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Finland’s Basic Income Experiment & Technological Unemployment

Photo Credit: Fausto Saltetti

 

With job security eroding for millions of workers and robots threatening to take many of our jobs, how will regular people make ends meet in the future?

A bunch of cities and sub-regional governments are toying with a radical solution: giving people free money. And we’re not just talking small tax credits and baby bonuses, but enough free money for people to actually live on (albeit modestly).

It’s called a basic income. The idea has been around for a while, but right now it’s getting a surge of attention as pilot projects pop up in places like Utrecht, the Netherlands, Otjivero-Omitara, Namibia, Madhya Pradesh, India, California, United States and Ontario, Canada. And at the start of this year, Finland became the first national government to test it out. The International Basic Income Earth Network (BIEN) defines basic income as “an income unconditionally granted to all on an individual basis, without means test or work requirement”.ù

 

 

Two thousand low-income unemployed Finns were randomly selected to participate in the mandatory experiment – where they’d get a free income (imagine getting that letter in the mail). The participants ranged in age from 25 to 58. They will be granted a tax-free unconditional monthly basic income of €560, or roughly US$ 580, every month. No strings attached. They don’t have to be looking for work and their bank account doesn’t have to be bare to start with.

The goal of the basic income test is to promote employment, especially for those who are currently outside the labour market, and to find ways to reshape the social security system in response to changes in the labour market. And the shocking thing is that the Finnish government it’s going to save money in the process.

Economic models carried out by the Finnish Social Insurance Institute (Kela) predicted that with a nationwide basic income, set at €550 a month, the amount the government currently spends on unemployment allowances would shrink from  €3.9 billion to €1.5 billion – keeping €2.4 billion in state coffers. The savings would be mainly from greater administrative efficiencies by reducing what is called the “bureaucratic traps” when states provide layered social protection programmes.   

The concept of a basic income is gaining steam as automation threatens jobs. Automation is a powerful driver of change in the labour market as it places downward pressure on the quantity and quality of jobs. This downward pressure on the labour market will no doubt increase inequality due to job polarization as technological change hollows out the middle class. Thus, basic income, as a form of social protection, can have positive effect on income distribution by narrowing income inequality.

The Finnish government’s report on its basic income experiment, noted that “in Finland, [basic income] models have been proposed, particularly in the 1980s when high basic income was seen as a response to technological unemployment caused by automation. In both Finland and elsewhere, full basic income has been seen as an instrument that would help to reduce the supply of labour and in this way allow more equal distribution of work and wealth and provide people with participatory opportunities outside paid work. The debate on basic income as a response to technological unemployment has resurfaced during the past few years as assessments on the employment effects of digital technologies have been produced” (pg 19).

Technological unemployment caused by automation is also reigniting the debate over whether there should be a wider concept of work to include unpaid care work, voluntary work, and creative expression (as explored in UNDP’s HDR 2015 on Work for Human Development). With basic income, no work goes unpaid. Under the current Finnish system, voluntary work can be interpreted as work. Thus, basic income can be used as a participation income that provides for a person’s participation in the labour economy outside paid work and aid the unemployed to become established and included in society.

 

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An advertisement publicizing Switzerland’s proposed universal income policy in Geneva. Photo Credit: MAGALI GIRARDIN/KEYSTONE via Associated Press

 

Although decreasing inequality and eliminating poverty are widely-shared societal goals, there are divergent views on how to achieve it. In mid-2016, more than three-quarters of Swiss voters turned down a proposal to implement a universal basic income in a referendum. Critics of the basic income approach see the Finnish experiment as problematic on three fronts. First, it leaves out some of the people who might benefit from it most: students, self-employed people, freelancers, micro-entrepreneurs and those working precarious jobs. Second, many have argued that a basic income wouldn’t be cost neutral once factoring in implementation costs. Third, it is still unclear how governments can best finance such initiatives sustainably through taxes in the long term.

Basic income pilots in Finland and elsewhere could provide a powerful policy responses on how governments could mitigate the threats of technological unemployment. Tell us what you think about the potential benefits and the drawbacks of Finland’s basic income test in the comment section below.

 

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Kai Hsin Hung

Kai-Hsin Hung is an External Collaborator with the ITC-ILO. He develops and designs curriculum and prototypes new sustainable learning solutions. His focus is innovation and knowledge synthesis of complex development challenges, including the future of work, food security, and climate change. He has broad experience in various roles in international advocacy, program management, and policy research at the International Development Research Centre and Global Affairs Canada. Follow him at @KaiHsinHung

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