Why guaranteed annual income makes good economic sense

Dan Herman

What if tomorrow someone walked up and handed you a cheque that covered your monthly living expenses? And next month, and the month after, they did the same?

In theory, you’d never have to work. You could stay home, watch Jerry Springer, and live on the fringes with little effort.
But would you?

This question, and competing perspectives on it, are at the heart of a debate on the appropriateness and effectiveness of a basic annual income (or guaranteed annual income). The concept would see every individual in a jurisdiction receive a guaranteed payment from the government. At its most basic, the income paid would be sufficient to meet basic needs but insufficient to alter the incentives that drive an individual to look for work and to improve their personal welfare.

Doing so would replace other social transfers (EI, Social Assistance etc), in a potentially more effective and less costly manner. Those whose incomes are above a certain threshold would pay taxes over and above that income and those whose incomes fall below would not. There’s no doubt that some would lie back and enjoy the fruits of my tax payments. But they’re the same, ultra-small minority that does so today.

For most, according to the five guaranteed income experiments run in North America, the result will be little to no economic change, with vastly improved health outcomes for those at the bottom of the socio-economic ladder. The only Canadian experience with a BAI is well documented by Evelyn Forget on the 1974 to 1979 income experiment in Manitoba. This experiment yielded significant improvements in health and education outcomes. In the United States, four “income maintenance” experiments were run over the same period. The outcomes of these experiments included moderate reductions in hours worked but improvements in school attendance and skill development.

These explicit health and educational outcomes, however, have been unable to sway political favour towards this initiative. Perhaps more focus on an economic analysis will.

Given current rates of unemployment and growing unease around youth employment, a guaranteed income holds potential to spur entrepreneurship by providing a safety risk for entrepreneurial endeavours. It’s far easier to start a business when you know your rent is still going to get paid. And given structural shifts away from mass employment in both the public and private sectors, it is increasingly clear that we need to build a nation of dynamic entrepreneurs, willing where appropriate to take risks in bringing new product and services to the market.

Unfortunately there’s very little research on the link between a guaranteed income and entrepreneurship. That’s why some, including myself, are advocating for the development of a pilot project to further study the effects of a basic or minimum income in Canada. I realize that calling for a study on everything isn’t the most popular, nor immediate, route. However given the magnitude of change in both fiscal and cultural attitude that the introduction of a guaranteed income would require, evidence is needed to support any proposal for change.

Given growing concerns related to employment, poverty and health, we can’t be afraid of thinking creatively and boldly about how best to ensure that everyone in our society has the opportunity to succeed. Debate on a guaranteed minimum income is a great place to start.

If you want to learn more about the proposed pilot project see basicincomepilot.ca