Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment

Abstract

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

The Employment Effects of Generous and Unconditional Cash Support

“…Evidence from a European context comes from Finland and Italy. Studying the Finish basic income experiment, which replaced minimum unemployment benefits with an unconditional transfer of equal size, Hämäläinen et al (2022) find no employment effects. Evidence on a program similar to ours comes from Del Boca et al (2021) and Aparicio Fenoll and Quaranta (2022).…”