A few years back the world had all eyes on Finland – a Nordic country regularly popping on top of rankings, for example being the happiest country in 2018 and 2019 by the United Nations. However, the rankings were not the reasons behind the attention. Above all, the Finnish centre-right government, led by prime minister Juha Sipilä, decided to run a two-year study for basic income between January 2017 and December 2018. The study aimed to investigate how the social security system would better suit the changing labor market and encourage people to work.
In all its simplicity, the researchers randomly picked 2000 long-term unemployed workers between the age of 25 to 58 living on government benefits to take part in the study. Regardless of participants’ attempts to look for a job or not, they received 560 euros tax-free at hand every month for two years. Besides, any other income, such as a possible salary, did not affect the amount granted for the people. Once assigned to the ‘treatment’ group, participation in the experiment was mandatory, and the results of the group were compared to the control group of all other unemployed Finns.
The preliminary results regarding the first year of the basic income experiment were released on February 8th, 2019. The general public hoped for significant changes, but the outcomes were mostly disappointing. The treatment group that received the monetary incentive did not generate any higher income or more work hours than their counterparts, even if the financial rewards were generous. The Finnish VATT Institute for Economic Research reported that based on a monthly salary of 2000 euros the net income of participants in the experiment would have been on average 2150 euros including the basic income, compared to 1690 euros of someone in the control group.
Nonetheless, a positive finding of the study was that the ‘free’ money increased the participants’ well-being and made them happier. Anyhow, these findings are based on subjective answers on a survey, which might provoke to question the results. The response rate was as well very low, 31 percent in the treatment group and 20 percent in the control group. After all, it can be concluded that other issues that may restrict long-term unemployed people from working, such as lack of relevant skills and health problems, are shown to play a more significant role than financial rewards.
The researchers emphasized in the report published that the findings represent only the first year of the study and additional information about the overall effects will follow later this year.
Despite the current interest in studying the effects, the idea of basic income is not precisely new. Back in the 1970s, legislators in North America took the concept in action, which resulted in several small-scale experiments in the United States and Canada. However, what makes the Finnish study a one of a kind is that for the first time the concept of basic income was implemented nation-wide as a randomized field experiment. Anyhow, the research does not seem to revolutionize the skepticism about basic income but most likely will keep up the interest in the concept.
A report by OECD in 2017 suggested that Finland’s social security and taxation systems combined create such a complicated structure, that it discourages people from working. Therefore, it does not come as a surprise that the government is desperately trying to find new measures to reform the social security system and encourage people to work. In Finland, the unemployment rate was 7,4 percent in February 2019, which is the highest percentage among the Nordic countries. As a comparison, at the same time, the Netherlands had an unemployment rate of 3,4 percent.
Furthermore, according to statistics by the European Union, Finland had the highest total general government expenditure on social protection, reaching nearly 25 percent of the Gross Domestic Product (GDP) in 2017, compared to the average of 19 percent in the whole Union. In other words, these amounts refer to the percentages spent in promotion of policies and programs that aim to diminish poverty and issues with high social risks, such as unemployment, old age, sickness, disability, and exclusion. So far, no signs of a decrease in these expenditures are to be seen in the near future, due to the aging population and diminishing birth rate. Reshaping the social security system is necessary, but the tool of basic income might be off the table.
In light of the early results from the basic income study, the Finnish, but also other governments would have to look for different ways to improve their social security systems. Automatization and digitalization are changing the form of the labor market, but in terms of the incentives created by the basic income, the problem is not solved just yet. It seems to be proven that unemployment is a far more complex issue to resolve than just incentivizing workers with free money.