Abstract
Is there a labor market policy that is efficient and also ‘fair’? This paper reports the results of an economic laboratory experiment designed to study the effect of Basic Income on labor market behavior. Earlier experimental contributions on the subject have found that a Basic Income may increase both wages and effort, which can be seen as increased responsible behavior. Our aim was to investigate whether these results are reproducible when the labor market is competitive. To this end, a modified gift exchange game with real effort and oversupply of labor was conducted under three conditions: a Basic Income (BI) treatment, an unemployment benefit (UB) treatment, and a control without any such benefits. Our results indicate that the impact of a BI policy on wages and effort can be nuanced. Overall, the wages were lower in the BI treatment than in the other treatments. In response to low wage offers, the reciprocity, in terms of effort levels, of subjects in the BI treatment was lower than those in the control group (with no unemployment benefits) but higher than those in the unemployment benefits treatment. At higher wage offers, effort was higher than that in the control group, but lower than in the unemployment benefit group. The BI policy had no effect on labor supply in our experiment.
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Notes
- 1.
As noted, the size of the lump sum and the purpose for its existence distinguish the Alaska Oil Dividend from a BI policy. In particular, a BI policy has a goal in establishing a base income for a population, whereas the Oil Dividend provided extra income to the population. As an anonymous reviewer noted, the oil dividend could allow a middle class family to use the 2000 USD to buy a motorcycle for their son. In a BI situation, the extra income would be generally taxed away for a middle class family.
- 2.
In particular, the models differ in their approach to unemployment, because the Akerlof version is based on incentivized wage contracts which involve the opportunity to fire workers for not performing at a desired level, while in a gift exchange, normally workers cannot be fired. In our experiment, workers cannot be ‘fired’ during a round, but they risk unemployment in subsequent rounds, if they do not provide enough effort. The effort, in this case, as in some of the other experiments described above, isn’t perfectly a ‘gift’ because it is reputation building. We selected our design to match labor market situations as closely as possible, but we recognize that some of the predictions from the theoretical models may be less than precise in our case. While the experiments are not a perfect test of either theory, we find it important to include them to provide the theoretical background for the study.
- 3.
Again, to reflect the lack of perfect fit between the background theoretical model and the experimental design, we have purposefully made our hypotheses vague and directional rather than precise. Noting that a laboratory model will not perfectly fit a real-world situation, we find the directional results to be of value in terms of understanding differential impacts of policies.
- 4.
Due to technical difficulties, one session only had five rounds. This session had a false start after which the experiment was restarted. Some participants changed roles at this point. Upon inspection, it seems this particular treatment (BI) showed very little variation over time in both wages and effort, so there should be no bias from the session not having data for the sixth round. Therefore, all six rounds are included in the analysis for other treatments.
- 5.
The decision to give BI just to employees instead of to all subjects was made to try to keep the experiment as close as possible to reality. The decision was also made, because employers in the study didn’t have the option to refrain from their task. Further. employers in the experiments had bigger incomes.
- 6.
See footnote 4.
- 7.
Given that employees in the experiment received BI payments regardless of effort or action, it is conceivable that subjects might have seen them as similar to a larger show-up fee. We are grateful to an anonymous reviewer for raising this potential. There is mixed evidence regarding impacts of differential show-up fees, even within the same type of experiment, (see, for example, Anderson, Mellor & Milyo 2004) so we were not concerned about this potential while designing the experiment. More importantly, show-up fees are generally given at the beginning of an experiment, whereas BI payments were paid in each round to each subject in the role of employee and can compensate for a wage, should a subject fail to be employed in any given round. This difference is important.
- 8.
Multi-level regression analyses were run using the ‘lme4’ package and the ‘lmer’ function in R Statistics.
- 9.
It should be noted that the unemployment benefit treatment is also free of taxes, and that this design is consistent with previous experiments. Obviously both BI and unemployment insurance are funded by taxes, and the effect of these on behavior in either case is important to understand, but it is first crucial to assess a baseline case of behavior in the presence of UB or BI without taxes. Extending the experiments to include taxation effects is the subject of a future paper.
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Funding
This work was supported by the Finnish Cultural Foundation, Central Finland regional Fund (grant number 30181511) , the Finnish Cultural Foundation, Central Fund (grant number 00200420) and Manufacturing 4.0 - Finnish Strategic Research Council project No. 313396. The sponsors had no role in study design; in the collection, analysis or interpretation of data; in the writing of the report; or in the decision to submit the article for publication.
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Appendices
Appendix 1. Instructions, Control Session
Welcome to the experiment!
We will now read the instructions aloud. You have also received a printed copy of the instructions. The instructions given to each participant are identical. If you would like to ask a question, you can raise your hand at any point.
Roles in the game
Each participant has been randomly assigned as either an employer or an employee. Out of a maximum of 20 participants in total, eight have been assigned as employers.
Your role will be displayed on your computer screen as the experiment starts and will remain fixed for the entire session. Each participant will also be randomly assigned a fixed screenname.
Anonymity
The game is played anonymously, that is, your identity will not be revealed to other participants at any point in or after the game. Other participants will also receive no other information about you or your decisions unless otherwise stated in the instructions.
Procedures
The experiment consists of several identical rounds consisting of four phases:
Phase 1
Employers Choose a Wage Offer Ranging from 0 to 120 Experimental Currency Units.
All offers are visible to all participants.
Employers Choose Between 0 and 6 Employees to Whom They Would like to Make a Wage Offer.
Employees only see which offers they themselves have been selected for.
Employers Rank Their Chosen Employees in Order of Preference.
The ranking is not revealed to other participants.
Phase 2
Employees Choose Whether to Accept the Wage Offers They Have Been Made Eligible for.
These decisions are not revealed to other participants.
Employees Rank Employers Whose Wage Offers They Have Accepted in Order of Preference.
The ranking is not revealed to other participants.
Phase 3
Employers and employees are automatically paired using their preference rankings.
The pairings are not visible to other participants.
Employees who have been paired with an employer can work.
The working phase will last four minutes, during which employees can solve up to 10 encryption tasks.
All tasks are alike and require no prior knowledge.
The number of tasks completed will only be visible to the employee and her employer. The employer only receives this information after the working phase is completed.
All participants are free to decide how to use their time in this phase, given that they do not leave their station or disturb other participants in any way.
For example, you can use a browser on the computer or on your phone. You can access a browser by pressing the Windows button, but DO NOT close this program!
We do not observe how you use your time apart from completing tasks.
Phase 4
Each participant is shown their points for the round, as well as the points their employer/employee made in the round, and the number of tasks completed. The next round begins shortly after.
Accumulating points
All employers start the experiment with a starting balance of 150 experimental currency units. All employees start with a balance of zero.
Points are dependent on the wage level and the number of tasks completed. The choices of employers/employees a participant was not paired with have no effect on her points.
Employers and employees who have not been paired receive zero points for the round. If a paired employee does not correctly complete any encryption tasks in the working phase, she and her employer also receive zero points for the round.
A paired employer gains 12 points for each task their employee completes correctly and loses the wage she offered. (One experimental currency unit equals one point.)
A paired employee starts with −20 points due to costs of working. She gains the wage offered by her employer. She loses the number of points corresponding to the number of tasks she attempts to complete, correct or failed.
Please, make sure you understand how the points are calculated before we proceed. Note especially that it is possible to end up with negative points for a round.
If you have zero points or less in total at the end of the game, you will receive no money aside from your $7 show-up fee.
Payment
Your points for all rounds will be added up, converted into dollars, and paid to you in cash after the experiment. For every 12 points you have at the end of the experiment, you will be paid $1 (rounded upwards to the nearest 25 cents). These earnings are added to your $7 show-up fee.
Example 1
If you have 300 points at the end of the experiment, you will be paid $7 + $(300/12) = $7 + $25 = $32.
Example 2
If you have 75 points at the end of the experiment, you will be paid $7 + $(75/12) = $7 + $6.25 = $13.25.
Example 3
If you have zero points or less in total at the end of the experiment, you will be paid $7.
Beginning the Experiment
We are almost ready to begin the experiment. Before the first round, you can get acquainted with the encryption task given to employees.
You can always raise your hand and ask for help after the experiment has started, but if you already have a question in mind, please, ask now.
Appendix 2. End Questionnaire
1. | Age | |||
|---|---|---|---|---|
2. | Gender | Female | Male | Other/I’d rather not say |
3. | Start year of university studies | |||
4. | Faculty | |||
5. | Degree program | |||
6. | Highest attained level of education | High school/secondary | ||
Bachelor’s degree | ||||
Master’s degree | ||||
Doctoral degree | ||||
7. | Current work status | Full-time student | ||
Part-time | ||||
Working part-time | ||||
Working full-time | ||||
8. | Total work experience | Less than one year | ||
One to two years | ||||
Two to three years | ||||
More than three years | ||||
9. | Your parents’ level of education | Father/mother | ||
High school/secondary | ||||
Bachelor’s degree | ||||
Master’s degree | ||||
Doctoral degree | ||||
10. | Population of your home city | Less than 10,000 | ||
10,001–100,000 | ||||
100,001–1,000,000 | ||||
More than one million |
About the game
-
11.
The instructions provided me with enough information to understand the game.
Strongly disagree | 1 | 2 | 3 | 4 | 5 | Strongly agree |
-
12.
What additional information would you have needed?
-
13.
I found the encryption task enjoyable.
Strongly disagree | 1 | 2 | 3 | 4 | 5 | Strongly agree |
-
14.
What was your goal in the game?
-
15.
What was your strategy to achieve your goal?
-
16.
What do you think the game was about?
-
17.
I think it would be most fair if most of the points in the game w to…
…the employer ____ | …the employee ____ | equally to both ____ |
Other questions
For the next five questions, choose the point on the scale that best represents your view.
-
18.
1 = Most people would try to take advantage of me if they got a chance.
10 = Most people would try to be fair.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
-
19.
1 = Government should take more responsibility to ensure that everyone is provided for.
10 = People should take more responsibility to provide for themselves.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
-
20.
1 = Competition is good. It stimulates people to work hard and develop new ideas
10 = Competition is harmful. It brings out the worst in people.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
-
21.
1 = In the long run, hard work usually brings a better life.
10 = Hard work doesn’t generally bring success—it’s more a matter of luck and connections.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
-
22.
1 = People can only get rich at the expense of others.
10 = Wealth can grow so there’s enough for everyone.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
-
23.
Choose all suitable answers: do you see yourself as someone who…
A. Is reserved | B. Is generally trusting | C. Tends to be lazy |
|---|---|---|
D. Is relaxed, handles stress well | E. Has few artistic interests | F. Is outgoing, sociable |
G. Tends to find fault with others | H. Does a thorough job | I. Gets nervous easily |
J. Has an active imagination |
-
24.
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Jokipalo, V., Sieberg, K. (2023). Power, Responsibility and Social Policy: The Impact of Basic Income in a Competitive Experimental Labor Market. In: Leroch, M.A., Rupp, F. (eds) Power and Responsibility. Springer, Cham. https://doi.org/10.1007/978-3-031-23015-8_5
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