The idea of a universal basic income (sometimes called an income guarantee) has gathered a lot of interest over recent years, particularly as fears of job losses to artificial intelligence have risen. The underlying idea is simple. Government makes a regular payment to all citizens (so it's universal) large enough to cover their basic needs (so it's a basic income). However, other than a number of pilot projects, no country has yet fully implemented a universal basic income (UBI), and many have apparently changed their minds after a pilot (see here and here). There are a couple of reasons for that. First, obviously, is the cost. A basic income of just $100 per week for all New Zealanders would cost about $26 billion per year. That would increase the government budget by about 14 percent [*]. And $100 is not a basic income, because no one is going to be able to live on such a paltry amount. Second, there are worries about the incentive effects of a universal basic income. When workers can receive money from the government for doing nothing (because it's universal), will they work less, offsetting some (if not all) of the additional income from the UBI?
That brings me to this NBER working paper by Eva Vivalt (University of Toronto) and co-authors. The paper was originally published back in 2024, and received quite a bit of coverage then (for examples from the media, see here and here), but has been revised since (and I read the September 2025 revision). Vivalt et al. evaluate the impact of two large guaranteed income programmes in north central Texas (including Dallas) and northern Illinois (including Chicago), both of which were implemented by local non-profit organisations (with the programmes funded by OpenResearch, founded by OpenAI CEO Sam Altman). These are not quite UBIs of course, because they weren't available to everyone. Nevertheless, they do help us to understand the incentive effects that could apply to a UBI. Like many would hope a UBI would be (ignoring the immense fiscal cost), the programmes were quite generous (for those in the treatment group, at least) and:
...distributed $1,000 per month for three years to 1,000 low-income individuals randomized into the treatment group. 2,000 participants were randomly assigned to receive $50 per month as the control group.
Vivalt et al. look at the impacts on employment and other related outcomes. There is a huge amount of detail in the paper, so I'm just going to look at some of the highlights. In terms of the overall effect, they find that:
...total individual income excluding the transfers fell by about $1,800 per year relative to the control group, with these effects growing over the course of the study.
So, people receiving the UBI received less income (excluding the UBI - their income increased once you consider the UBI plus their other income). In terms of employment:
The program caused a 3.9 percentage point reduction in the extensive margin of labor supply and a 1-2 hours/week reduction in labor hours for participants. The estimates of the effects of cash on income and labor hours represent an approximately 5-6% decline relative to the control group mean.
People responded to receiving a UBI by working less, just as many of those who had concerns about the incentive effects of a UBI feared. However, the negative incentives also extended to others in the household:
Interestingly, partners and other adults in the household seem to change their labor supply by about as much as participants. For every one dollar received, total household income excluding the transfers fell by around 29 cents, and total individual income fell by around 16 cents.
So, although households received $1000 extra per month from the UBI, their income only increased by $710 on average, because the person receiving the UBI, and other adults in the household, worked less on average. What were they doing with their extra time? Vivalt et al. use American Time Use Survey data, and find that:
Treated participants primarily use the time gained through working less to increase leisure, also increasing time spent on driving or other transportation and finances, though the effects are modest in magnitude. We can reject even small changes in several other specific categories of time use that could be important for gauging the policy effects of an unearned cash transfer, such as time spent on childcare, exercising, searching for a job, or time spent on self improvement.
So, people spend more time on leisure. Do they upgrade to better jobs, which is what some people claim would happen (because the UBI would give people the freedom to spend more time searching for a better job match)? Or do they invest in more education, or start their own business? It appears not, as:
...we find no substantive changes in any dimension of quality of employment and can rule out even small improvements, rejecting improvements in the index of more than 0.022 standard deviations and increases in wages of more than 60 cents. We find that those in the treatment group have more interest in entrepreneurial activities and are willing to take more financial risks, but the coefficient on whether a participant started a business is close to 0 and not statistically significant. Using data from the National Student Clearinghouse on post-secondary education, we see no significant impacts overall but some suggestive evidence that younger individuals may pursue more education as a result of the transfers...
Some people have concluded that the results show that a guaranteed income or UBI is a bad policy. However, the guaranteed income did increase incomes (including transfers) overall and therefore makes people on average better off financially. Leisure time is an important component of our wellbeing, so we shouldn't necessarily consider more leisure time a bad outcome for a policy. In fact, Vivalt et al. also find that on average the guaranteed income increases subjective wellbeing on average (but only in the first year, after which subjective wellbeing returns to baseline).
The results should have surprised anyone. They are consistent with a simple model of the labour-leisure tradeoff that I cover in my ECONS101 class. The model (of the worker's decision) is outlined in the diagram below. The worker's decision is constrained by the amount of discretionary time available to them. Let's call this their time endowment, E. If they spent every hour of discretionary time on leisure, they would have E hours of leisure, but zero income. That is one end point of the worker's budget constraint, on the x-axis. The x-axis measures leisure time from left to right, but that means that it also measures work time (from right to left, because each one hour less leisure means one hour more of work). The difference between E and the number of leisure hours is the number of work hours. Next, if the worker spent every hour working, they would have zero leisure, but would have an income equal to W0*E (the wage, W0, multiplied by the whole time endowment, E). That is the other end point of the worker's budget constraint, on the y-axis. The worker's budget constraint joins up those two points, and has a slope that is equal to the wage (more correctly, it is equal to -W0, and it is negative because the budget constraint is downward sloping). The slope of the budget constraint represents the opportunity cost of leisure. Every hour the worker spends on leisure, they give up the wage of W0. Now, we represent the worker's preferences over leisure and consumption by indifference curves. The worker is trying to maximise their utility, which means that they are trying to get to the highest possible indifference curve that they can, while remaining within their budget constraint. The highest indifference curve they can reach on our diagram is I0. The worker's optimum is the bundle of leisure and consumption where their highest indifference curve meets the budget constraint. This is the bundle A, which contains leisure of L0 (and work hours equal to [E-L0]), and consumption of C0.
Now, consider what happens when the worker receives a UBI. This is shown in the diagram below. At each level of leisure (and work), their income (and therefore consumption) is higher. That shifts the budget constraint up vertically by the amount of the UBI. If the worker spends no time at all working, they now have consumption of U, instead of zero, and if they spend all of their time working (and have no leisure) their consumption would be W0*E+U. The worker can now reach a higher indifference curve (I1). Their new optimal bundle of leisure and consumption is B, which contains leisure of L1 (and work hours equal to [E-L1]), and consumption of C1. Notice that the worker now consumes more leisure and more consumption as well. Because leisure has increased, that means that the number of work hours has decreased. The increase in leisure, decrease in work hours, and increase in income overall (when the UBI is included), are consistent with what Vivalt et al. found.
So, based on a simple model of the labour-leisure tradeoff, the results of this guaranteed income programme are not surprising. We should have expected a reduction in work, and a reduction in labour income, and that's what Vivalt et al. found. The question policymakers are left with is whether a large income transfer like this is worth it for government, if each $1000 transferred increases incomes by just $710 on average.
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[*] Of course, if other welfare payments were scrapped in favour of a universal basic income, then the net cost would be lower. Nevertheless, the point that the cost is very high still stands.
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