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Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment

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  • Verho, Jouko
  • Hämäläinen, Kari
  • Kanninen, Ohto

Abstract

This paper provides evidence that replacing minimum unemployment benefits with a basic income of equal size has minor employment effects at best. We examine an experiment in Finland in which 2,000 benefit recipients were randomized to receive a monthly basic income. The experiment lowered participation tax rates by 23pp for full-time employment. Despite the considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. Moreover, even though all job search requirements were waived, participation in reemployment services remained high.

Suggested Citation

  • Verho, Jouko & Hämäläinen, Kari & Kanninen, Ohto, 2021. "Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment," Working Papers 142, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:142
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    Cited by:

    1. Jouko Verho & Kari Hämäläinen & Ohto Kanninen, 2022. "Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 501-522, February.
    2. Olli Kangas & Minna Ylikännö, 2023. "Basic Income and the Status of Women in an Established Gender-Equal Welfare State: Results from the Finnish Basic Income Experiment," IJERPH, MDPI, vol. 20(3), pages 1-13, January.

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    More about this item

    Keywords

    Employment; Field experiment; Social insurance; Unemployment benefits; Social security; taxation and inequality; Labour markets and education; C93; H55; I38; J65; Sosiaaliturva; Työmarkkinat;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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