February 8, 2019 / 7:39 AM / 3 months ago

Finland's basic income trial boosts happiness but not employment

HELSINKI (Reuters) - Finland’s basic income scheme did not spur its unemployed recipients to work more to supplement their earnings as hoped but it did help their wellbeing, researchers said on Friday as the government announced initial findings.

The two-year trial, which ended a month ago, saw 2,000 Finns, chosen randomly from among the unemployed, become the first Europeans to be paid a regular monthly income by the state that was not reduced if they found work.

Finland — the world’s happiest country last year, according to the United Nations — is exploring alternatives to its social security model.

The trial was being watched closely by other governments who see a basic income as a way of encouraging the unemployed to take up often low-paid or temporary work without fear of losing their benefits. That could help reduce dependence on the state and cut welfare costs, especially as greater automation sees humans replaced in the workforce.

Finland’s minister of health and social affairs Pirkko Mattila said the impact on employment of the monthly pay cheque of 560 euros ($635) “seems to have been minor on the grounds of the first trial year”.

But participants in the trial were happier and healthier than the control group.

“The basic income recipients of the test group reported better wellbeing in every way (than) the comparison group,” chief researcher Olli Kangas said.

Chief economist for the trial Ohto Kanniainen said the low impact on employment was not a surprise, given that many jobless people have few skills or struggle with difficult life situations or health concerns.

“Economists have known for a long time that with unemployed people financial incentives don’t work quite the way some people would expect them to,” he added.

PSYCHOLOGICAL BOOST

Sini Marttinen, 36, had been unemployed for nearly a year before “winning the lottery”, as she described the trial.

Her basic income gave her enough confidence to open a restaurant with two friends. “I think the effect was a lot psychological,” the former IT consultant told Reuters.

“You kind of got this idea you have two years, you have the security of 560 euros per month ... It gave me the security to start my own business.”

Owner Sini Marttinen poses for a picture at her coffee shop she founded while benefitting from Finland's basic income scheme in Helsinki, Finland January 30, 2019. REUTERS/Philip O'Connor

Her income only rose by 50 euros a month compared to the jobless benefit she had been receiving, “but in an instant you lose the bureaucracy, the reporting”, Marttinen said.

Mira Jaskari, 36, who briefly found a job during the trial but lost it due to poor health, said losing the basic income had left her feeling more insecure about money.

The centre-right government’s original plan was to expand the basic income scheme after two years as it tries to combat unemployment which has been persistently high for years but reached a 10-year low of 6.6 percent in December.

That followed the imposition of benefits sanctions on unemployed people who refused work.

The basic income has been controversial, however, with leaders of the main Finnish political parties keen to streamline the benefits system but wary of offering “money for nothing”, especially ahead of parliamentary elections due in April.

TAX BIND

Prime Minister Juha Sipila’s Centre Party has proposed limiting the basic income to poor people, with sanctions if they reject a job offer, while Conservative finance minister Petteri Orpo says he favours a scheme like Britain’s Universal Credit.

The higher taxes that the Organisation for Economic Co-operation and Development (OECD) says would be needed to pay for basic income schemes might also be off-putting for voters.

In a review of the Finnish scheme last year, the OECD warned that implementing it nationally and cost-neutrally for the state would imply significant income redistribution, especially towards couples from single people, and increase poverty.

The researchers have acknowledged that the Finnish pilot was less than realistic because it did not include any tax claw-back once participants found work and reached a certain income level.

Swiss voters rejected a similar scheme in 2016. Italy is due to introduce a “citizens’ wage” in April in a major overhaul of the welfare state, which will offer income support to the unemployed and poor.

Trial participants were generally positive, however, with Tuomas Muraja, a 45-year-old journalist and author, saying the basic income had allowed him to concentrate on writing instead of form-filling or attending jobseekers’ courses.

He said the end of the two-year trial, during which he published two books, had made it difficult again for him to accept commissions, because “I ... can earn only 300 euros per month without losing any benefits”.

Slideshow (2 Images)

“If people are paid money freely that makes them creative, productive and welfare brings welfare,” Muraja told Reuters about his experience of the pilot.

“If you feel free, you feel safer and then you can do whatever you want. That is my assessment.”

($1 = 0.8817 euros)

Reporting by Anne Kauranen; Additional reporting by Attila Cser and Philip O'Connor; Editing by Catherine Evans

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