In recent years, many communities across the world have begun to test basic income programs, unconditional cash transfers to low income people. This type of assistance solves a problem that exists in other social safety net programs: in-kind transfers (such housing subsidies or food assistance) don’t offer much flexibility to the people that receive them.
A common criticism of basic income programs is that they might encourage people to exit the workforce. If people can get by without working, then what incentive do they have to keep working? This is just speculation right now, and there is some evidence to suggest that there aren’t negative labor market consequences to basic income programs.
In a new working paper this month, there actually seems to be some evidence that at least one basic income has some positive impacts on the labor market. Researchers looked at a basic income program in Maricá, Brazil, a small city in Rio de Janeiro state. There, approximately 42,000 residents receive around $25 USD per month in the form of Mumbuca, a local currency. Recipients have the freedom to spend as they wish, and since Mumbuca is only accepted within the city, it ensures that the funds directly support the local economy.
The study found that Maricá’s basic income program positively impacted local employment rates. After the program's implementation, formal employment in Maricá was about 20% higher than in comparable municipalities without a similar program. The researchers offered three potential reasons why employment rates actually increased.
Increased Local Consumption and Demand
The unconditional income provided through the program strengthens the purchasing power of residents. With more reliable monthly income, recipients can spend more on goods and services locally. Since Mumbuca can only be used within Maricá, this spending stays local, boosting the revenues of city businesses. This increased demand requires businesses to expand, often by hiring more workers, which leads to job growth.Reduced Financial Constraints for Job Seekers
Basic income also reduces financial constraints for residents. With a steady income, they feel more secure financially, allowing them to engage in formal employment opportunities they might have avoided previously due to upfront costs like commuting or child care. Additionally, the program may encourage entrepreneurship, as recipients have the flexibility to use their funds to start small businesses. As these businesses grow, they add to the demand for labor, generating further employment opportunities.Economic Spillover Effect of Local Currency
The use of Mumbuca as a local currency amplifies the economic effects of the cash transfer. Since the currency cannot be used outside Maricá, it effectively locks the cash into the city’s economy. This restriction ensures that any funds spent by program recipients remain in Maricá, creating a higher local economic multiplier effect than if residents could spend outside the area. For businesses and employees, this local spending translates into stable, predictable demand, which further incentivizes hiring.
Maricá’s experience shows that basic income can potentially strengthen employment rather than hinder it, particularly in a tightly knit local economy. The boost to consumer spending and the spillover effects of the local currency help make the formal job market more vibrant and sustainable. While basic income programs are often viewed as a way to provide social safety nets, Maricá’s model suggests they may also stimulate local economic activity and job creation.
The Maricá basic income program appears to have provided recipients with the flexibility to make different choices regarding their work. According to the study, labor income among recipients decreased by 17%, which researchers believe indicates that some participants may have transitioned to lower-paying but more personally fulfilling jobs. This trend suggests that the security provided by a basic income might enable individuals to pursue work that aligns better with their personal preferences or offers better work-life balance, especially important considerations during the pandemic.
This shift challenges the common assumption that basic income could reduce the incentive to work. Instead, it highlights how unconditional cash transfers can give individuals the freedom to choose jobs based on factors other than salary alone. This autonomy to pursue desirable work, even if it is lower-paying, underscores one of the potential benefits of basic income: it allows people to prioritize well-being and personal goals without the constant pressure to maximize earnings. For policymakers, this is a promising indication that basic income programs could contribute to a more adaptable, satisfied workforce.
We might worry that the unique nature of the basic income being paid in the form of a specific local currency might increase the potency of these positive effects, but this remains a positive sign for policymakers interested in exploring basic income programs for their own jurisdictions. Money gets multiplied as it moves through the economy. If well designed, basic income programs could make everyone better off.