Universal Basic Income in Post-COVID Canada

By: Gabriella Pasolli
Senior Editor | Economics & Policy

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To some, the prospect of a guaranteed livable income is paradise, but to others, it is a harbinger of economic disaster.

The suggestion of a Universal Basic Income (UBI) has long been a topic of discussion. Some vehemently argue that it could lift families out of poverty, provide a chance for individuals to improve their quality of life, and provide an overall boost to economies. Meanwhile, others are just as certain that UBI would lead to inevitable declines in motivation to work and unsustainable government expenses.

Although this debate far predates COVID-19, the pandemic’s adverse effects on the Canadian economy, as well as the government’s attempts to minimize the hurt felt by citizens, have displayed a renewed need to reconsider the implementation of UBI.

Three Fallacies of Anti-UBI Arguments

Prior to considering the benefits that UBI could potentially provide to post-COVID Canada, one must contend with several reasons that UBI has typically been rejected. Specifically, there are three primary critiques to consider:

I. Ontario’s “failed” UBI experiment seemed to suggest that Canada would be unable to afford implementing UBI.
II. There is a widely held belief that UBI’s failure to address root causes of poverty renders such a program useless.
III. A Finnish study, according to some, proved that UBI disincentivizes paid work because it allows individuals to survive regardless of employment status.

Canada Cannot Afford UBI

One of the most seemingly straightforward arguments that has been lobbed against UBI in Canada is that the Ontario government already tried it and, according to Doug Ford’s government, it did not work.

In April 2017, Ontario’s Liberal government set up a pilot program for UBI, meant to last for three years. The specific iteration of UBI employed by the study offered individuals $17,000 minus half of earned income, couples $24,000, and individuals with disabilities as much as $23,000 per year. However, in 2018, Ontario’s newly elected Conservative government decided to cancel the program, primarily citing its high cost. Thus, to some, this was a clear indictment of the feasibility of UBI in Canada.

However, upon announcing the cancellation of the trial and despite claiming it was due to the high cost, the PC government failed to provide any actual data. They instead clung to claims that the program was unsustainable and “not the answer for Ontarian families.”

This cancellation came despite campaign promises that the PC government would see the program, which nearly 4,000 people relied upon, through to completion. This change of heart, and the province’s change in government, suggests that the cancellation was likely less about dollars and cents and more about political clout.

UBI’s Failure to Address Root Causes

Another primary critique of UBI is the belief that even if UBI was an affordable program, it should not be implemented because it would fail to address the problems that face low-income Canadians adequately.

One particularly potent variation of this argument is that UBI oversimplifies the issues that lead to long-lasting poverty and thus would fail to adequately address the root causes, such as addiction and mental health challenges. Further, some argue that UBI in the form of a cash transfer would exacerbate root problems, namely drug addictions.

However, proponents of this line of thought are themselves guilty of oversimplifying UBI. UBI should never be seen as a panacea; rather, it should be envisioned as part of a plan to create a more robust safety net for Canadians.

Moreover, the aforementioned Ontarian UBI trial cited as proof of it being too expensive generated favourable results before its cancellation. Following the cancellation of the trial, researchers at McMaster University and Ryerson University surveyed a group of participants. Their report suggested that UBI led to improvements in mental health, housing stability, and social relationships, as well as lowered strain on healthcare facilities.

This provides further evidence to refute the claim that Ontario’s government cancelled the pilot because it was neither effective nor affordable. Thus, it is clear that, despite what some would argue, UBI is capable of solving some of the root problems affiliated with long-lasting poverty.

UBI Disincentivizes Paid Work

Similarly, many would argue that UBI creates a mindset wherein individuals are incentivized to avoid hard work. Namely, those without strong ties to the labour force would have little to no reasons to work, as they would still be able to afford to live—regardless of employment. Moreover, according to this line of thought, UBI would hinder any desire to earn a supplementary income and may even lead to individuals reducing the amount they work.

This claim was seemingly strengthened by a Finnish UBI trial that aimed to test if guaranteed income would incentivize individuals to take up more low-paid or temporary work because the payments would, in theory, remove concerns about losing benefits. However, after two years, the experiment’s results were less than promising as there was little-to-no effect on employment. Thus, this experiment seemed to prove that UBI could not feasibly help the labour force. However, this is not the case.

In several ways, the Finnish study cannot even be considered a true test of UBI as a limited budget meant that the payments were not enough to live on and were only provided to a very restricted group. So, it is possible that if the payments were sufficient to live on, the study could have displayed the desired result of incentivizing work without the risk of losing benefits. As well, because the study only ran for two years, it was not possible to draw extensive conclusions or study the long-term effects. Thus, although admittedly intuitive, it is evident that presuming that UBI would disincentivize paid work is not a data-driven conclusion.

Flaws with the experiment aside, although the Finnish study did not show measurable increases in employment, it did not show a decrease either. In fact, the experiment seemed to suggest that a UBI had a negligible impact on the likelihood of an individual to partake in paid employment. Further, similar to the Ontarian study, participants were happier and healthier than the comparison group – further suggesting that UBI improves individuals’ well-being.

How UBI could Save Post-COVID Canada

UBI is not an appealing prospect simply because the critiques lobbed against it fail to prove it inadequate, though. Rather, UBI is appealing due to the slew of benefits it offers, not only to low-income Canadians but to the economy as a whole. Such benefits may be observed in the following areas:

I. A boost to GDP
II. Job creation
III. Family benefits
IV. Bolstering businesses
V. Increased government revenues.

Though such benefits have always been enticing, in the wake of COVID-19, they are not only appealing, but potentially transformative.

GDP Boost

One of the most alluring benefits of UBI in Canada is the potential boost to GDP. Specifically, UBI could generate $400B in additional GDP over five years and up to $2 trillion in twenty-five years. As of April, Canada’s GDP still was not as high as it had been in February 2020, prior to the first COVID-19 shut-downs. As of the end of June, preliminary numbers suggested that May was showing a further decline. Thus, it is clear that a boost to GDP as Canada attempts to recover from COVID-19 would be incredibly beneficial.

Job Creation

GDP aside, UBI has the potential to stimulate job creation in Canada by creating nearly 600,000 jobs in five years in the tourism and hospitality industries, growing the industries by $40 billion and $35 billion per year, respectively. As well, economic activity caused by UBI could eventually create over 900,000 jobs in twenty-five years. Beyond job creation, though, UBI has the potential to grow aggregate wages by $32 billion a year on average over five years, leading to aggregate wages increasing by up to $621 billion in twenty-five years.

While this job creation is always an appealing prospect, COVID-19 made it even more attractive. COVID-19 led to one-in-five Canadian businesses reporting laying off more than 80% of their workforce. Moreover, while it is still too early to predict how many Canadians will have lost their jobs permanently, from the late 1970s to the early 2010s in even five years following job loss, at least one-in-five permanently laid off workers had their real earnings decline by at least 25%. So, should many Canadians be permanently laid-off, the consequences to both individuals and to the economy as a whole would be long-lasting. Thus, job creation has the potential to mitigate some of these consequences.

Family Benefits

Beyond the economy, UBI would be able to benefit Canadians on a more personal level. Specifically, 2.3 million families who earn $0-9,000 could see their income triple, 1.7 million families who earn $10,000-19,000 from work could see their total income double, and 3.3 million families who earn $20,000-29,000 from work could see total income increase 34% on average.

As well, UBI would particularly help Canadian families in poverty. 3.2 million families could be lifted out of poverty—essentially ending poverty in Canada. This is especially important given that, unsurprisingly, due to the economic downturn caused by COVID-19, many low-income individuals have already or will likely fall below the poverty line.

Bolstering Businesses

Moreover, the aforementioned job creation and family benefits stand to bolster businesses. As said, COVID-19 was particularly hard on businesses, leading to lay-offs and closures. Because UBI would give Canadians more income, they would be able to increase spending in local economies, which is estimated to lead to private capital investment (PCI) increases of up to $15 billion per year within five years and up to $336 billion within twenty-five years. Such increases in investments could play a crucial role in helping businesses to recover from the losses suffered during COVID-19.

Growing Government Revenue

The final benefit of UBI in Canada to be considered is its potential to grow government revenue, thus mitigating one of the aforementioned more prominent critiques of UBI—its supposedly unsustainable cost. As noted, many of the claims surrounding UBI being too expensive are largely unfounded, but a study by the Canadian Centre for Economic Analysis (CANCEA) now actually suggests that the growth UBI would generate may actually outweigh its costs.

Specifically, UBI could generate an additional $22 billion in government revenue per year due to the increases in economic activity. As well, over time the costs of UBI as a percentage of GDP should decline over time because the program’s benefits would grow faster than the costs, even as more Canadians required coverage, thus proving that UBI is justifiable not only as a short-term COVID recovery plan but as a long-term strategy for economic growth.

Canada’s Road to Recovery

Though it is true that the road to recovery in a post-COVID Canada promises to be far from predictable, there is one thing that is certain – life will never truly be the same again. Thus, as Canadians begin to embark on this journey forward, it is clear that the potential of UBI cannot be understated.

While UBI is not perfect—few policy solutions are—it has the potential to offer a sense of stability to Canadians whose lives have been in turmoil since February 2020, when the world seemed to be turned upside down.

UBI offers the Canadian economy a chance to not only rebound but to continue to grow for the years to come. It offers businesses the opportunity to revitalize themselves while giving families a chance to live a life that is not dependent on the whims of the ever-fluctuating economy.

Ultimately, UBI offers hope that Canadians will keep moving forward just as they always have.