Universal Basic Income (UBI) has garnered increasing attention as a potential solution to adverse projected trends in technological unemployment and income inequality. The concept involves providing regular, unconditional payments to all citizens to ensure financial security and personal freedom.
A recent UBI experiment, funded by Sam Altman, CEO of OpenAI, offers new insights into how UBI might affect recipients’ financial well-being. As one of the most comprehensive UBI trials to date, this study sheds light on the positive and concerning aspects of UBI’s impact on financial health. Does UBI genuinely deliver on its promise of long-term financial improvement? This article explores the findings of the trial and their broader implications. For a more in-depth discussion, readers can refer to a recent episode of the Economics Explored podcast hosted by Adept Economics Director Gene Tunny.
Sam Altman’s UBI trial was designed to rigorously test the financial and social outcomes of providing unconditional cash transfers to participants. Conducted over three years (2021-2024) across the U.S. states of Illinois and Texas, the experiment included 3,000 participants. Of these, 1,000 participants aged 21 to 40 received $1,000 per month, while a control group of 2,000 participants received only $50 monthly. The randomised controlled trial (RCT) methodology ensured the results would be robust and reliable, allowing for a clear comparison of outcomes between the two groups. This large-scale trial focused on understanding UBI’s effect on employment, spending, education, and overall financial health. It aimed to clarify whether UBI could serve as a viable policy for advanced economies such as the United States and Australia.
One of the key takeaways from the trial was the positive impact UBI had on recipients’ ability to meet their basic needs. UBI recipients increased spending on essential items like food, rent, and transportation. The study also noted that recipients were more likely to support others financially, indicating that the additional income provided greater flexibility. Importantly, UBI allowed people to feel more in control of their lives. Many reported having greater agency over their personal and financial decisions, which aligns with the core argument made by UBI advocates—that the program provides a foundation for financial security, allowing recipients to pursue education, improve their health, or even explore entrepreneurial opportunities.
The trial also found that recipients were more likely to plan for further education, suggesting that UBI encouraged some to consider investing in their long-term personal development. This short-term financial boost and the increased focus on education highlight UBI’s potential to improve well-being and offer a safety net for individuals to explore opportunities that might otherwise be inaccessible.
However, while UBI did provide immediate financial relief and flexibility, some of the trial’s findings were less encouraging. For instance, UBI did not lead to clear improvements in recipients’ net worth. Although recipients saved more and held higher cash balances, these gains were offset by increased debt, particularly auto debt. Some recipients took on loans to purchase vehicles, which resulted in a rise in total auto debt by 17%. In some cases, recipients ended up with a lower net worth than those in the control group despite receiving significantly higher monthly payments.
This raises a critical question: does UBI lead to sustainable financial improvement or simply offer temporary relief? The fact that recipients accumulated more debt than savings suggests that UBI might not be enough to provide long-term financial security, at least in its current form. These findings challenge the optimistic view that UBI can automatically lift people out of poverty or improve their overall financial health in a lasting way.
Another critical aspect of the study was its examination of how UBI affects labour market participation. The trial found that recipients worked fewer hours, with an average reduction of 1.3 to 1.4 hours per week. There was also a slight decline in labour market participation, with a 2% decrease among UBI recipients compared to the control group.
This reduction in work hours and participation raises concerns about the potential long-term impacts of UBI on employment and productivity. If people work fewer hours, their future earnings potential may be diminished, negatively affecting their financial trajectory. Moreover, the lack of significant increases in human capital—such as educational attainment or skill development—suggests that UBI recipients are not necessarily using the additional free time to improve their job prospects.
The Sam Altman-funded UBI trial results offer a nuanced view of UBI’s financial implications. On the one hand, the experiment demonstrated that UBI provides recipients with immediate financial relief, allowing them to meet basic needs, support others, and gain a sense of control over their lives. On the other hand, the study revealed troubling trends, such as increased debt accumulation and reduced labour force participation, which raise doubts about UBI’s ability to foster long-term financial improvement.
While UBI can offer short-term financial security, its potential to create lasting wealth or enhance long-term financial health remains unclear. As more studies are conducted, policymakers will have to carefully weigh the pros and cons of UBI before deciding whether it is a viable solution for the challenges posed by technological change and economic inequality.
Published on 17 October 2024. For further information, please email us at contact@adepteconomics.com.au or call us at 1300 169 870.