Basic income: An answer to social security problems?

 

Finland has taken the decision to test a basic income for unemployed job seekers from the beginning of 2017. The trial will run for two years. The main goal behind the experiment is to see if the mechanism of a basic income (unconditional financial support paid regularly to customers) will increase the incentive for recipients to take up and stay in employment. The trial is also expected to offer perspectives on a wide range of issues to help improve our social security systems. For instance, it can help the social security system respond better to changes in working life, and can gear social security towards finding work. It can also help reduce bureaucracy, and simplify the complexity of the social security system.

 

The basic income experiment is being carried out by Kela (Finnish Social Insurance Institution, which celebrates its 80th anniversary in 2017), which is responsible for the administration of over 40 basic social security programmes in Finland.

 

Why a basic income? The problems of the Finnish unemployment benefit system are varied. First of all, it is quite bureaucratic when it comes to accommodating part-time employment. Claimants must renew their status and provide information about their earnings to Kela every four weeks, because these earnings reduce the full unemployment benefit.

 

It takes time for customers to obtain the information they need to provide in the first place and for Kela to process the amount of the partial unemployment benefit. Customers do not know when to expect their benefit payments or how much they will get. This financial uncertainty and the attendant bureaucracy can cause frustration and stress. The result is that some customers end up staying on the full unemployment benefit, rather than taking on part-time jobs, preferring the security of a guaranteed monthly payment. Another problem is the welfare trap which, as a result of taxation and various supplementary payments, makes someone on a part-time job worse off than they would be on full unemployment benefit.

 

How does the basic income work?

Under the Finnish experiment, a partial basic income of €560 per month replaces some of the basic social security benefits, including the basic unemployment benefit, the sickness benefit, as well as some parental benefits and rehabilitation benefits. The idea is that the participants will get a basic income instead, even if their circumstances change. If they find a job, the basic income will still be paid on top of the salary. This allows us to see whether the mechanism reduces bureaucracy. With 40 different benefits in the Finnish basic social security system, people are often unaware of the precise benefit they are entitled to, which can lead to confusion.

 

As the legislation on the Basic Income Experiment was passed by the Finnish parliament, it also cleared the parliamentary Constitutional Committee. The legislation guarantees that customers in the target group of 2,000 people between 25 and 58 years old will get the same amount of money as they would outside the experiment, and any shortfall is repaid by Kela. The basic income is a new temporary piece in the puzzle of the Finnish social security system.

 

 

Lessons so far

Even though the experiment has been running since the start of the year, it has already yielded results by cutting bureaucracy, which both customers and Kela appreciate. The experiment is running smoothly with little input from Kela. The basic income is paid every month at the same time. This gives customers peace of mind and freedom from immediate money concerns, allowing them to focus on finding a job, starting a business, etc. And indeed many have done so, while others have decided to learn a new profession or care for their elderly parents. Some have reported experiencing significantly less stress, too.

 

Naturally, free money is not the perfect solution for every customer. The important thing to remember is that the basic income experiment is only one of several actions to be taken when addressing the problems of working life and social security. Some people need other kinds of support to cope with life’s challenges, such as rehabilitation, or medical and social care, and we must also invest in such programmes. The basic income is a way forward as we further develop our unemployment benefit and other social security systems in order to eliminate excessive bureaucracy for everyone. That frees us up to take better care of the customers who do not benefit from the unconditional basic income, but who also need our support in managing their lives.

 

 

 

Visit Kela, the Finnish Social Insurance Institution, at www.kela.fi/web/en

 

OECD Forum 2017 issues 

OECD work on inclusive growth

OECD work on social and welfare issues

OECD work on Finland

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Marjukka Turunen
Director of Change Management, Kela, Finland

© OECD Yearbook
2017

 

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