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COVID-19 Crisis Management

Can Basic Income Schemes Take the Pinch out of the Corona Crisis?

December 23, 2021 | Heikki Hiilamo

Picture "Basic Income" by j4p4n, cropped, via PermaClipart, CC0 1.0

As the corona pandemic hit households worldwide, Japan, the United States, South Korea, Italy and Spain turned to the basic income scheme, offering no-strings-attached payments to citizens in need. As the pandemic continues unabated, could such schemes reap rewards?

Around the world, the COVID-19 crisis has brought unprecedented insecurity and economic hardship in its wake. Since early 2020, governments have implemented swift measures, including complete lockdowns, to try to avert the spread of the virus. These restrictions halted economic activity in many sectors, putting livelihoods in jeopardy, especially of those with a precarious position within the labor market.

The crisis has shone a spotlight on the gaps in existing social systems and also sparked a range of literature surveying our response to the pandemic. These include, the Sustainable Governance Indicators’ (SGI) recently published study “Just How Resilient are OECD and EU Countries? Sustainable Governance in the Context of the COVID-19 Crisis”, which, among other aspects, takes a closer look on crisis responses in social policy.

In a bid to deal with gaps in the social provision, nations spanning Japan, the US, South Korea and Spain have adopted emergency basic income (EBI) as an income support for people in precarious situations. The term EBI refers to temporary regular cash transfers with no strings attached.

EBI offers clear benefits at a time when a significant portion of the workforce is forced to stay at home. It provides support for individuals and families, as well as small businesses facing economic hardship. EBI covers not only those in standard employment but also the self-employed, the precariously employed, and those with care responsibilities. It is a tool that can target those most vulnerable to the economic crisis, providing immediate cash assistance since there are no delays or lags due to eligibility checks.

Among the global players to turn to EBI during the Covid-19 pandemic, the Japanese Government paid all citizens 790 euros as a one-off tax-free payment in 2020. The United States paid three Economic Impact Payments (totaling 2,700 euros for low- and middle-income households between March 2020 and March 2021). South Korea, meanwhile, implemented an emergency relief payment of 300 euros for all households in 2020 with a more targeted follow-up payment in 2021. Italy also granted temporary relief payment (Reddito di Emergenza) for low-income groups.

Spain speeds up basic income rollout

In May 2020, Spain ushered in a new basic income scheme (Ingreso Minimo Vital). The scheme was already mooted in the left-wing government’s election campaign program before the pandemic, but the pandemic accelerated its rollout. In the SGI’s 2021 country report on Spain, the country experts underscored the necessity of a swift response to the economically divisive corona era: “The pandemic has shown how vulnerable the economic system is. At the beginning of 2020, Spain displayed weak productivity growth, while private investment in R&D continued to be low. Spain’s business structure is highly fragmented and consists mainly of small business units. Moreover, Spain has been hampered by an excessive dependence on tourism, which prior to the COVID-19 crisis contributed to around 14 percent of GDP and employed three million people,” it wrote.

As a result, a monthly basic income payment of between 462 euros to 1,015 euros was made to the poorest and most vulnerable individuals from 23 years to 65 years. It has been estimated that the scheme would cover a total of 850,000 low-income households and 2.3 million people. Basic income is paid only to jobseekers. However, during the pandemic activity requirements were temporarily lifted.

Apart from alleviating poverty the Spanish program is aimed at reducing regional inequalities, as previously schemes varied widely from one autonomous region to another in terms of coverage, scope, and regulation.

As it is a new program there are as yet no conclusions available on the impact of the Spanish scheme. However, a previous basic income model implemented from 2017 in Finland, a country known for a comprehensive welfare state model, reveals some outcomes. The Finish experiment, like the recent Spanish equivalent, targeted low-income jobseekers. A survey conducted at the end of the two-year experiment period indicated the basic income group had clearly higher subjective wellbeing across a large variety of measures. Basic income recipients had fewer health or stress issues and they had a more positive take on their future. Therefore, drawing on the Finnish experience, it appears that the Ingreso Minimo Vital scheme is likely to ease corona’s negative social impacts in Spain.

Long-term outlook for EBI

The EBI schemes implemented during the pandemic were framed not only as a measure to alleviate poverty but also as a mean to promote pandemic solidarity. Early results suggest that most of the EBI programs were downsized or abandoned once the worst phase of the pandemic was over.

The Spanish program is one of the few pandemic-related social policy measures which continue, in fact decision makers intend it to be permanent.

However, its long-term sustainability remains unclear. The issue of conditionality of income support did not have any relevance during the pandemic when employment promotion activities (active labor market policy measures) were discontinued. However, the Finnish basic income study showed that unconditional benefits might not result in more people securing employment, the main goal of the experiment. The employment results from the randomized control trial were disappointing, with little difference in employment or earned income between the experiment and control groups.

Partly discouraged by the basic income experiment results, Finland, like other Nordic countries, implemented fewer social policy measures as response to economic fall-out of the pandemic than other OECD countries. Instead of a EBI type of cash benefits Finland decided to temporarily increase the basic social assistance which helps pay for essentials, like food or medicine.

For the time being, eyes are fixed on the Spanish case. Will it succeed in taking the edge off the economic impacts of the Covid-19 crisis? There are a number of takeaways for Spain from the Finnish experience. Most importantly, while basic income failed to push recipients into being more active in the labor market, it did increase people's well-being. This, in turn, has a positive effect on ciitzens' trust in public institutions. In view of the ongoing coronavirus pandemic, maintaining this trust is extremely important. In this sense, Ingreso Minimo Vital may serve as a social policy innovation that could form part of our toolbox for social changes of the future, not least if public trust wanes amid future technological transformations and ecological crises.

Heikki Hiilamo is Research Professor at Finnish institute for Health and Welfare, Professor of Social Policy at the University of Helsinki and member of the expert network of Bertelsman Stiftung’s Sustainable Governance Indicators (SGI).

Picture "Basic Income" by j4p4n, cropped, via PermaClipart, CC0 1.0

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