‘Free money’ can be a leg up
Two years ago, the city of Stockton in California embarked on a bold experiment: it decided to give US$500 a month to 125 people for 24 months — with no strings attached and no work requirements. The people were randomly chosen from neighbourhoods at or below the city’s median household income, and they were free to spend the money as they wished. Meanwhile, researchers studied how the handout affected their lives.
The results from the first year (from February 2019 to February 2020) are now in.
The key finding is that those who received the cash managed to secure full-time jobs at more than twice the rate of those in a control group, who didn’t receive the cash. Within a year, the proportion of cash recipients who had full-time jobs jumped from 28% to 40%. The control group saw only a 5% jump in the same period.
The researchers reported that the money gave recipients the stability they needed to set goals, take risks and find work. One man in his 30s had been eligible for a real estate licence for more than a year but hadn’t gotten it because he couldn’t afford to take time off work. The extra $500 per month, he said, meant he had “more time and net worth to study . . . to achieve my goals.”
Critics of cash handouts programs often say ‘free money’ will leave people less inclined to find work. In several programs — from Alaska and North Carolina in the US, to Finland and Spain in Europe — it has had no effect on employment either way. But in some cases, it seems to embolden people with an entrepreneurial bent; for instance, in Japan, initial survey results have shown that recipients are 3.9 times more interested in launching a new business.
Employment aside, there are clear benefits to unconditional cash programs. The Stockton experiment — which was conducted as a randomised controlled trial and underwent an independent evaluation — adds to the growing body of evidence from basic income experiments around the world, which shows a boost in happiness, health, school attendance, and trust in social institutions, while reducing crime.
There were other benefits. Cash recipients reported being less anxious and depressed than the control group. On average, they “experienced clinically and statistically significant improvements in their mental health that the control group did not — moving from likely having a mild mental health disorder to likely mental wellness over the year-long intervention,” the report noted.
The cash also enabled recipients to help their families and friends. For example, one woman used the cash to help her siblings buy school clothes for their kids and to help her daughter-in-law pay her car insurance.
This isn’t the first time cash programs have had positive ripple effects on the broader community. In Kenya, cash transfers have stimulated the economy and benefited not only the recipients but also people in nearby villages.
One thing didn’t quite pan out as hoped, though. While each participant was given the monthly payment on a debit card — so researchers could see how they used the money — 40 percent of it was either withdrawn as cash or transferred to an existing bank account. Researchers had to rely on participants to tell them where the money went.
Of the money tracked on the debit cards, recipients spent most on necessities such as food (37%), home goods and clothes (22%), utilities (11%), and car costs (10%). They spent less than 1% on alcohol or cigarettes.
Though these numbers can’t capture the full picture, they offer a counter to claims that people who become poor get that way because they’re bad at rational decision-making and self-control, and that they’ll blow free money on frivolous things or addictive substances. The evidence doesn’t support these beliefs.
The experiment, officially known as the Stockton Economic Empowerment Demonstration (SEED), was small — only 125 cash recipients — so it’s not definitive standalone proof. Nevertheless, the program adds to the body of evidence that free money doesn’t necessarily discourage employment — rather, it can boost it.
Guaranteed income is not a cure-all for the systemic obstacles that keep people from a healthy, stable life. As the SEED researchers wrote in their report, “Guaranteed income should not be considered as a singular approach for household stability, but rather as one policy option to be implemented alongside others to shore up market failures.” Other policy options include increasing the supply of affordable housing and raising the minimum wage.
The second year’s worth of data from SEED is due in 2022.
ABOVE Mayor Michael Tubbs, brainchild of Stockton’s guaranteed income program SEED
PHOTO Nick Otto/AFP via Getty Images