Removing welfare traps: Employment responses in the Finnish basic income experiment

Abstract

This paper provides evidence that replacing minimum unemployment benefits with a basic income of equal size has minor employment effects at best. We examine an experiment in Finland in which 2,000 benefit recipients were randomized to receive a monthly basic income. The experiment lowered participation tax rates by 23 percentage points for full-time employment. Despite the considerable increase in work incentives, days in employment remained statistically unchanged in the first year of the experiment. Moreover, even though all job search requirements were waived, participation in reemployment services remained high.

Publication Information

Verho, J., Hämäläinen, K., & Kanninen, O. (2022), Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment, American Economic Journal: Economic Policy, American Economic Association, 14(1), 501–522, February.

• ISSN: 1945-7731, 1945-774X (Online)
• JEL: C93, H24, H53, I38, J64, J65