Iran’s Basic Income Scheme Didn’t Make People Lazy

EghtesadOnline: One of the biggest criticisms of basic income, a system of giving people modest salaries just for being alive, is that it discourages people from working.

News ID: ۷۷۶۵۱۷

27 May 2017

A new report on an ongoing cash-transfer program launched in 2011 in Iran, however, may cast some doubt on the claim, German-owned American news website Business Insider reported.

Published by the economists Djavad Salehi-Isfahani and Mohammad H. Mostafavi-Dehzooei, the paper finds no evidence to support the idea that people receiving cash transfers take themselves out of the labor force. Some workers even expanded their hours, the report found.

Iran’s nationwide cash-transfer policy emerged out of heavy cuts to gas and bread subsidies made by then-president Mahmoud Ahmadinejad in late 2010, according to Financial Tribune.

The monthly transfer amounted to 29% of median household income, or about $1.50 extra per head of household, per day.

Despite reports in local press that the poor were forgoing their jobs to spend the extra money, the investigators found no such evidence.

“Our results do not indicate a negative labor supply effect for either hours worked or the probability of participation in market work, either for all workers or those in the bottom 40% of the income distribution,” they wrote.

They did find people in their twenties tended to work a bit less. But “this is not surprising since the attachment of Iranian youth to the labor market is weak”, they wrote, and many young people may have used the money to enroll in higher education they otherwise could not afford.

In other cases, the extra money appeared to increase how much time people spent working. Service workers, such as housekeepers, teachers and deliverymen, upped their weekly hours by roughly 36 minutes, “perhaps because some used transfers to expand their business.”

Despite the apparent benefits to Iran’s labor force, the investigators discovered the public and federal reaction to the program has been intensely negative. Empirical evidence should help change people’s minds at least regarding the question of whether free money makes people lazy, they say.

“As more oil exporting countries decide to remove energy subsidies, or for political economy reasons decide to transfer a part of their oil wealth unconditionally to their citizens,” they wrote, “the question of how such transfers affect the incentive of their citizens in working and acquiring skills become more important.”