Finland has plans to scrap its welfare state in favour of a universal basic income of 800 Euros.
While it may sound counterintuitive, the basic income is intended to encourage more people back to work in Finland, where unemployment is at record levels. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.
Detractors caution that a basic income would remove people’s incentive to work and lead to higher unemployment.
The article doesn’t say who those detractors are, but they are wrong. When economists claim that welfare removes people’s incentive to work, it’s not because receiving cheques from the government automatically makes one lazy. It’s because they take those benefits away when you earn more.
Take Finland before this reform. As the article states, “At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.” That means that they faced an implicit marginal tax rate of over 100%! With a basic income, the implicit marginal tax rate for everyone below the lowest tax bracket is zero. If your tax rate dropped from >100% to 0%, would that motivate you to work more? It sure would for me.
This is a good policy move. It will reduce marginal tax rates on the very poor while simultaneously reducing bureaucracy. Good job, Finland!