The Stockton Guaranteed Income Experiment Results in Positive Impact. Can it Scale Broadly?
Universal Basic Income remains a hotly contested policy option. In order to provide a more data-based and scientific basis for the policy, a number of pilots are taking place in the United States and across the world. Recently, a year-long study was published that looked at such a guaranteed income experiment in Stockton. If you would like to learn a little more about UBI as a concept, I wrote an earlier piece about the policy’s potential benefits and drawbacks. Today, I will focus on the Stockton experiment’s results from both a micro perspective — how the behavior of Stocktonians changed due to this experiment, and the macro perspective — how would this work if implemented on the federal level, would the results be the same?
Overview of Study. The Stockton Economic Empowerment Demonstration, or SEED, was the nation’s first guaranteed income initiative. SEED gave 125 Stocktonians, the treatment group, $500 per month for 24 months. The cash was unconditional, with no strings attached and no work requirements. The study also included a control group of people with similar demographic trends as the people in the study, except they did not receive the stipend. To qualify for the plan, recipients had to be at least 18 years old, reside in Stockton, and live in a neighborhood with a median income at or below $46,033. Finally, SEED made it a priority to ensure that nobody lost any cash flow from other welfare agencies due to the new influx of cash.
How did people’s behavior change? The study offered numerous insights into how the behavior of peoples receiving cash differed significantly from popular misconceptions. The popular mantra, “give people money, and they stop working,” and other claims that welfare induces dependency on the government were proven false as the researchers found the share of participants with a full-time job rose 12 percentage points when given the cash benefit. This result is not an anomaly as a 2015 meta-study of cash programs in developing countries found “no systematic evidence that cash transfer programs discourage work.” Other studies of cash-grant experiments have found that such programs can increase working hours and earnings, particularly when the beneficiaries are required to attend classes that teach specific trades or general business skills. Now there is evidence that these programs work in the United States as well as in developing nations.
Additionally, the cash transfer reduced income volatility: Households getting the cash saw their month-to-month earnings fluctuate 46 percent, versus the control group’s 68 percent. The families receiving the $500 a month tended to spend the money on essentials, including food, home goods, utilities, and gas. The percentage of individuals in the treatment group who could afford to pay unexpected bills in cash increased from 25% to 52% over the year. Individuals getting the money were also better able to help their families and friends, providing financial stability to the broader community. Finally, the data showed that only 1% of the money was spent on tobacco and alcohol, refuting an oft-cited claim that giving money to those economically disadvantaged will result in them buying such goods.
What the results mean at a macro level. While this study illuminates certain vital issues, it is essential to understand how this study could be viewed at a broader level. First, many people are using this as evidence of how UBI would work in America; however, this plan did not emulate a UBI as it focused only on people below a certain economic threshold; thus, it is not “universal.” An actual UBI results in all members of society over 18 receiving a stipend which significantly shifts the economic impact instead of having only people below the median income receive the package. Second, these findings focused on the micro-level in the short term within a small sample size, making it impossible to ascertain the long-term effects this plan would have on inflation and unemployment. If implemented on a larger scale, it would be evident that the economy would see a short-term expansion because of an increase in government spending resulting in higher incomes and aggregate demand, which in turn increases real output or GDP, according to models by The Roosevelt Institute. However, the drawbacks of this are twofold: one, an increase in aggregate demand would result in increased inflation, and two, the long-term impacts may see the expansion fade when prices adjust to the higher levels of income. In fact, a Wharton model shows that the GDP would actually fall in the longer term. Third, the study did an excellent job ensuring that recipients of the stipend didn’t see a decrease in other welfare bonuses; while this was net beneficiary to the recipients, it may have skewed the data in a way that is unable to replicate at the federal level. As mentioned in my previous post about UBI, an increase in government spending by that degree would most likely result in suspending or terminating existing welfare programs, decreasing the net gain.
These studies and numerous other pilots across the nation illustrate some of the key behavioral shifts that occur when a cash stipend is given to subsections of the population; they also refute several misconceptions of the causes and continuations of poverty that have served to hamper those in lower socio-economic groups for decades. However, it is important to consider the changes required to make this implementable at the federal level.