Study raises questions about whether UBI is the ‘right policy choice’ for managing severe shocks
BY PAUL DENNING
A new study examining the effect of Universal Basic Income (UBI) in Kenya shows that cash transfers improved recipients’ food security and health and these gains sustained through the policy responses to the Covid-19 pandemic and the hungry season.
Beneficiaries of a basic income experienced less hunger, sickness, and depression, both before and after the country implemented restrictions to tackle Covid-19, according to the research.
The research was conducted by Tavneet Suri, associate professor of Applied Economics at the MIT Sloan School of Management, Abhijit Vinayak Banerjee, the Ford Foundation International professor of Economics at MIT, Michael Faye of Give Directly, the international charity, Paul Niehaus at University of California at San Diego, and the late Alan Krueger of Princeton, and it is being published as a working paper.
The study arrives as the global Covid-19 health crisis has prompted new questions about the effectiveness of social protection programs in times of emergencies. While UBI is often touted as a salve for economic inequality, questions remain over whether it can help recipients withstand severe shocks.
“Our study shows that a guaranteed basic income provides some resilience to help people weather difficult times,” says Prof. Suri. “But it also suggests that cash transfers may not be the right policy choice for helping people manage extremely challenging circumstances—particularly if they’ve taken a financial risk such as starting a new business.”
The research is based off an ongoing experiment that looks at the effects of UBI on people’s wellbeing in poor communities in Kenya. In 2017, nearly 6,000 recipients in a 12-year trial began receiving 75 cents a day—an amount that covers most essential needs. Others received that amount for two years; payments ended in late 2019 through early 2020. And a third group received a lump sum, split into two payments delivered early on in the experiment, equal to the payments in the second group.
As coronavirus cases began to surge around the world earlier this year, Kenya’s government imposed strict limits on mobility and gatherings to prevent the virus’s spread. These restrictions likely had a negative effect on the country’s economy and may have dealt a particular blow to poor villages, such as those in the study. These restrictions also coincided with agricultural seasonality and the hungry season. Food insecurity was widespread: nearly 70% of the control group reported experiencing hunger.
But UBI recipients—both the people in the 12-year group and the two-year group—fared much better. Recipients were 5-11 percentage points less likely to report experiencing hunger, and 4-8 percentage points less likely to have had a sickness of any kind. They were also less likely to be depressed.
Before the pandemic hit, the research team noted that the UBI had allowed many recipients to start businesses. (This is consistent with other research that shows UBI may give people the flexibility to take calculated risks.) When the Government placed restrictions in Kenya, which occurred concurrently with the country’s agricultural lean season, in which food is scarcer and more expensive, new business income fell but the businesses remained open. However, UBI recipients were able to maintain their improved food security relative to the control group.
“UBI recipients had a cushion,” says Prof. Suri. “Moreover, despite the lost income, the UBI allowed business owners to stay afloat; without that money, they might have had to shut down.”
And yet, cautions Prof. Suri, this finding underscores the fact that UBI is unlikely to be the policy tool of choice in extreme circumstances—and probably for good reason.
“The benefit of UBI is it encourages risk-taking and investment, but it is not hard to imagine situations where those risks increase exposure to shocks,” she says. “In our study, we saw that the income gains of small business owners that had received UBI were wiped out by the pandemic/agricultural season. This is not a failing of UBI, just a warning that it is not designed to deal with such severe situations.”