Exploring the effects and mechanisms of a Universal Basic Income on Education

Table of Contents

1. Introduction

2. The History and Concept of a Universal Basic Income

3. The Importance of UBI

4. Education
4.1 Outline of Studies
4.2 Study Results
4.3 Methods of Effect
4.4 Factors that influence UBI
4.5 Is Income spent the right Way?
4.6 Intergenerational Linkages
4.7 Long Term Effects

5. Covid-19 and Automation Effects on a Universal Basic Income

6. Conclusion

References

Abstract

This paper aims to find out about the effects of a Universal Basic Income on education. At first, the concept of the Universal Basic Income will be explained and it will be put into a global context. Further,its effect on education will be analyzed using various studies conducted over the last decades, toestimate the short-term impacts a UBI would have on education. In order to also go into detail on longterm effects, the latter analysis will be complemented with a model by Daruich and Fernández (2020). This will show that while short-term effects of a Universal Basic Income might seem favorable when viewing a UBI policy over a longer time frame effects such as a general equilibrium and intergenerational linkages come into play. This leads to the conclusion that while a Universal basic income might seem to increase education standards at first glance, over the long-term this would most likely not be the case, even considering extreme scenarios, such as massive job losses due to automation.

Table of Figures

Figure 1: odds of children being enrolled in school offered cash transfers compared with children in households who were notoffered to participate in a cash transfer intervention

Figure 2: Probabilities for likelihood to pursue education or training, comparing a low and high UBI

Figure 3:Probabilities for being extremely likely to pursue education or training with a low and a high UBI (controlling for income)

Figure 4: Probabilities of consumption choices

Figure 5: Impact of Intensity of Conditionality on School Enrollment Odds Ratio (0=None, 6=Enforcement on Attendance)

Figure 6:College share and college & skill expected for parental income over time

Figure 7: Support for Universal Basic Income comparison between normal times and during Covid-19

List of Abbreviations

Universal Basic Income UBI

Unconditional Cash Transfer UCT

Conditional Cash Transfer CCT

Cash Transfer CT

United States of America USA

Home Observation Measurement of the Environment HOME

Earned Income Tax Credit EITC

1. Introduction

Milton Friedman (as cited in Lee, 2018) once said: "Let us not underestimate the ingenuity of the poor people in converting what they get from the relief worker to what they want. And that's just wasteful. They would be far better off if we just gave them the money and let them spend it." He was talking about a Universal Basic Income. Over the last decades, discussions about this policy have sparked massive public and political interest. Especially the ongoing Covid-19 pandemic and fears of job losses due to automation have underlined this tendency. Therefore, this paper will address the question whether such a policy is actually useful.

As one of the most important assets every country needs to focus on is its education. Education is an essential economic driver and gives people the ability to lift themselves out of poverty or, in other words, into prosperity. Therefore, this paper will focus on howa UBI would influence education. It will start with a broad introduction of the subject and go over the history and basic design principles of a UBI policy. Further on, various studies based on previous experiments meant to simulate a Universal Basic Income will be analyzed and later criticized. To supplement these studies and to direct the focus on the longer-term effects and the associated general equilibrium of a UBI, a model by Daruich & Fernandez (2020) will be taken into consideration. This will illuminate the more negative aspects of such a policy and the related intergenerational linkages, a concept that connects different generations and is responsible for many long-term effects. In the last chapter, the view will be redirected to current and future problems, such as Covid-19 and automation, which will then be built into the model to further test the effects of such events.

2. The History and Concept ofa Universal Basic Income

The idea of a Universal Basic Income has been around for a long time. Some of its early mentions have been, for example, by the likes of Thomas Paine, who suggested payments to all citizens starting with adulthood. There was also the Belgian socialist Joseph Charlier, who suggested territorial dividends and James Meade, who proposed a social dividend in the 1930s. The concept of a Universal Basic Income has been around in different social circles and discussed by people with different ideological perspectives; however, it mostly has its roots in social-democratic, anarchist, and socialist thinking. But the Universal Basic Income even has support from the Neo liberalist side. Milton Freeman, for example, believed that the Negative Income Tax, a slight variation from the Universal Basic Income, could assist the poor while still keeping market mechanisms intact (Bidadanure, 2019, p. 482).

Universal Basic Income, in its most simple form, means that a part of the wealth created should be redistributed amongst the whole population. The concept is governed by three basic principles: universality, individuality, and unconditionality.

Universalityrefers to the fact that the policy of the Universal Basic Income targets everyone. While other welfare policies only benefit a subset of the population, the UBI affects every single person (Wispelaere & Stirton, 2004, p. 267).

Individualitydescribes how the policy is directed. This means that Income is paid to each and every individual. However, in recent talks, advocates of the universal basic Income have also discussed a policy targeting individual households instead of individuals (Wispelaere & Stirton, 2004, pp. 267­268).

Conditionalitymeans that there is no condition built into the policy to restrict people from its access. Therefore, in contrast to other types of welfare programs, no eligibility must be proven (Wispelaere & Stirton, 2004, p. 268).

These basic principles are often too broad. To further define a UBI, it can be supplemented with the principles of uniformity, regularity, modality, and adequacy.

Uniformityrefers to the principle that every individual receives the same amount from the UBI transfers. However, different concepts of the UBI have been created, such that the allocation of grants is differentiated between, for example, children, working-aged people, and people receiving pensions (Wispelaere & Stirton, 2004, p. 269).

Regularitydescribes the fact that the grants should be paid out in pre-defined intervals. These can be short, for example, weekly, or longer such as on a yearly basis. The timeframe of payments usually depends on the current administration. A short time frame is often advocated by those who support UBI as a basic safeguard, while a long-time frame is supported with the goal of equal opportunity (Wispelaere & Stirton, 2004, pp. 269-270).

Modalitydescribes how the grants are paid out. Most concepts of the UBI transfers have been proposed as cash payments; however, they can theoretically take different kinds of forms, such as food coupons, education grants, or housing benefits (Wispelaere & Stirton, 2004, pp. 270-271).

Adequacydefines the amount that is distributed. This is highly dependent on the context of the given society. Previous ideas of the universal basic Income have fixed it around the subsistence level. However, it can significantly vary in dimension, from a partial to a full basic income (Wispelaere & Stirton, 2004, p. 271).

3. The Importance of UBI

Throughout the last decades, a multitude of problems has sprouted to which current political parties have struggled to respond with working policy solutions. This has led to a growing call for a Universal Basic Income as a measure to fight these issues. The main drivers of this movement are:

Technological Change:

With the advances in robotics, artificial intelligence, and other automation technologies, concerns have been raised about the futures security of jobs and wages. While this does not affect all jobs, it primarily targets jobs in lower-skilled areas. As robots are much more sufficient when it comes to simple repetitive work, companies might prefer them over traditional human labor. Especially in countries with governmentally regulated minimum wage, this might be an issue as human labor could become economically unfeasible compared to other technological options. A study on the US labor market by (Acemoglu & Restrepo, 2019) estimated the adverse effects of robots on employment and wages: one robot per thousand workers could reduce the local employment-to-population ratio by 0.39% and the respective wages by about 0.77% (pp. 50-51). Depending on the amount of growth in robots in the next coming decades, this could also have devastating effects on the European labor market.

A further impact to consider is the change that digitization in the work place brings with it, especially during recent times, where the COVID-19 pandemic has forced a lot of work from home technology, and online workspaces have become increasingly prevalent. This can lead to an increased risk of mental health disorders that are linked with problems such as a decreasing boundary between work and private life and the general loss of autonomy on the job (Haagh & Rohregger, 2019, pp. 5-6). This further increases unemployment, as people affected by mental health, are not able to carry out their jobs anymore.

Employment and Income

COVID-19 has severely impacted labor markets. It led to a steep decline and the labor force and a fall in employment. In the EU area, employment decreased by around 3.1 million workers from the fourth quarter of 2019 to the fourth quarter of 2020. During the same time, unemployment increased by 0.9 million, an 8% increase for male workers and a 6.6% increase for female workers (Botelho & Neves, 2021, para. 1). This, however, is not the whole story; part-time, temporary work, and self-employment have also substantially increased during the pandemic across Europe. This has led to a lack of job security for a large part of the population and, thereby also, uncertainty about future income.

Economies and Markets

The economic divergence between regions is increasing. An excellent example of this trend can be seen in Europe. While some countries have experienced relatively high growth in their GDP, others have been more or less stagnant. This shows a general trend between the convergence of east and south Europe. This divergence however is not only central to Europe but can be seen worldwide. Another example would be between emerging countries, such as for example in Africa and other more developed countries.

Wealth Gap and Political Trends

Not only internationally but also nationally, the wealth gap has been widening. According to a recent UN research, worldwide inequality has reached historic levels, with more than 70% of the global population living in nations where the wealth gap is widening. Around the world, the average income difference between the top 10% and poorest 50% of individuals has nearly doubled in the previous two decades. Even in countries like Argentina, Brazil, and Mexico, where inequality had been declining in previous decades, social and economic differences have widened, according to the World Social Report. Millions of people's prosperity and growth might be jeopardized if nothing is done to solve the situation ("Wealth Gap Widening for More than 70% of Global Population, Researchers Find," 2020, para. 1-3). This has also led to new political trends. Recently in the United States, Andrew Yang proposed a Universal Basic Income as part of his 2019 presidential campaign. He called it a 'Freedom Dividend,' which would provide every American over the age of 18 with a monthly UBI of $1,000.

Education

As governments all around the world eagerly increased provision, enrolling ever more children in primary and secondary schools, universal basic education seemed poised to be one of the great development triumphs of the twentieth century. However, by the early 2000s, it was clear that not only were millions of people still out of school, but that the vast majority had dropped out early, attended intermittently, or had learned nothing while they were there. This "learning crisis" is recognized as the fourth Sustainable Development Goal, which aims to provide an inclusive and excellent education for all and encourage lifelong learning, with a focus on quality. This educational crisis is widespread yet unevenly distributed, affecting countries, classes, genders, and social groupings (Hickey & Hossain, 2019, pp. 1-2).

All in all, there is a strong call for new and innovative policies. One of those is the Universal Basic Income which is seen by many as an important instrument to impact welfare policies and provide income security. Two effects that are of significant importance when implementing this new policy and which will be the main focus of this paper is education.

4. Education

4.1 Outline of Studies

Education is of huge importance for every country. Because it is seen as an investment in the population, it will then later be an important determinant of economic performance in the labor market. Further, it is seen as a key factor in improving productivity, economic growth, and social mobility. Therefore, it is a critical component of competing in the global economy. (Rodriguez-Fernandez & Themelis, 2021, p. 68)

To elaborate on the fact that Universal Basic Income could have on education, a variety of individual studies as well as collective studies have been selected. Unfortunately, at this current time, there has not been a single UBI that meets the definitions laid out at the beginning of the paper. This means that there has never been a UBI tested that is large enough to live on, without a phase-out, eligibility restrictions, and has been implemented on a large scale at the same time. Resulting from this, other welfare policies, which share design elements with the UBI and economic models, need to be considered for the evaluation in this paper.

Firstly, the studies examined in this part will only focus on one method of action. This means their only effect will stem from the distribution of extra Income. Where this extra Income originates from is not considered, as this could result in either general equilibrium effects or opportunity costs in other areas of public investments, making the analysis much more complicated. However, such effects will then be a separate focus ofthe paper.

To analyze the effect that a UBI could have on education, firstly, one large-scale cash transfer program will be considered. The eastern Cherokee native American tribe program provides around a $4000 payment to all its adult members. This payment is financed by revenues from tribal casinos and can be viewed as a variation of a Universal basic Income (Hoynes & Rothstein, 2019, p. 18).

Further, three different collective studies of both conditional and unconditional cash transfers will be considered. These types of programs are usually run by the government or sometimes NGOs and other small organizations. They generally serve to transfer cash to poor households. The main difference between CCTs and UCTs is that while CCT programs only transfer cash depending on specific behaviors, such as an 80% school attendance, UCT programs transfer cash without any strings attached (Baird et al., 2013, p. 10). The types of conditions outlined in CCTs are different from program to program and, therefore, might influence the outcome effects. As there is not enough data on UCTs alone, CCT programs have to be taken into account as well. However, a different part of the paper will focus on whether these CCT programs are meaningful for representing a UBI or whether an unconditional cash transfer will not contribute to improving education.

The collective studies were done by three authors. Firstly, Owusu-Addo et al. (2018) review a collection of CCTs and UCTs, aiming to reduce poverty and vulnerability in sub-Saharan Africa (p. 677). This review identified 16 studies that investigated the impact of CT programs on education across four key indicators: school enrollment, attendance, absence, and learning outcomes (Owusu-Addo et al., 2018, p.682). The study by Baird et al. (2013) includes a total of 75 reports, analyzing data from 35 studies, which include five UCTs, 26 CCTs, and four studies comparing CCTs and two UCTs (p. 7). This study is also conducted in developing countries and aims to assess the overall effect of the studied cash transfer programs on school enrollment, attendance, and test scores (Baird et al., 2013, p. 16). And lastly, Pega et al. (2017) summarized the findings from 21 studies based on 17 UCTs involving 1,092,877 individual participants and 31,865 households in Africa, the Americas, and South-East Asia (p. 2). The latter studies were mostly funded by national governments and international organizations (Pega et al., 2017, p. 2).

Additionally, the Earned Income Tax Credit program, the most extensive US federal anti-poverty program, is analyzed regarding how it affected education in the USA. This program was designed to provide additional Income to low-income families and individuals with little earnings.

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