EconPol Research Finds: Basic Income Has Small Effect on Employment in Finland

The basic income in Finland led only to a small increase in employment. Finland is the only country that carried out a complete nationwide randomized control trial of a basic-income program. „It has been widely hypothesized that universal basic income might alleviate many problems in contemporary labor markets, like job polarization and inequality. However, in our research we could not find a major impact on the Finnish labor market“, says Jouko Verho one of the authors. The study examines 2,000 benefit recipients in Finland who were randomized to receive a monthly basic income. The experiment was carried out in 2017 and 2018.

„Despite the considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment, somewhat higher in the second“, describes his co-author Kari Hämäläinen the results: Most studies on in-work benefits found that labor supply is extensively responsive. „In this regard, the Finnish experiment provides an interesting contrast“, says Ohto Kanninen, another author. The researchers carve out three broader policy lessons from their work.

First: Improving monetary incentives for employment might not work in hard-to-employ populations, especially if the increase in incentives peaks at relatively high wage levels. These findings are particularly relevant for many European countries, with a high level of long-term unemployment, relatively high minimum wages, and extensive social safety nets.

Second: The current practice of filing unemployment benefit claims via the Internet might have become so easy that people continue filing them even when they need not do so. If researchers want to find convincing evidence of the existence of bureaucratic traps, a more promising topic could be the benefit complexity that results from the interaction of different types of benefits.

Third: If a labor market policy entices participation with monetary supplements, it seems to counteract the employment-promoting threat effect of active labor market programs. There is a real possibility that a well-intentioned policy exacerbates the unemployment problem.