A Californian city gave people $500 a month - no strings attached. Here's what happened

Giving people money can encourage them to become more economically productive.

This seemingly counterintuitive conclusion is one of the findings of a real-life trial of the consequences of universal basic income (UBI) programmes – where people receive a regular payment, usually from the state.

Around 150 kilometres east of San Francisco lies the city of Stockton, population 300,000, which was declared bankrupt in 2012. In 2019, an organization called the Stockton Economic Empowerment Demonstration (SEED) was established to administer UBI to 125 low-income residents of the city.

Each of the people participating in the programme received a monthly payment of $500 for two years. The project’s findings indicate that the additional money has been beneficial in a number of ways.

Something to feel good about

Mental and physical well-being improved, with reductions in depression and anxiety recorded. Households were able to avoid or limit their exposure to financial ups and downs often experienced by low-income families, especially in the event of unexpected costs.

SEED found that those in the UBI trial “experienced clinically and statistically significant improvements in their mental health ... moving from likely having a mild mental health disorder to likely mental wellness over the year-long intervention”.

But one of the most potentially significant findings was that people in receipt of the $500 UBI payments were more likely to find full-time employment.

At the start of the project, in February 2019, 28% of the UBI recipients were in full-time work. That had risen to 40% a year later. The SEED trial included a control group, not in receipt of the payments. In that control group, full-time employment increased by 5% over the same period.

A ‘wrongheaded’ idea?

UBI is a contentious issue for some people. Milton Ezrati, who is described as a Wall Street veteran, dismissed the idea of UBI as “wrongheaded” in Forbes, in 2019. He refers to a “study of people on unemployment (that) discovered, for instance, that they spent more time in front of the television and sleeping than upgrading their working skills”.

Ezrati is far from being a lone voice when it comes to criticism of UBI. The UK’s Centre for Social Justice, a think tank set up by former government minister Iain Duncan Smith, calls UBI “a false hope”.

The former mayor of Stockton, California, Michael D Tubbs would most likely disagree. “Poverty is the biggest issue. Everything we deal with stems from that. There’s so many people working incredibly hard, and if life happens, there’s no bottom,” he states in the report on the first 12 months of the SEED trial.

SEED has been anonymously tracking participants’ spending. It found that the biggest target of spending was food. Non-food purchases at supermarkets, large stores and wholesale outlets was the next largest. Transportation costs and utility payments were another large part of the spending breakdown.

Alcohol and tobacco accounted for less than 1% of spending.

The pursuit of opportunities

As well as the increase in the number of people working, the SEED researchers found that recipients were able to make long-term choices about their lives and livelihoods. The report quotes a man in his mid-30s who had been “eligible for a real estate license for more than a year, but could not afford taking the time off work to complete it. With the $500, he says that his life was ‘converted 360 degrees… because I have more time and net worth to study… to achieve my goals’”.

There are also examples of people being able to pursue training or internship opportunities, as the additional $500 income meant they were able to quit low-paying, dead-end jobs.

UBI schemes have been trialled in several places around the world. A scheme currently operating in South Korea makes lower monthly payments via a localized form of currency.

In Gyeonggi Province, which surrounds the capital Seoul, recipients of the $220 quarterly payment get their money via a special bank account that allows the income to be spent only in local businesses that have registered to support the scheme. The payments have a use-by expiration date, too, meaning they cannot be stockpiled or saved. Instead, the money circulates into the local economy.