How universal basic income can improve employability

This is the third of my articles aimed at resetting our development discourse. In the past two weeks, I spelt out what needs to be done in education, manufacturing and health.  This week I argue that a good social protection programme can lead to greater employment creation and ultimately facilitate economic growth.

Studies have shown social protection measures like universal basic income (UBI) will deal a major blow to poverty, lower crime, precipitate confidence in people and eliminate ethnic differences to allow the economy to flourish. 

The Ontario province of Canada conducted a UBI experiment to test whether a basic income paid regularly to low- or no-income people would, “reduce poverty more effectively, encourage work, reduce stigmatisation, and produce better health outcomes and better life chances for recipients.”

Those who participated in the experiment were guaranteed Sh100,000 or $1,000 per month for singles and Sh170,000 or $1,700 per month for couples. If a participant gets employed, they lost a per cent from their basic income. This meant that UBI would only apply to people earning less than Sh240,000 or $2,400 per a month for singles and Sh340,000 or $3,400 a month for couples.

Although the Canadian study was stopped mid-way, the findings were astounding. Participants reported improvements in their physical and mental health. Some 50 per cent of the participants reported decreased use of alcohol and tobacco. One third reported reduced visits to doctors and hospital emergency rooms suggesting that basic income may be useful in the reduction of the healthcare cost. 

The findings also provided evidence that not all the participants quit employment for UBI, thus dismissing the excuse often advanced that UBI could engender unemployment. People do not prefer dependency; they prefer to earn their own living if the opportunities are available.

At least a half of 17 per cent who quit employment went back to school or other institutions of higher learning to improve their skills for better employment in the future. Some ended up climbing the ladder into better jobs.

Kenya case

In Finland, however, a UBI experiment failed. The 2017 to 2019 experiment targeted 2,000 randomly selected young unemployed and long-term unemployed people. Each of the participants was paid about Sh6,000 or $630 per month with no strings attached. Whether or not they got into employment during the experiment, they were allowed to continue with the pay but they were not allowed to enroll into any employment training programs.

The findings were summed up by social policy expert, Heikki Hiilamo, who noted that “Despite the fact that basic income recipients had clearly better incentives to work, there were no statistically significant differences between the groups. The results show that among the young and the long-term unemployed other obstacles for work, such as outdated skills and health issues, are more important than financial incentives.”

In Kenya, a non-governmental organisation, GiveDirectly, started a UBI project in rural Kenya paying about Sh80 of $.075 daily for at least 12 years since 2017. Initial findings just released last month show that:

Transfers significantly improved well-being on common measures such as hunger, sickness and depression in spite of the pandemic, but with modest effect sizes. They may have had public health benefits, as they reduced hospital visits and decreased social (but not commercial) interactions that influence contagion rates.

During the pandemic (and contemporaneous agricultural lean season) recipients lost the income gains from starting new non-agricultural enterprises that they had initially obtained, but also suffered smaller increases in hunger. This pattern is consistent with the idea that UBI induced recipients to take on more income risk in part by mitigating the most harmful consequences of adverse shocks.

The Kenyan findings mirror the Canadian study that UBI has profound effect on health. This means that in order to build an effective universal health, you’ve got to start with UBI. The people’s health is central to economic development.

Many lessons

There are many lessons to learn from these experiments. Indeed, a new study by Gentilini and others and also cited in the GiveDirectly report shows that between March 20 and June 12, 2020 (pandemic), 195 countries introduced 1,024 new social protection measures covering an estimated 1.7 billion individuals. Cash transfers make up a large share of this expansion, reaching 1.2 billion individuals.

Based on the evidence that I have provided herein, you can understand why we need a social protection programme as a strategy to improve the livelihood of the people while facilitating economic expansion. The source of funding this gigantic proposal can come from many sources. 

First and foremost is to deal with corruption effectively. According to the Ethics and Anti-Corruption Commission, Kenya is losing about Sh610.0 billion or $6 billion (7.8 per cent of Kenya's GDP) to corruption annually. Kenya has approximately 13 million households. With 36 per cent living below poverty, it leaves 4.7 million households that will need help. If every household in need receives $2 a day, total payment at the end of the year will amount to Sh355.3 billion (about 50 per cent of the losses due to governance). In essence, if we improved our governance, we can afford UBI.

We could also adopt a Scandinavian model with high taxes and guaranteed social benefits that affords everyone a decent life. It makes no difference if corruption resources are re-directed into the tax kitty instead of it being used to buy political seats.

Many are unaware of what Benjamin Franklin said, that “Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.”

Social protection will change the development narrative in Africa. After all, we have tried everything to eliminate poverty but we have failed.

If indeed we want to achieve the Social Development Goal number 1, let us re-think how to motivate people to be more productive and become contributors to social protection fund.