Diva (Year 11)
Editor’s note: Year 11 student Diva entered this essay into the Minds Underground Essay Competition for Economics. The Minds Underground Economics Essay Competition is aimed at students in Year 12 (though younger applicants are welcome). The competition provides students with an opportunity to engage in university-level research, hone their writing skills and draw links between economic concepts and real-world scenarios. Entrants were expected to explore economic theories behind UBI, its potential to reduce poverty, and its long-term sustainability in various economies. CPD
Universal basic income is a concept that is thought to pose a viable solution to the deep-rooted problems of poverty and inequality that are rife in many societies. Inequality refers to a state of unevenness, it is the differences in the opportunities, resources, and outcomes of people from different backgrounds. There are several distinct types of inequality including economic, social, and political. UBI seems most probable to solve economic inequality, however, these three types of inequality reinforce one another, they are linked in a vicious cycle.[1] For example, the exclusion of minorities in society, perhaps affects their ability to get jobs or makes them underrepresented by the government, in this case social inequality has exacerbated economic and political inequality. Therefore, if UBI can successfully tackle any single type of inequality, it should impact the others, and therefore be a viable solution to tackle inequality as a whole. This essay aligns with the view that UBI is not an effective solution to inequality as in practise its implementation is not feasible as it is both an idealistic approach to tackling disparities and unjust as a concept.
At its core, UBI is a governmental scheme that provides all citizens with a periodic sum of money regardless of their income, employment status or social status, it is a right that is granted to everyone, hence why it is ‘universal’. UBI is unconditional, therefore eliminating the eligibility criteria and removing the stigma associated with requiring social aid. This lack of contingents is what separates UBI from traditional welfare programs, it is a definite rather than a conditional, a social dividend of the total wealth accumulation we are given for simply being human. It aims to provide an insurance against unpredictable economic shocks such as sudden unemployment. [2] The newfound push for UBI to be reconsidered has been evoked because of the rapid technological revolution, automation results in the substitution of humans in the labour force leading to job losses. This results in increased economic inequality as the divide between the employed and unemployed worsens. UBI combats this by providing money for people to fall back on as they reskill themselves to suit new roles.
To decide the viability of UBI as a potential solution, it is important to discuss how it fits in with a plethora of different economic theories. Keynesian Economics shows us the advantageous nature of UBI through its ability to provide everyone with the disposable income needed to sustain their purchasing power which is required to maintain demand for goods and services. By ensuring income, people are much more likely to spend money and therefore consumerism continues, and economic activity is stimulated even during recessions.[2] This also reduces structural unemployment as the economy shifts towards a revolution, lowering dependency ratios and helping the UK to operate at full capacity. However, this is often combatted with the idea that UBI could potentially drive up the demand for goods and services without their being a rise in the supply to match it, leading to higher prices as products become scarcer. [3] The alternative school of Classical Economics shows us another one of UBI’s potential drawbacks as it possibly removes the incentive of people to work for money. This problem arises if people use UBI as their principal income rather than a safety net, therefore reducing the productivity of the work force and stunting economic growth. [4] I believe the Classical Economics outcome outweighs the Keynesian outcome due to the income effect, which shows with higher income, workers can purchase more goods including leisure, if more leisure is bought, then the income effect results in labour working fewer hours and therefore depending on UBI as their primary income.[5]
An example of UBI being implemented as a trial is ‘The Basic Income Grant Coalition’ in Namibia. From January 2008, every villager of Otjivero, Omitara received a regular payment until March 2012. The trial showed evidence for the success of UBI as: a committee was formed to advise spending, poverty dropped by 60%, income-generating activities increased by 15% and a local market was introduced, malnutrition was decreased by 32, the school drop-out rate fell to almost 0%, healthcare became more accessible, and crime fell by 42%. These statistics are important in showing the potential of UBI to decrease social and economic inequalities. The project also calculated the cost of implementing UBI nationally to be $95 million per year, making UBI a viable solution for Namibia to tackle inequality. [6] However, this trial was conducted on a village where participants had similar economic situations and therefore were impacted in the same way by UBI. Perhaps a better reflection of the practicality of UBI would be a trial with a more diverse set of people. In addition, this trial was conducted on a developing country, UBI may not be as applicable for developed countries, for example if the USA was to give out a UBI of $1000 per month to its citizens, it would cost $4 trillion per year, a number close to the entire federal budget of 2018. This would inflate taxes and impose huge costs on the economy. [7] This shows that UBI is unsustainable in larger economies, and as the 21st century is a period of economic growth due to emerging economies such as China, it is not a viable solution to tackling inequality.
The key principle of UBI allows it to be a potential tool in reducing inequality, as by ensuring everyone receives a set amount of money it reduces the effects of income inequality. According to the World Bank, in October 2024, 8.5% of the world’s population were below the extreme poverty line of less than $2.15 per day.[8] UBI combats this by guaranteeing everyone the money to afford basics such as food and shelter, lifting people out of poverty. By reducing the chance of sudden financial instability, it empowers people to spend this money on pursuing education or training to aid job acquirement. As well as combating poverty, it could also help fight against social injustice for example by providing victims of abuse with a steady income and giving them financial independence. Furthermore, a regular income allows individuals to plan and make long term decisions about housing, education, and retirement without the harrying concern that they could unexpectedly be left without money. This stability aids rational decision making, centred around improving one’s life and therefore giving many the opportunity to thrive. [9] Although I accept that this is important, the crux of this argument is the guarantee that people would spend this additional income on improving their livelihoods. I refute this as recipients may not spend money wisely due to lack of knowledge or addiction, and therefore UBI would fail to tackle inequality successfully.
In conclusion, there are challenges to UBI that limit its capability to reduce inequality, one of which is cost. It is not a sensible use of money, as if UBI was set at a level that provides an acceptable standard of living, it would be too costly for governments and could lead to inflation, negating the benefits of an added income. Additionally, it could augment inequality and poverty due to the condition of everyone receiving the same amount, those who need the money would receive less in a UBI scheme compared to traditional welfare schemes. As UBI is based on the idea of equality (everyone receives the same income of money), many believe that it is unfair as it treats all individuals the same regardless of their need, potentially allowing the rich to entrench their advantages by investing it, deepening inequalities in the long term. Therefore, the solution to combating inequality perhaps needs to be centred around the concept of equity not equality, hence why I do not believe that UBI is a viable solution to reducing inequality.
References
- UNDERSTANDING AND MEASURING INEQUALITIES THE MULTIDIMENSIONAL INEQUALITY FRAMEWORK: THE OXFAM TOOLKIT 2. (n.d.). Available at: https://inequalitytoolkit.org/intermon/public/guides/understanding_and_measuring_inequalities_fv.pdf
- Julien Florkin. (2024). 10 Chapters on Why Universal Basic Income Could Revolutionize The Economy. [online] Available at: https://julienflorkin.com/business/economics/universal-basic-income-ubi/#global-case-studies-of-universal-basic-income [Accessed 2 Mar. 2025].
- Gupta, S. (2024). Universal Basic Income, Need, Advantages and Disadvantages. [online] StudyIQ. Available at: https://www.studyiq.com/articles/universal-basic-income/ [Accessed 2 Mar. 2025].
- CollegeNP (2024). Universal Basic Income and Modern Economic Theories Explained. [online] Collegenp.com. Available at: https://www.collegenp.com/article/universal-basic-income-and-modern-economic-theories-explained [Accessed 2 Mar. 2025].
- Economics Discussion. (2015). Relationship between Income and Leisure (With Diagram). [online] Available at: https://www.economicsdiscussion.net/theory-of-distribution/relationship-between-income-and-leisure-with-diagram/16544
- Petrova, G. (n.d.). Namibia – UBI success and institutional failure | BIEN — Basic Income Earth Network. [online] Available at: https://basicincome.org/news/2020/07/namibia-ubi-success-and-institutional-failure/
- Acemoglu, D. (2019). Why Universal Basic Income might not be the answer. [online] World Economic Forum. Available at: https://www.weforum.org/stories/2019/06/why-universal-basic-income-is-a-bad-idea/
- World Bank (2024). Poverty Overview. [online] World Bank. Available at: https://www.worldbank.org/en/topic/poverty/overview
- Volenik, A. (2024). Why UBI Works: Hard Evidence of its Impact on Poverty. [online] UBI Advocates. Available at: https://ubiadvocates.org/why-ubi-works-hard-evidence-of-its-impact-on-poverty/
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