First Results From the World's Biggest Basic Income Experiment

GiveDirectly, a nonprofit providing cash assistance to low-income households, is conducting a large-scale basic income experiment in rural Kenya, giving varying payment structures to recipients. 'It is giving around 6,000 people in rural Kenya a little more than $20 a month, every month, starting in 2016 and going until 2028,' reports Vox's Dylan Matthews. 'Tens of thousands more people are getting shorter-term or differently structured payments.' Matthews reports on some of the early findings of the experiment: The latest research on the GiveDirectly pilot, done by MIT economists Tavneet Suri and Nobel Prize winner Abhijit Banerjee, compares three groups: short-term basic income recipients (who got the $20 payments for two years), long-term basic income recipients (who get the money for the full 12 years), and lump sum recipients, who got $500 all at once, or roughly the same amount as the short-term basic income group. The paper is still being finalized, but Suri and Banerjee shared some results on a call with reporters this week. By almost every financial metric, the lump sum group did better than the monthly payment group. Suri and Banerjee found that the lump sum group earned more, started more businesses, and spent more on education than the monthly group. 'You end up seeing a doubling of net revenues' -- or profits from small businesses -- in the lump sum group, Suri said. The effects were about half that for the short-term $20-a-month group.

The explanation they arrived at was that the big $500 all at once provided valuable startup capital for new businesses and farms, which the $20 a month group would need to very conscientiously save over time to replicate. 'The lump sum group doesn't have to save,' Suri explains. 'They just have the money upfront and can invest it.' Intriguingly, the results for the long-term monthly group, which will receive about $20 a month for 12 years rather than two, had results that looked more like the lump sum group. The reason, Suri and Banerjee find, is that they used rotating savings and credit associations (ROSCAs). These are institutions that sprout up in small communities, especially in the developing world, where members pay small amounts regularly into a common fund in exchange for the right to withdraw a larger amount every so often. 'It converts the small streams into lump sums,' Suri summarizes. 'We see that the long-term arm is actually using ROSCAs. A lot of their UBI is going into ROSCAs to generate these lump sums they can use to invest.'

As you might expect, given how entrepreneurially minded the recipients are, the researchers found no evidence that any of the payments discouraged work or increased purchases of alcohol -- two common criticisms of direct cash giving. In fact, so many people who used to work for wages instead started businesses that there was less competition for wage work, and overall wages in villages rose as a result. And they found one major advantage for monthly payments over lump sum ones, despite the big benefits of lump sum payments for business formation. People who got monthly checks were generally happier and reported better mental health than lump sum recipients. I think this points to the takeaway from this research not being 'just give people a lump sum no matter what.' Ideally, you could ask specific people how they would prefer to get money.... [L]ong-term monthly payments seem to offer the best of all worlds because they enable people to use ROSCAs to generate lump sum payments when they want them. That enables flexibility: People who want monthly payments can get them, and people who need cash upfront can organize with their peers to get that.

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