Important study finds that giving money without conditions to the poor increases both employment and wages

[Karl Widerquist – the BIG Blog – BI News]

A randomized field study recently conducted in Uganda found that giving money to people without conditions actually increases both how much they work and how much they earn per hour. The study gave a $400 one-time grant to 20 young people, chosen randomly out of a group of rural Ugandans who applied to be a part of the study. Essentially, this grant amount is a one-time basic income, sometimes called a basic capital grant.

Perhaps, $400 doesn’t sound like much, but because poverty is so high in rural Kenya, the $400 grant is equivalent to an entire year’s income for the people in the study. Researchers then followed the recipients for two and a half years to see how they behaved relative to rural Ugandans who did not receive the grant. What they found might surprise some readers.

Two-and-a-half years later, receipts of the grant worked 17% more hours than similar Ugandans who did not receive the grant, and they earned higher wages and salaries, so that their incomes increased by even more than the hours the worked for a total increase of 50%. If those who did not receive the grant were making $400 per year, recipients were making $600 per year. No one knows yet how long the differential will last, but it is likely to accumulate for at least several years, perhaps many years.

The reasons for the increase in wages and hours worked are not yet certain, but possible explanations stem back to the extreme poverty experienced by so many people in developing nations. People who face such low wages have very little time to spend either improving their skills or looking for better work. They simply must spend their time focusing on getting enough food for the next day. A basic income gives them the opportunity to step back, improve their skills and/or look for a better job.

The theoretical possibility that basic income could have a positive affect on wages and hours worked (especially among the poorest people) has been understood for a long time. But this study provides an extremely important piece of empirical confirmation.

The basic income debate should take these results seriously. These results challenge the widely-held (yet rarely-empirically-investigated) belief that poor people are poor because they are too lazy either to work hard or to learn better skills. There are billions of people around the world living on less than two dollars per day. Perhaps unconditional cash is what they need most.
-Karl Widerquist, begun in Lerwick, Shetland, Scotland, completed in Beaufort, North Carolina, USA

For more on this study see this blog post by one of the authors of the study: Blattman, Chris, “Dear governments: Want to help the poor and transform your economy? Give people cash,” Chris Blattman: International development, politics, economics, and policy, 23 May 2013

See also the original study: Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda,” the Social Science Research Network, May 20, 2013

And the following editorial: Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor,” Slate May 29, 2013

About Karl Widerquist

Karl Widerquist is a Visiting Associate Professor at Georgetown University School of Foreign Service in Qatar. He holds a Ph.D. in Political Theory from Oxford University and a Ph.D. in Economics from the City University of New York. He is coauthor of Economics for Social Workers and coeditor of the Ethics and Economics of the Basic Income Guarantee. He has contributed to journals such as Politics, Philosophy, and Economics; Political Studies; and the Eastern Economic Journal.
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3 Responses to Important study finds that giving money without conditions to the poor increases both employment and wages

  1. Ton Bil says:

    Interesting research, thank you for reporting it here. Two important factors in the experiment must be controlled for in future research, before we could generalize the results.

    (1) Being member of a subset of the population getting the grant, makes people believe they have a more than “normal” chance to improve their conditions: if I know that most of the people around me can improve their situation just like me, it’s less probable I’ll take the effort – the competition is too wide and strong.

    (2) Knowing that others did not receive the grant, could make the endowed ones feel “lucky” and successfull – this emotional state of having “luck” might inspire to other actions. It will be interesting to see such an experiment repeated with all members of a certain social group of poor people. For even further generalizations, the experiments should be conducted outside of Uganda, since economic and social conditions vary heavily between countries.

    • I agree with both points. But the Ugandan population is at least economically representative of the world’s poorest people. People living at this economic level around the world differ in culture and other factors, but there are billions of people living on one or two dollars a day like the Ugandans in this study.

  2. Sean says:

    Switzerland is going to hold a referendum on a basic income. Have no idea if it’ll make it or not.

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