Jobless in Finland? You’ve Got Cash!

January 10, 2017

It’s true. As of Monday, January 2, 2017, Finland has started sending out checks to 2,000 randomly-selected Fins without a job. Nothing special about that, you may think now. Providing financial assistance to the unemployed has long been a pillar of social security in developed countries. This particular case is different, though. First and foremost, the Finnish government will keep the monthly checks coming regardless of efforts made by the recipient to seek employment again. And, get this, even, if he or she were to start working again, they won’t lose a dime of the €560 (roughly $590) per month the Finnish government is sponsoring them with.

I know what you’re thinking. This has got to be a mistake. Far from it; actually. It’s all part of a unique socioeconomic experiment that’s aimed at exploring how receiving a universal basic income may affect Finland’s unemployed. Ok. Call me a Philistine, but I have a hard time imagining how receiving cash with no strings attached would get anybody off the couch. I reckon, most people would quickly start looking for a bigger couch …

According to the Finnish government office administering social security (KELA), one of the main drivers behind the experiment is to eliminate job seekers’ fears of risking potential reductions in unemployment benefits as a result of accepting subpar employment, let’s say by working for a start-up, accepting a fixed-term job, or starting a business. Hence, the crux is a rather generous income-based calculus of benefits, paired with lots of restrictions and red tape, based on which a guaranteed government check often trumps taking a leap of faith towards new employment. Whether providing job seekers with a universal basic income, free of limitations and bureaucratic hassles, will help to put them back to work is a question that extends beyond socioeconomic considerations and touches human nature.

With this being said, it’s important to note that the idea of providing a universal basic income to people in need is everything but new and the Finnish government is hardly the first to give it a dry run. American economist Milton Friedman started advocating a negative income tax to benefit the poor as early as of 1968 and the state of Alaska has allocated annual cash dividends, linked to the state’s sovereign wealth fund (PFD), to all of its citizens since 1982. Moreover, the Finnish initiative coincides with an identical pilot program of the Italian city of Livorno, where 100 of the city’s poorest families now receive €537 (roughly $570) in form of a guaranteed monthly income. The trial is scheduled to be extended to 1,000 families early in 2017. And while Switzerland voted down plans to provide every adult citizen with $2,500 every month in a national referendum last year, France approved an initial trial and similar experiments are currently in the works in the Netherlands, Iceland, Canada, and Brazil.

Providing people in need with a universal basic income, rather than supporting them with complex, costly, and disincentive government assistance programs, is, without a doubt, a radical thought process. Nevertheless, it’s one that needs exploring.

We need to realize that modern-day social security has been conceived more than 100 years ago and many of its programs have remained practically unchanged, despite our social and economic evolution. They just don’t fit the bill anymore. Unemployment insurance, for instance, was designed to help workers bridge off-seasons or temporary unemployment due to slack economic demand while waiting for the next seasonal cycle or boost to the economy. Classic retirement benefits were intended to be shouldered by a population of young and able workers that was destined to be larger and grow faster than the pool of retirees; but, with people living longer and having fewer children, this concept has grown seriously out-of-whack now. And, we will be facing additional challenges, such as the effects of globalization and increasing automation.

Populist movements around the globe have already mobilized angry masses to rebuke the political establishment for an obsolete social policy that has seemingly enabled few to prosper at the expense of many. While you may agree or disagree with this notion, Britain’s exit from the European Union and the election of Donald J. Trump as the 45th president of the United States are realities that are difficult to ignore. Regardless of arithmetic or political orientation, it’s clear that we need to explore new ideas and chart new territory if we don’t want to fall behind any further. Finland, Italy, and all the others currently exploring the concept of a universal basic income are already ahead of the curve – regardless of the outcome of this 2-year experiment.

© 2020 Karl Mohr. All rights reserved.