What Happens When People Get Cash With No Strings Attached?

By Ioana Marinescu |

The tide of economic growth no longer lifts all boats. Half of Americans have seen no growth in their incomes since 1980. The government did very little to help those left behind the tide of rising economic inequality. Maybe it’s time to consider a fresh approach to creating economic opportunity – what if we all got a bit of cash every month, with no strings attached?

The idea of a “universal basic income” (UBI), in which everyone in a community receives a regular cash dividend, has been a successful strategy for tackling extreme poverty in the developing world. But as interest grows in implementing the idea for all in the United States, tired tropes come to the surface: will people stop working if they are guaranteed money not tied to work? Will people waste their money on cigarettes and alcohol? How could this possibly work in the U.S. context?

In a new paper for the Roosevelt Institute, I explore this question by looking at three different real-life American programs similar to UBI. Providing cash with no strings attached in each of these experiments improved overall quality of life— from recipients’ children’s grades to their mental health. Perhaps most surprising, almost no one stops working when they receive cash without conditions. There is ample evidence to suggest that giving people cash does not have the negative effects that people so often assume it will.

A fascinating case of a longstanding cash dividend program in the U.S. is in place in Alaska which gives every Alaskan resident an annual dividend. Every year since 1982, anyone who has lived in Alaska for at least a year gets between $800 and $2,000 per person as a share of invested oil profits from state lands. In the new report, I preview results from a forthcoming study with my colleague Damon Jones that shows that the dividend has not made Alaskans any less likely to work, and part-time employment has risen as a result. In other words, our fear that people will quit their jobs en masse if provided with cash for free is false and misguided—if anything, recipients are able to pursue more flexible working arrangements when they have an income floor.

Would a larger amount of cash every year reduce the incentive to work? A famous social experiment in the 1970s enlisted a random selection of people in six U.S. states and guaranteed them enough money to live on through tax credits equivalent to the poverty line. This “negative income tax” had only small effects on work: a 10 percent increase in the cash transfer people received decreased work by at most one percent. In some of the experiments, researchers detected no impact on work, just like Alaska’s cash dividend program. Even more encouraging, the experiments had ample positive effects on school attendance and test scores of recipients’ children, with the poorest children experiencing the largest improvements in grades.

Finally, we can look to the Eastern Band of Cherokees’ casino dividend program. Since 1996, a portion of the profits from a casino on the reservation was shared with all tribal members through annual dividends. Similar to Alaska’s program, there are no conditions for receiving the dividends other than membership of the tribe. The dividend, a generous $4,000 per person per year, also had no impact on employment when compared to people who did not receive a dividend because they were not tribal members. Like the negative income tax experiments, the casino dividends improved children’s education, resulting in a one-year increase in school attendance. They also had positive impacts on parenting, mental health, and reduced substance abuse among youth. For those who fear that recipients will use cash grants on drugs and alcohol, these results prove the exact opposite: cash reduces addiction by improving economic security.

There is a real debate to be had about universal basic income and whether the policy is appropriate for the United States. But what is clear is that unconditional cash has entirely different effects on those who receive it than we would expect. If we are serious about reforming our economic system, expanding the role of cash with no strings attached may be smarter than we thought.

Ioana Marinescu is an assistant professor at the University of Chicago Harris School of Public Policy. She has broad interests in the areas of labor and public economics. What is the impact of public policy on labor markets? How can we understand the linkages between micro-level labor market dynamics and macroeconomic outcomes such as unemployment and economic growth? She is particularly interested in understanding matching and search in the labor market, and how matching mechanisms determine unemployment and productivity. She is currently working with "big data" from CareerBuilder.com to better understand employers' and job seekers' online search behavior.