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Australian Finance

Finland tests an unconditional basic income

JUHA JARVINEN, an unemployed young father in a village near Jurva, western Finland, brims with ideas for earning a living. “I’m an artist and entrepreneur. Sometimes I’m too active, I don’t have time to stop,” he says. He just agreed to paint the roofs of two neighbours’ houses. His old business, making decorative window frames, went bust a few years ago. Having paid off debts, he recently registered another, to produce videos for clients.

Mr Jarvinen says that for six years he had wanted to start a new business but it had proved impossible. The family got by on his wife’s wages as a nurse, plus unemployment and child benefits. Mr Jarvinen had a few job offers in the main local industries—forestry, furniture-making and metalwork. But taking on anything short of a permanent, well-paid post made no sense, since it would jeopardise his (generous) welfare payments. To re-enroll for benefits later, if needed, would be painfully slow. “It is crazy, so no one will take a bit of work.”

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Mr Jarvinen’s luck turned in January. That is when he was picked at random from Finland’s unemployed (who total 10% of the workforce) to take part in a two-year pilot study to see how getting a basic income, rather than jobless benefits, might affect incentives in the labour market. He gets €560 ($624) a month unconditionally, so he can add to his earning without losing any of it. Not only is he active in seeking work and creating a business, he also says he is much less stressed, relieved from the “silly show” of filling out monthly forms or enduring official interviews to prove his job-seeking efforts.

If Mr Jarvinen is making progress, it is too soon to draw overall conclusions. Kela, Finland’s national welfare body and the organiser of the pilot, will not contact participants directly before 2019, lest that influences outcomes. Instead it monitors things remotely, using national registers of family incomes, taxes paid, purchases at state-run pharmacies and more. These (anonymised) data will be made available to researchers, who might ask, for example, if consumption of antidepressants changes among grant recipients.

Some lessons in how to run such an experiment are emerging. Olli Kangas, who says he is agnostic on basic incomes, helped to design the study and now runs it for Kela. The process is far harder to implement than expected, he says with a sigh. “I never anticipated how difficult it is to put such a simple thing into a complex system. It is a nightmare.”

He laments fickle politicians who blow hot and cold, yet insist the study must be wrapped up before an election in 2019. He grumbles that “they don’t use calculators”, calling them “small boys with toy cars, who become bored and move on”. Finnish politics is intricate: the Centre party, Greens and a far-left party back the study. So does a libertarian wing of the conservatives, hoping to simplify the welfare state. Sceptics include traditional conservatives, many Social Democrats and big unions.

Such unions, with (mostly male) members in permanent jobs in heavy industry, manage unemployment funds and do not want to lose control, so they dislike the idea of a basic income, says Mr Kangas. In contrast the idea appeals to those that represent part-time service staff, such as (mostly female) cleaners or retail workers. He says surveys show the wider public wavering: 70% like the idea of the grant in theory, but that drops to 35% when respondents are told already high income taxes would have to rise to pay for it.

The study’s design faced constraints. The constitution ordains equality for all, so getting permission for some welfare recipients to get special treatment was difficult. That limitation, and a budget of only €20m (plus diverted welfare funds that would have otherwise gone to the recipients), restricted the sample size to just 2,000 people. Mr Kangas frets that might prove too few to be statistically robust.

A larger sample might also suggest answers to more questions than the one of whether a basic income makes the unemployed keener to work. Mr Kangas would like to try similar grants on those with low-income jobs, to see if such recipients choose to work less, for example. It would also have been instructive—but too expensive and politically difficult—to give grants to residents of entire municipalities to see how local economies are affected: would the local demand for goods and services rise, for example.

Sympathisers see other limitations. Elina Lepomaki, a parliamentarian and chair of Libera, a libertarian-minded think-tank, argues a more affordable and hence realistic approach would have let welfare benefits fall as recipients’ incomes rose over a certain level. Kate McFarland, of the Basic Income Earth Network, which has promoted the idea of basic incomes since the 1980s, says a two-year study is too short to learn how the psychology of beneficiaries changes.

Whatever its flaws, the pilot is a good example of a Finnish fondness for social experiments. Participants will be followed for ten years to identify long-term effects. International interest has been intense: this month television crews from South Korea and Sweden have been queuing up to see Mr Kangas; he regularly lectures abroad and advises others on similar studies. Just getting started counts as a success, he says. “This is trial and error, and the door is now open for better experiments.”

Source: economist
Finland tests an unconditional basic income

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