What is the effect of a Universal Basic Income on employment?

Abstract

In most developed countries, the government has a central role in redistributing income from the rich to the poor through social protection. An alternative way of doing this that has gained increased attention in recent times is a Universal Basic Income (UBI). In this literature review, I analyze the possible employment effects of a UBI policy. I explain a theoretical model of how individuals make the decision to work, and the role of income and substitution effects. The theoretical model suggests that a cash transfer program, such as a UBI could have a negative effect on employment. I present four separate experiments related to unconditional cash transfer programs and find mostly small or negative effects on employment. Additionally, I find that unconditional cash transfer programs could have significant positive effects on mental health and overall wellbeing.