From idea to experiment - Preliminary report on a universal basic income completed

The research working group carrying out a preliminary review in advance of the basic income experiment in Finland has come out with its first proposal for models that could be used to try out a universal basic income in practice. The group presented its preliminary report to Hanna Mäntylä, Minister of Social Affairs and Health, on 30 March 2016.

The report brings together information about different basic income models and about the results of experiments in which such models have been tried out. It also estimates the effects that different basic income models could have. Based on the preliminary report, the Finnish Government will decide on how to proceed with the experiment, take steps to draft the necessary legislation, and select both the model(s) trialled and the design of the experiment. The working group will specify and further explore these policy decisions in its final report, which is due on 15 November 2016.

The Finnish basic income experiment is one of the key projects formulated in the programme of Juha Sipilä's Government. The project was launched with an initial study focusing on the implementation of a universal basic income, which will conclude in 2016. The actual experiment is scheduled to take place in Finland in 2017-2018, with an evaluation of results to follow in 2019. The basic income experiment is one of the steps being taken to bring the Finnish social security system into closer alignment with changes in the nature of work, to make the system more participatory and strengthen work incentives, to reduce bureaucracy, and to simplify the now complicated benefit system in a way that ensures the sustainability of public finances.

Suitability of different basic income models for the experiment

The preliminary report looks at a full-fledged unconditional basic income model, a partial basic income model, a negative income tax model as well as possible other models in terms of their suitability for the experiment. An unconditional basic income would take the place of much of the currently existing system of social provision, where eligibility for benefits is tied to specific contingencies. The basic income would therefore have to be substantial, which would make the model quite expensive. A partial basic income model would consolidate many of the existing benefits offering basic economic security, while earnings-related benefits would remain largely unaffected. To study incentive effects, simulations on a partial basic income model are run at a range of different replacement rates and levels of housing costs.

Both nationwide and regional samples

The working group proposes that a two-pronged sampling approach should be used in the actual experiment, consisting of a randomised nationwide sample and a regional, and more intensive, sample to study externalities. A weighted sample can be produced of population groups that are particularly relevant to the experiment. There are a number of constitutional and other legal problems associated with the design of the experiment, which the report examines extensively.

According to the report, a universal basic income would eliminate some bureaucratic roadblocks and gaps in coverage, but would not by itself solve all problems related to disincentives. The elimination of disincentives requires reforms in several different areas of social and tax policy. One problematic group in terms of social policy consists of single parents, particularly those paying a high rent and living in the greater Helsinki area. It is difficult to eliminate the disincentives they face without a wholesale readjustment of the social security system. Lowering the minimum level of welfare provision would be an easy way to produce better incentive outcomes. However, doing so would increase poverty and create more financial hardship.

Partial basic income as starting point

The report points out that trying out a negative income tax would require access to a comprehensive registry of incomes. Studies in the United States show that experiments with self-reported data do not produce reliable results. A basic income model strongly based on conditional reciprocity runs into problems of supervision and control, i.e., how to define the level of participation required by reciprocity and who will supervise and document that the requirements are met. Such an experiment would necessarily be of limited scope.

The working group believes that consolidation of the current system of basic economic security into a partial basic income would produce valuable results. Since a universal basic income and a negative income tax are, from the individual's perspective, functionally equivalent, trying out a partial basic income would generate useful information also about the negative income tax. Such an experiment could be implemented without a registry of incomes by leveraging the existing welfare payments system operated by the Social Insurance Institution. Since it would also be possible to use the welfare benefits provided by the Social Insurance Institution as a basis for the experiment, the sample size could be increased substantially, which would make the results more reliable and make it possible to focus on specific population groups.

Background information:

The Prime Minister's Office invited proposals for the design of a basic income experiment as a competitive tender process funded out of the Finnish Government's analysis, assessment and research plan for 2015. After evaluation, the preliminary review was entrusted to a consortium consisting of the Finnish Social Insurance Institution Kela, the Government Institute for Economic Research, the Universities of Helsinki, Tampere, Turku and Eastern Finland, the National Fund for Research and Development Sitra, the think tank Tänk, and the Federation of Finnish Enterprises. The Association of Finnish Local and Regional Authorities will also be contributing to the review. The project is part of the Government's analysis, assessment and research plan for 2015.

The working group solicited comments from a range of Finnish and international experts. Kaarlo Tuori, Academy Professor at the University of Finland, provided comments on the constitutional implications of different experimental designs and levels of basic economic security. On matters of tax law, the working group consulted Heikki Niskakangas, Professor Emeritus at Aalto University.

Preliminary report on a universal basic income