI is good for employment. Thus, the government’s goal was rather limited and only when discussed in the parliamentary committees, the interest was laid in the wider wellbeing aspects of BI.

Since the preliminary results for the first year do not display any significant employment effects, the opponents of the BI claim that the BI fails. However, we can turn the focus upside down. According to the proponents of the mainstream labour market policies in Finland, we should have witnessed a clear decrease in the labour supply among the BI receivers compared to the control group. However, we did not observe anything like that. The employment rate was not any better in the control group that remained in the current, conditional benefit system.

Hence, the mechanism improving the labour market status of unemployed is much more complex and perhaps more attention should be paid in the wellbeing effects of the experiment than on the employment effects. This is done in many other experiments outside Finland – in the evaluation of the experiments the focus is on wider dimensions of activity and wellbeing.

 

Minna Ylikännö
Researcher, Social Insurance Institution of Finland
minna.ylikanno@kela,fi

and

Olli Kangas
Professor of Practice, University of Turku
olli.kangas@utu.fi

 

More about the BI experiment you can find here:

https://helda.helsinki.fi/handle/10138/167728

http://julkaisut.valtioneuvosto.fi/handle/10024/161361

http://tutkimusblogi.kela.fi/arkisto/3316

https://www.youtube.com/watch?v=aYjVQ8BYLDk


[1] Kangas, O., Jauhiainen, S., Simanainen, M. & Ylikännö, M. (eds.) (2019): The basic income experiment 2017–2018 in Finland. Preliminary results. Helsinki: Ministry of Social Affairs and Health. https://stm.fi/julkaisu?pubid=URN:ISBN:978-952-00-4035-2.

[2] Hämäläinen, K., Kanninen, O., Simanainen, M. & Verho, J. (2019): Perustulokokeilun ensimmäinen vuosi [The First Year of the Basic Income Experiment]. VATT, Institute for Economic Research: Muistioita 56.

[3] Hämäläinen & al. (2019, p. 15).

[4] If the unemployed person violates the Unemployment Security Act, he/she may lose the right to the unemployment benefits and he/she may to apply for last resort social assistance of in need for financial support.

[5] Explanations why the unemployed were the target group of the experiment are given at http://tutkimusblogi.kela.fi/arkisto/3316.