Oakland bets on basic income

On March 23, Oakland Mayor Libby Schaaf announced a program to give $500 per month to racial minority families who fall below certain income measures. A city news release said the program was designed to lift residents out of poverty and help undo the legacy of systemic racism in the community. But it has goals beyond Oakland.

“We have designed this demonstration project to add to the body of evidence, and to begin this relentless campaign to adopt a guaranteed income federally,” Schaaf said. Oakland’s experiment is the latest to test the increasingly popular idea of a government-backed guaranteed income to fight poverty. While the strategy has some attractive elements, poverty fighters are divided on whether it works.

Oakland’s program requires people to make no more than half the area’s median income and to have a child younger than 18. The city will randomly select 600 participants from eligible applicants, making it one of the largest trials in the United States. It is the first to restrict money to people of color. Oakland participants can choose whether to do interviews and surveys to help track their results.

Democratic presidential hopeful Andrew Yang made universal basic income the cornerstone of his campaign for the 2020 Democratic presidential nomination, and several mayors of left-leaning cities have recently pledged to test the idea. Even Sen. Mitt Romney, R-Utah, proposed a child allowance to replace several other welfare programs, which many saw as a step toward some kind of federally guaranteed income.

Supporters say a guaranteed income can stabilize poor people’s lives and free them to improve their situation. Critics highlight the enormous price tag and the likelihood that such a program would discourage people from working.

In the United States, proponents highlight a recent experiment in Stockton, Calif., in which 125 people received $500 a month for two years. Over a year, the percentage of people with full-time jobs rose from 28 percent to 40 percent, while full-time employment for the control group only rose by 5 percentage points. A study found that participants used the money to pay off debt and spent less than 1 percent on alcohol or tobacco. But 40 percent of the money was transferred from the prepaid debit cards to personal accounts or cash, making it untraceable. Matt Zwolinski, director of the Center for Ethics, Economics, and Public Policy at the University of San Diego, said people are less likely to drop out of the labor force if they know the extra money is temporary, so the Stockton mayor’s “claim that this experiment proves that a basic income doesn’t negatively affect employment is overstated.”

The United States could look to data from other countries. In Finland, the government provided 2,000 unemployed people 560 euros ($600) a month between 2017 and 2018. Results from the program found participants’ reported happiness increased, but their job situations were only slightly better than the control group. “We can see it didn’t fully work,” Kari Hamalainen, chief researcher at the VATT Institute for Economic Research, said afterward in a webcast. A universal basic income would be expensive, she added. “If we had a universal basic income, we’d have to incorporate taxation” she said, and, based on the results, “it would be unsustainable.”

Replacing current welfare programs—many of which require participants to work to qualify—with unconditional cash payments could result in less work overall and thus, ultimately more poverty. Writing about the child allowance proposals, American Enterprise Institute scholars Angela Rachidi and Naomi Schafer Riley advised caution: “Remember that as recently as 1992, almost 5 million, mostly single-mother families were receiving unconditional cash aid from the government, yet 60 percent of children in single-parent homes were living in poverty.”

Bipartisan concerns that unconditional cash payments were causing long-term harm to families led to many of the welfare reforms enacted during President Bill Clinton’s administration, including work requirements for cash assistance.

“If we are to be unconcerned about returning to the pre-welfare reform days, why not eliminate child poverty altogether by just giving people even more money?” Rachidi and Riley wrote. “The answer is because unconditional cash payments from the government have unintended consequences, and those consequences include reduced employment, more nonmarital childbearing, and ultimately higher poverty rates.”