Canada  and Finland  have recently begun pilot studies designed to assess the feasibility of a universal basic income (UBI). Both studies involve providing a basic income to disadvantaged individuals for a substantial period of time. The Canadian study is set to last two years and the Finnish study three years. Payments are not means-tested and will continue for the duration of the study period regardless if the recipients find work or better employment.

Besides the issue of sheer cost, one of the main concerns about a UBI is that it will discourage people from seeking and keeping jobs, especially good jobs with serious career potential. After all, you've got to collect taxes to pay for the UBI and you don't collect much in the way of taxes if a lot of people stop working. If, as a result of the UBI, labor market participation goes down, say, 10%, that would really put a dent in tax receipts. You can raise tax rates only so much to make up the difference. Raise taxes too much and more people will be tempted to drop out of the job market and collect their UBI checks. And then just do occasionally gigs as needed. Not a bad life style. One could get used to it.

I'm not writing this as some disgruntled conservative with a low opinion of the unemployed or the marginally employed. I'm writing this from experience: for over two decades I worked with the unemployed and the underemployed, almost all of whom had been receiving a basic income from either insurance companies or the government, often for several years. A good number had adjusted to their not-quite-straitened circumstances and weren't all that motivated to get a job. I didn't judge my clients - they weren't bad or lazy. Many simply lacked confidence in their ability to succeed in the workplace.  They didn't really want to go out there and risk rejection and failure.  Long periods of unemployment will do that to you.

The problem with the Canadian and Finnish studies is that they don't really replicate what it is about the UBI that is so corrosive to labor market participation: the knowledge that the checks will keep coming in for an indefinite period of time. Two or three years is not enough time to cultivate the mindset that accepts being unemployed or underemployed as the new normal.

But there actually was a real-life experiment that captured this effect: Denmark's very generous unemployment benefits program of the 1980s and early 90s. During this period, Danes could collect benefits for up to seven years. Oversight was lax and many Danes dropped out of the job market. Then in 1994 and again in 1996, the government greatly reduced how long one could receive benefits and tightened job search requirements. And you know what? Unemployment plummeted. The following graph says it all:

The chart also shows the effect of Germany's Hartz reforms in the early 2000s. These reforms included halving the period one could receive unemployment benefits. The results are rather obvious.

References:

Jacob Isaksen, Uffe Mikkelsen, and Peter Beck Nellemann Labour-Market Reforms in Denmark and Germany Monetary Review, 3rd Quarter 2012, Part 1, 73-88.

Jeylan T. Mortimer, Minzee Kim, Jeremy Staff, Mike VuoloUnemployment, Parental Help, and Self-Efficacy During the Transition to AdulthoodWork and Occupations Vol 43, Issue 4, pp. 434 - 465First published date: June-28-2016 10.1177/0730888416656904