Why is Finland is giving every adult $10,000/year?
To replace its
cumbersome, costly, and bureaucratic welfare system:
The government thinks that the move will actually save money. Finland's welfare system is very complex and expensive to run, and the government hopes that simplifying it could reduce costly bureaucracy.
It also argues that the change may encourage more people to look for work. About 9.5% of Finns are currently out of work -- the highest rate in more than a decade -- and the government believes some people are deterred from working because they're better off on unemployment benefit than accepting a minimum wage job.
HT: Charles
With this approach, Finland will need to follow this maxim from Chapter 20 – “Anticipate moral hazard and protect yourself against it. “ It is hard to predict exactly what will happen with this new program and what new moral hazards it will bring.
ReplyDeleteAs a member of the deaf community, I have many friends who have been caught in the rut between working versus collecting SSD payments, especially young parents that have to deal with rising daycare costs. That is always the delicate balance of the welfare system that can have strong political overtones on either side of the coin.
What is the 9.5% unemployment rate attributed to? Is it due to lack of skills or opportunities? Its one thing to hand out large checks to boost the economy and give individuals a leg up, but if the jobs aren’t there then it becomes a cyclical issue where the root causes aren’t being properly addressed. I hope Finland is able to properly address these root issues with this program.
A stimulus for working middle class adults would make sense in the US. Perhaps a summertime check would boost the US economy. Working class families seem to spend extra when their income tax checks come. This would enable families to travel in the Summer, which would have a domino effect on various states in the US.
DeleteIt would also be an incentive for such unemployed person to seek work, even if the minimum wage is less than they desire. they could factor in the 10000 dollars to their yearly salary, yet this 10000 dollars should not be taxed, therefore increasing their income and possibly boost the economy at the same time.
Wednesday December 9th BBC News discussed a similar topic: Helicopter Money. http://www.bbc.com/news/business-34995094 Four weighed in: Adair Turner became chairman of the UK Financial Services Authority five days after Lehman Brothers collapsed in 2008. He is the author of Between Debt and the Devil: Money, Credit and Fixing Global Finance. Richard Koo is chief economist at the Nomura Research Institute, and an economic adviser to successive governments in Japan, which has struggled to grow for decades. Mohamed El-Erian is chairman of President Obama's Global Development Council. Barry Eichengreen is professor of economics and political science at the University of California, Berkeley. They are split about the idea of giving away money, because while it may increase spending, there is also much to be cautious about – creating less trust in currency, people becoming dependent on free money, and not addressing the root cause so the problem is recreated in the future. As a person, I would love to receive additional money, but it does not seem that this is the best decision for the economy as a whole.
ReplyDeleteI think this is such a smart idea! In the U.S, it is no secret that there are many people that choose not to work because, like the article says, they are better off collecting assistance from the government. I agree that this type of program would encourage more people to join the workforce, and would boost the economy. With the rising costs of student loans, this would also drastically help the middle class that is not currently getting assistance, but are just barely getting by. I think even if the government capped it so that everyone making under, say, $200,000 would get this benefit, it would be even more beneficial. I can only hope that the U.S realizes what a good idea this could be for our country.
ReplyDeleteI think this is such a smart idea! In the U.S, it is no secret that there are many people that choose not to work because, like the article says, they are better off collecting assistance from the government. I agree that this type of program would encourage more people to join the workforce, and would boost the economy. With the rising costs of student loans, this would also drastically help the middle class that is not currently getting assistance, but are just barely getting by. I think even if the government capped it so that everyone making under, say, $200,000 would get this benefit, it would be even more beneficial. I can only hope that the U.S realizes what a good idea this could be for our country.
ReplyDeleteThe Finnish move away from welfare may do well in their struggle against costs. Aside from the fact that a basic annual income seeks to dissuade people from staying on benefits rather than look for work, we have to take into consideration the cost of running these programs. The referenced CNN article refers to all adult Finns, including those who work. With all social programs there is an associated cost of distribution of aid. Each person collecting unemployment must likely visit a person employed by the government to assess their situation, that person likely works in an office, where there is overhead. Someone has to cut the unemployment checks, or initiate the direct deposit. As with any endeavor, the largest cost for an employer is labor. The social welfare system, because of its reliance on people to help people, likely does a poor job of turning benefit dollars directly over to benefit recipients. Doing away with all of these associated jobs in social services allows more dollars to directly benefit those who need it. I think this is a wise choice on the part of Finland and am interested to see how it pans out.
ReplyDeletehttp://money.cnn.com/2015/12/07/news/economy/finland-basic-income-800-euros/index.html
Chipotle announced “$10 million program to help small farmers who are Chipotle suppliers shoulder the costs of putting in place the company’s new food safety system, which will require them to do more rigorous testing.
ReplyDeleteChipotle’s New Mantra: Safe Food, Not Just Fresh
“That means even the ingredients they sell to other companies will be safe — and that’s good for everybody, not just Chipotle,”
Marketing experts applauded the company for its transparency about the meeting, but said the company would need to do a lot more to win back the trust of consumers. Chipotle has experienced six food safety failures involving norovirus, salmonella and E. coli since July, with more than 500 customers reporting that they fell ill afterward. Most of those illnesses were associated with two outbreaks of norovirus” (The New York Times)
Chipotle has seen its stock value drop in the face of repeated food safety scandals, in seeking to address the issue Chipotle had to start addressing it with not looking at the cost but the question of what will it take to achieve food safety throughout its franchises and restore consumer confidence. This question has led to the initiation of a $10 million dollar program to help farmers who are Chipotle suppliers put in place the new food safety checks. It is clear that for Chipotle that this marginal benefit is greater than the marginal cost. It can be deducted that the marginal analysis encourages investing $10 million dollar in farmers as movement in this direction is seen as positive step, what this analysis does not do is say whether not that amount will be enough, according to Froeb decisions of this nature are best taken in stages, once this original $10 million dollars program to farmers has been spent, then an evaluation can be conducted to see whether or not the funding was able to provide Chipotle with better food safety measures, and to what extent -whether the program amount should be increased, decreased, cancelled or kept as is.
Retrieved: http://www.nytimes.com/2016/02/09/business/chipotle-meeting-outlines-food-safety-to-workers-and-message-for-public.html
A major reason for the lack of workforce participation in Finland is due to their high replacement rates for unemployment and social benefits. For earnings-related benefits, OECD countries have an average wage replacement rate of 70%. Finland averages 79% and can be as high as 90%. That’s not including child allowances, which is 9.19 EUR per day for three children.
ReplyDeleteFinland’s social welfare system is aimed at motivating the unemployed to actively search for jobs and participate in relevant training. This system is extremely costly to implement and oversee due to many participating players and intricacies in process.
The earnings-related and basic allowance schemes consist of different levels of benefits for 500 days, an additional 180 days, and post-680 days. Earnings-related benefits vary on a case-by-case basis, and those that are actively searching for work and participating in training are eligible for a higher percentage benefit. Housing cost replacement is determined separately, and can cover up to 100% of housing expenditures.
Operating costs are extremely high due to no central governing body, but instead policy is enforced by the 15 regional Unemployment and Economic Development (T&E) offices. Here is a list of all players involved in Finland’s social benefits program:
• Public Employment Service (PES)
• Employment and the Economy (MEE)
• Social Affairs and Health
• Education
• 15 regional T&E offices managing 74 additional offices throughout Finland
• 348 municipalities
• Social Insurance Institution (KELA)
• 34 unemployment funds
• Unions and employer organizations
References
Braconier, H. (2010). Coping with the Job Crisis and Preparing for Ageing: The Case of Finland. OECD Economics Department Working Papers(777), 1-31.
As Europe’s worst performing economy in 2015, Finland wants to enact a Universal Basic Income (UBI) Program that will give adults just enough money to survive, but no more. This will replace current existing financial benefit programs. A pilot program was trialed in India in 2010 where it was noted that those given the money were more likely to show an increase in entrepreneurial behavior. This is because these individuals are not afraid to be creative and take risks because they felt they were not spending their hard earned cash (Ferro). According to CNN, in December of 2015, it was determined 800 Euros would go to each adult monthly; regardless of income or employment status. Because this is going to replace current welfare programs, and isn’t enough money for most individuals to have commodities, government is hoping this encourages citizens to search for work. As far as those who are currently working, the government hopes to see an increase in spending in areas they wouldn’t normally spend (Kottasova).
ReplyDeleteWith the 2016 Presidential debate underway, this topic is very important. Candidates, such as Bernie Sanders who openly supports the Scandinavian Government Aid are focusing on these current issues. Although very pricey to fund, the US Government could use pieces of this plan to revamp our welfare system to encourage more people to search for work.
Ferro,Shane. Finland Wants to Revamp its Welfare System by Simply Giving People Cash. Huffington Post. 8 December 2015. 18 February 2016. Web. http://www.huffingtonpost.com/entry/finland-universal-base-income_us_56660600e4b08e945ff09ea8.
Kottasova,Ivana. Why Finland wants to give every Adult $10,000 a year. CNN. 7 December 2015. 18 February 2016. Web. http://money.cnn.com/2015/12/07/news/economy/finland-basic-income-800-euros/.
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ReplyDelete