Does a Guaranteed Basic Income Encourage Entrepreneurship? Evidence from Alaska

While the concept has been around for years, recently the policy notion of a “guaranteed basic income” (GBI)—or universal basic income—has had a resurgence of interest. In addition to rationales that relate to fairness and response to structural employment shifts due to automation and globalization, another motivation that is sometimes put forward for these plans is to encourage risk-taking by providing a safety net: There would be greater entrepreneurial activity if an unsuccessful entrepreneur had the GBI to fall back on. In this paper we investigate a rare long-standing example similar to a GBI in the US: the Alaska Permanent Fund Dividend program. This was not put forth as a GBI, and the annual amount is too small to allow an individual to rely fully on these funds; but for a moderate-to-large family the APF can replace a large share of a poverty-level income. Receipt of the APF also does not preclude a family from receiving other safety net benefits—food stamps, unemployment compensation—which suggests that the downside risk for a potential entrepreneur may be lower than in other US states. We initially examine trends in small-firm births in Alaska over time from the Census Bureau’s Business Dynamics Statistics 1977–2014—before and after the institution of the APF program (the first payment was in 1982)—relative to other US states to investigate a possible impact on entrepreneurship; the results suggest a positive effect—which appears to dissipate over time. We then turn to micro data from the Current Population Survey to examine changes in self-employment behavior in Alaska, with somewhat similar findings.