How universal basic income would work best — and it might not be monthly cash payments, a Nobel prize winner's new research suggests
- A new study on universal basic income compares the benefits of monthly payments to lump-sum payments.
- While the study is ongoing, it found lump-sum payments help those in need build wealth in the long-term.
Monthly cash payments through universal basic income programs work for those in need. But a different type of payment might work even better.
Nobel prize economist Abhijit Banerjee, alongside the late Princeton's Alan Krueger, UC San Diego's Paul Niehaus, MIT's Tavneet Suri, and Michael Faye of GiveDirectly — a nonprofit that gives cash to those in need —recently released the short-term results of a universal basic income experiment in Kenya.
Starting in 2017, GiveDirectly began conducting the longest and largest UBI study of 300 villages in Kenya that analyzed the impacts of four different types of direct payments:
A group receiving $22.50 a month per adult for 12 years
A group receiving $22.50 a month per adult for two years
A group that received a one-time $500 payment
And the control group, not receiving any payments.
While the study is ongoing and this research is using results from the first two years of the 12-year experiment, the latest data suggest that giving recipients a $500 payment all at once, instead of $22.50 a month for two years — which adds up to $540 in total — had more lasting impacts. For example, the study said that those who received the lump-sum payment were able to have higher earnings and access more education because the bigger payment helped them make bigger investments.
"$22 is not quite enough to start a business. So you have to figure out a way of turning your small amounts of money into a big amount of money," Banerjee said during a media briefing.
"The contrast with the lump-sum is that the lump-sum is precisely to get it once, and that has its downsides: if it's gone, it's gone," he continued. "But it has the advantage that you don't need to save it up little by little to get to your goal to start a shop. You have the money to start a shop. So in each of these, the kind of the incentives are very different."
The study did note that despite the lump-sum payments allowing more business and savings opportunities for the recipients, they had the smallest positive impact on mental health, likely because of the stress that comes with getting one big payment and the fear of wasting that money.
Still, the study said the lump-sum recipients saw "economic expansions similar to and on some measures even larger than those that received long-term transfers." While more data will be collected as the UBI experiment continues, this initial research shows that short-term UBI is effective to help people survive and meet basic needs, but giving a single larger payment could help those communities thrive in the long-term.
"The data suggest designing cash transfer programs is not one-size-fits all," Miriam Laker, GiveDirectly's research director, said in a statement.
"To meet basic needs cheaply, a short-term basic income may be the way to go," she said. "But to support more transformative changes in the lives of people living in extreme poverty, large one-time grants or guaranteed long-term basic income payments better enable recipients to make bigger investments in their future."
Previous research on the benefits of a lump-sum payment compared to monthly payments back up this latest study. For example, economists who studied former President Barack Obama's 2009 Making Work Pay tax credit found in 2011 that it would have been more beneficial to give Americans a lump sum payment rather than space the tax credit out because a bigger payment feels like an increase in wealth that's more likely to be saved, while a series of payments feels like an increase in income and is more likely to spent right away.
Of course, some stimulus payments are meant to quickly stimulate the economy and give people immediate financial aid, so assessing how to distribute payments depends on the goals of the program, as well.
A growing number of US cities and states are similarly running basic income experiments for communities in need. The Denver Basic Income Project, for example, was created in 2021 and enrolled 800 homeless Denver residents last October. The recipients received up to $1,000 a month, and while the latest results were taken just six months into the study, it found that the group that received a lump-sum payment reported a decline from 10% sleeping outdoors to 3%.
In a different program, 200 young parents in Baltimore were selected to receive $1,000 a month for two years, no strings attached. As other areas begin to test basic income programs for those in need, the researchers on Kenya's study suggest policymakers consider whether it has the resources to give lump-sum payments to the targeted communities to best serve them in the long-term.