Heikki Hiilamo: "Disappointing results from the Finnish basic income experiment"

Heikki Hiilamo, Professor of Social Policy at the University of Helsinki, comments on the preliminary results of Finland's basic income experiment: Effects on the labour market were minimal, and survey results demonstrating that basic income recipients had better subjective well-being can be questioned.

The basic income experiment in Finland has gained unprecedented attention around the world. However, the preliminary results of the experiment are disappointing. The labour market effects, which were the focus of the experiment, seemed negligible. Survey results demonstrated that basic income recipients had better subjective well-being. However, these results can be called into question.

The concept of basic income gathered interest from legislators and governments in the United States and Canada in the 1970s resulting in local experiments, but the experiment in Finland was the first nation-wide randomized field experiment on the idea. From the 1970s onward, social policies on both sides of the Atlantic have been dominated by workfare where payment of benefits is made conditional on participation on job promoting activities such as training, rehabilitation and work experience or on unpaid or low-paid work. 

But while the number of people relying on these policies has grown, jobs have not, and these programs have not shifted their focus to allowing citizens to continue to receive unemployment benefits even when they take the only jobs they can find, often short-term and low paying ones that don’t cover basic standard of living needs. Moving to even to basic income system could help support those who fall within the short-term employment category.

560 euros per month for 2,000 unemployed Finns

The basic income experiment was one of the key projects formulated in the program of Finland's current government led by Prime Minister Juha Sipilä. Traditionally, the Left Alliance and the Greens have advocated for basic income, but surprisingly the 2017 experiment was implemented by a center-right bourgeois government. What was also surprising was that Finland, a country with a comprehensive welfare state system and excellent register data, would test an idea which has been proposed and experimented in countries with weak social protection or no social protection at all. That also garnered interest in the experiment.

In the Finnish experiment, a randomly selected group of 2,000 young unemployed and long-term unemployed Finns were paid  560 euros per month for a study period of two years regardless of employment status. The rest of the unemployed in Finland formed the control group.

Since the treatment group getting the ‘treatment’, i.e. the 560 euros a month net, is similar to the control group in all relevant background characteristics, the experiment mimics experiments in natural sciences and in medicine. If there will be differences after the experiment between the treatment group and the control group, we can establish a causal loop.

Targeted basic income instead of a universal one

The Finnish experiment was about partial basic income targeting able-bodied people without work, it was not about universal basic income. That has been a source of major confusion around the experiment and a source of critique of it. 

The experiment analyzed two different interlinked mechanisms in the Finnish public social services system.

Currently, those who have been classified as “long-term unemployed” are required to participate in active labour market programs. Those who refuse to participate, lose their unemployment benefit for two months and may also face a reduction in social assistance, the last-tier income support system in Finland.

However, in the experiment, the basic income recipients were not obliged to participate in such measures and faced no sanctions.

Secondly, as elsewhere, all Finnish minimum income benefits are means-tested, which means that extra income acquired from work is deducted from government-sponsored benefits.

Those who got basic income during the experiment were able to keep all the extra income from work without risking to lose one euro of the basic income amount. The recipients of basic income did not need to report their incomes to the unemployment office, which reduced bureaucracy and insecurity caused by fluctuating benefit levels.

Basic income did not create more work hours or higher incomes

The basic income experiment was more than anything else set out to study how the social security system could be reshaped in a way that promotes active participation and gives people a stronger incentive to work. That means employment outcomes were the focal point of the endeavour. In simple terms, the idea was to test if the carrot works better than the stick in encouraging the unemployed to accept new job offers and to seek income from entrepreneurial activities.

With that respect the results were disappointing. Basic income recipients did not have more work days or higher incomes than those in the control group. Despite the fact that basic income recipients had clearly better incentives to work, there were no statistically significant differences between the groups. The results show that among the young and the long-term unemployed other obstacles for work, such as outdated skills and health issues, are more important than financial incentives.

It is important to emphasize that results are based on a one-year follow-up. This is also something the research team emphasizes.

New activation policy contaminated the control group

However, the Finnish government introduced a new activation policy into the Finnish unemployment system at the beginning of 2018 – that is, during the second year of the experiment – which contaminated the control group. It is now no longer possible to see if the differences between the experiment and control groups are due to basic income or due to tougher conditionality faced by the control group.

It is also important to note that labour markets did not pick up before early 2018. That means there could be more visible effects in 2018, but if that is the case, we cannot really know if that was related to basic income.

Survey showing well-being is not reliable

The survey of the participants showed more positive results of the experiment. According to subjective evaluations, basic income recipients experienced significantly fewer problems relating to health and stress. They also had a more positive view of their future.

However, the results on this dimension are not as reliable as the register-based results on labour market effects. Firstly, the experiment did not include a baseline survey. We do not know if people’s subjective assessments changed after they started to receive basic income.

Positive effect could be due to attention created by the study itself

The positive evaluation may not relate to basic income as such but to public debate around basic income and to the fact that people were members of a selected group.

Secondly, the survey was carried out in late 2018 when the newly implemented and heavily criticized sanction scheme was implemented.

Finally, it also needs to be considered, that response rates in the survey were low (31% in the experiment group and 20% in the control group).

Despite shortcomings, the survey results are interesting enough to keep up interest in basic income, especially among those who see basic income more as a social justice issue than an instrument for activating the unemployed people.

For those who argue that basic income will activate people at the lower ranks of society to seek self-reliance, the preliminary results from Finnish experiment come as a slap in the face.

Read more: 

The Case for a Participation Income: Acknowledging and Valuing the Diversity of Social Participation

Finland May Have Found The Answer To Increasing Global Unemployment

The Rise (and Fall) of the Basic Income Experiment in Finland

Finland shares unconditional money, but the public view remains polarised