A brief guide to universal basic income

Heard all the buzz about universal basic income and want to learn more? Read on to get the basics of this cash payment program that some governments are already adopting.

4 min read

We’re living in an era of transformational changes in both global economies and technologies. And while these changes have brought countless advantages, they have also introduced new challenges in terms of increasing poverty and inequality. To grapple with this, some countries are exploring the concept of a universal basic income. Key countries with universal basic income pilot programs include the USA, Germany, China, and India.

But what is a universal basic income, and how does it work? Furthermore, what pros and cons does it have? Read on to find out the answers.

What is universal basic income?

Universal basic income (sometimes referred to as UBI) is a recurring cash payment provided by the government to its residents on a monthly or yearly basis. However, unlike other government welfare schemes, UBI is unconditional—meaning you get the money with virtually no strings attached—including no restrictions on how much money you earn or your relationship or parental status. Simply put, it’s extra money to help you cover your bills, rent, childcare, expenses—whatever you need. 

What is the aim of a universal basic income?

The goals of any UBI program depend on what the country’s policymakers are trying to achieve. But in general, the main aim of basic income is to decrease poverty while increasing the financial wellbeing of individuals—all without too much bureaucratic involvement. A country may implement a universal basic income program to help residents during challenging economic times such as a global recession or pandemic. Or, it might simply be to distribute wealth more evenly among citizens. It can also help individuals navigate changes to their life or work circumstances—for example, due to rising living costs or new technologies like automation.

Universal basic income: the pros and cons

Like everything in life, UBI also has its flaws. Let’s have a look at some universal basic income pros and cons. 

  Pros

  • UBI can be a great tool to manage your finances in case of cash shortages.
  • Like individuals, governments across the globe are also experiencing economic turmoil. Therefore, programs like UBI can help them reduce poverty and inequality.
  • UBI redistributes wealth and can help to create a more equal society
  • Unlike traditional welfare programs, UBI is transferred to everyone, saving both residents and functionaries tedious paperwork, long wait times, etc.
  • UBI gives financial assistance and stability to those who can’t work due to disability or hardship, or those who do unpaid care work.
  • It discourages low wages, forcing companies to pay their workers well rather than hoarding profits. 

Cons

  • Cost is a huge deterrent when it comes to UBI. The inflation rate in Europe is reaching new record levels: 9.1 in August according to a Eurostat report. Therefore, the program’s costs might cancel out its advantages. 
  • Data suggest that CPI (Consumer Price Index) increased significantly in Europe. Giving regular money by a government that is already facing financial challenges could further disrupt the economy.
  • Some fear that people might become demotivated to work if they are given “free money,” driving unemployment to record highs and leaving essential jobs vacant.
  • Rather than decreasing inequality, it’s possible that UBI could escalate it by giving money to those who don’t necessarily need it. 
  • UBI doesn’t necessarily address the underlying causes of poverty such as lack of skills, low opportunities, structural or social discrimination, etc.

How effective is universal basic income? 

The short answer? The jury is still out. Countries with universal basic incomes have achieved tremendous success in reducing poverty, but the program is still too new and hasn’t been tested out on a mass scale. But, the early results look promising. And the possibilities are significant—think, combating the devastating effects of job loss, counteracting wage stagnation, fairly compensating care workers, and protecting the unemployed. UBI has the capacity to truly transform society. 


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