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

Author

Listed:
  • Jouko Verho
  • Kari Hämäläinen
  • Ohto Kanninen

Abstract

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

Suggested Citation

  • Jouko Verho & Kari Hämäläinen & Ohto Kanninen, 2022. "Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 501-522, February.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:1:p:501-22
    DOI: 10.1257/pol.20200143
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    Cited by:

    1. is not listed on IDEAS
    2. Olli Kangas & Minna Ylikännö, 2023. "Basic Income and the Status of Women in an Established Gender-Equal Welfare State: Results from the Finnish Basic Income Experiment," IJERPH, MDPI, vol. 20(3), pages 1-13, January.
    3. Jouko Verho & Kari Hämäläinen & Ohto Kanninen, 2022. "Removing Welfare Traps: Employment Responses in the Finnish Basic Income Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 501-522, February.
    4. David Westlake & Sally Holland & Michael Sanders & Elizabeth Schroeder & Kate E Pickett & Matthew Johnson & Stavros Petrou & Rod Hick & Louise Roberts & Guillermo Rodriguez-Guzman & Dimitris Vallis & , 2024. "The basic income for care leavers in Wales pilot evaluation: Protocol of a quasi-experimental evaluation," PLOS ONE, Public Library of Science, vol. 19(10), pages 1-23, October.
    5. Melline A. Somers & Ruud J. A. Muffels & Annemarie Kuenn-Nelen, 2025. "(Un)conditional Basic Income and Participation Income: A Review of Its Micro- and Macro-Economic Effects," De Economist, Springer, vol. 173(1), pages 205-244, March.
    6. Neverauskienė Laima Okunevičiūte & Webster Emilija & Andriušaitienė Daiva, 2025. "The Role of the State in Providing Minimum Welfare Through Universal Basic Income and Social Security Mechanisms," Economics and Culture, Sciendo, vol. 22(1), pages 97-107.

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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