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OECD: Universal basic income might increase poverty and inequality

A report by the economic organisation revealed that in countries with strong social support systems, basic income would actually increase the number of the number of people in lower income brackets and under the poverty line.

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Image: Ismo Pekkarinen / AOP

Universal basic income might actually create more inequality, claims the Organisation for Economic Co-operation and Development (OECD), an economic organisation for high-income economies.

A recent report by the organisation investigated how universal basic income would tackle poverty and inequality in four countries: Finland, Italy, France and the United Kingdom. The report revealed that in countries with strong social support systems, basic income would actually keep the number of people in lower income brackets the same or even increase it. In theoretical models testing the benefits program, only Italy managed to keep poverty in check.

In Finland, basic income would be beneficial for some disadvantaged groups, but would inadvertently thrust others under the poverty line, resulting in the overall growth of inequality.

If a "no questions asked" basic income model would replace current social benefits, the OECD report writes, one group to take a big financial hit would be single parents. Finland’s situation is unique compared to other OECD countries, as the current social benefits system spreads out grants more equally than other countries.

Conclusions not definitive

The OECD report cannot be used to draw straightforward conclusions about the current basic income trial in Finland, however. The report converted the sum used for all social benefits to the sum used for basic income.

”The Finnish trial has different prerequisites. We have limited who can participate in the trial, whereas the OECD’s model is universal,” says Professor Olli Kangas, director of government and community relations at Kela.

While the OECD report considered how basic income compares to existing models, a large-scale benefits revamp in Finland would mean changes in taxation and retaining some social benefits. 

"The OECD paying attention to the basic income model is interesting. The labour market is changing on a global scale, and basic income is often offered as a solution to the challenges that poses," Kangas says.

Participation income a solution?

The pitfalls of the basic income model can be avoided with adjusting taxation or eligible people, the OECD report continues.

One alternative is to tie benefits would be tied to active participation in job-search or labour market integration measures. A "participation income" would only be paid to those in work, looking for a job or otherwise active in society through, for example, volunteer work or education.

On the downside, to keep costs down, activity seen as participation has to be strictly defined.

Finland’s two-year basic income trial is run by the state-owned benefits administrator Kela. The 2,000 participants were selected from the ranks of existing labour market subsidy and unemployment benefit recipients. The participants will receive 560 euros a month tax-free.

The OECD model set Finland's basic income benefit at 527 euros, which is a bit less than the sum paid in Finland's trial.

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