SPA Blog: Participation Income Outperforms Basic Income as a Future Social Security Model

In this SPA blog, Heikki Hiilamo, Professor of Social Policy at the University of Helsinki, discusses the proposal of participation income (PI) as a new direction in social security.

Despite enormous advances in technology and the accumulation of (financial) wealth, millions of people in high-income countries still suffer from unemployment, underemployment and lack of means to participate in the minimum acceptable way of life. A series of social assistance schemes have been implemented without significant results in poverty reduction. For example, the evaluation of the Participation Act in the Netherlands showed no improvement in employment outcomes among social assistance recipients, challenging the commonly held view that everyone will be able to operate in the general labour market if sanctions are tough enough and the terms of conditions are strict enough. The strict discipline was not enough to tackle a multifaceted problem.

Recently, universal basic income (UBI) has become a popular policy idea to radically reform social security systems in keeping with the future needs of automatized and robotized economies. The aim is to realize a “full activity” society, in which no one suffers from lack of means and is free to pursue their ambitions and put their free time to good use. However, the model has a fundamental weakness which can set welfare states into a downward spiral. UBI can undermine the legitimacy of public provisions since there is no chance for the UBI recipients to reciprocate the assistance. Participation income is set to rectify the inherent problem in UBI.

After the Global Economic Crisis of 2008, the discussion around UBI quickly grew into a global scene of basic income enthusiasts. Politicians and business elites – including Elon Musk and Mark Zuckerberg – took interest in UBI as a remedy against projected mass employment resulting from technological change. Since 2020, the economic fallout of the COVID-19 crisis encouraged many governments to implement emergency basic income (EBI). UBI advocates hope that EBI will create a window of opportunity towards more permanent UBI schemes.

Given the lack of ideas to reform social assistance schemes among the rich countries, enthusiasm for UBI appears as a fresh new start. Giving free money to everyone, without any strings attached, provides its supporters with a compelling vision for a future without poverty. The frenzy around UBI has left one competing policy idea almost unnoticed. That is participation income (PI), a policy idea first introduced by the British economist Anthony Atkinson (1944-2017) in 1996.

In simple terms, PI is similar to a UBI scheme, with the exception that individuals have to do something in exchange for the money they receive. That “something” is the main characteristic of PI, namely the participation criterion. What makes PI different from most other social security schemes is the fact that the criterion goes beyond traditional labour market participation.

Fundamental weaknesses of universal basic income

UBI schemes may give people the freedom to decide whether to participate in the job market and contribute to society by performing some other type of activity that may be useful to society at large. However, UBI type of policy will not be stable if many people minimize their time spent in formal paid employment or in socially beneficial activities. The exit option from employment or other contribution to the society would also breach the reciprocity norm which is essential for maintaining the legitimacy of any welfare state.

Indeed, a major criticism towards UBI builds around the principle of reciprocity, which is that it undercuts solidarity: a quintessential conditional for any for government-run social insurance and social assistance schemes. The social protection schemes are based on an efficiency rationale, where there are large gains to be reaped from pooling risks. Since participation is mandatory, reciprocity calls those who enjoy from protection to have a corresponding obligation to make a productive contribution in return. Solidarity is maintained through trust on people not misusing the system. Perception of free-riding might erode trust and solidarity, which would lead to a downward pressure on social protection spending. It could also jeopardize welfare states’ ability to maintain quality in essential public services such as healthcare, education and care of the elderly.

Unconditional social assistance benefit could provoke the long-term unemployed and those outside the labour markets to withdraw from the community and never explore their full potential as community members. Dropping benefits’ conditions would abdicate governments’ responsibility to support social integration. People would be left to their own devices. Risk groups include young people with no secondary education, low-educated women with small children and those with reduced work capacity.

From a political philosophy perspective, paying everyone might make sense, but the practical arguments seem to be missing. UBI has relevance only for those who are not employed and not covered through social insurance benefits. The problem with the argument for paying everyone is also that it rests on a confusion between an unconditional right to an income and a right to an unconditional income.

The PI would allow the recipients to engage with a reciprocal relationship with society in the same way as, for example, people in paid work. Previous research has shown that long-term unemployed and those outside the labour force often face multiple barriers to full-time employment. ALMPs focusing on quick exits from welfare to work fail to recognize individual vulnerabilities and the preconditions of human capital development for employment. Language courses can help to reduce functional illiteracy and thus increase employability. Part-time education could help young mothers and fathers gain access to job training. In many cases the claimants know best what activities they are capable of and what activities would help them to get ahead with their lives. PI would expand the scope of the activities.

A revised model for participation income

However, Atkinson’s original PI suffers from three major weaknesses. If PI is paid to everyone, the eligibility needs to be determined for every person in the population. If PI is paid as a conditional social assistance, people who do not fulfill the participation condition will be left without any financial support. If the list of activities fulfilling participation condition would be imposed upon people, they would remain in subordinate position as in current social assistance programmes.

Paying PI for a large majority of population while excluding a small minority would be a nightmarish endeavour with unsustainable administrative costs. The original PI model must be revised so that the payment would be available only to a targeted group of low-income people, i.e. people who currently rely on social assistance. In short, the revised PI model (targeted participation model) is based on the idea that universality is not a necessity for a future social assistance scheme, while individuality is.

Fulfilling the participation condition should be based on a co-created list instead of a predetermined list. Allowing co-creation of activity lists would engage the claimants in the process of developing activities that would contribute to their own lives and to the life of the community around them. It is important to note that automation, digitalization and artificial intelligence are not only threats to social protection and welfare states. They also provide social security systems with new untapped opportunities for the co-creation of participation options. However, the supporting infrastructure needs to function when it comes to participation activities, for example, full-day childcare in day-care centres, kindergartens and schools must be ensured.

The critics of PI maintain that failing to fulfil the participation condition would leave people with no benefits. To avoid this problem a guaranteed minimum income (conditional or unconditional) must be implemented before any PI scheme. Once guaranteed minimum income is in place PI would be paid as a “top-up”. This participation model can be called a partial participation income. The PI “top-up” would be an individual benefit that would be disregarded in granting other benefits. Receiving a PI would be an extra benefit; losing it could not be regarded as a sanction.

Participation income would free marginalized people from sanctions and dead-end activation programs. Instead, people would be recognized for the contribution to the community. Since the participation condition is set on individual level the scheme would dramatically reduce means-testing. PI would continue enforcing reciprocity. Most importantly PI has intrinsic value for recipients in supporting self-respect, cognitive development, and purposeful socialization.

Heikki Hiilamo is Professor of Social Policy at the University of Helsinki. He is author of Participation Income. An Alternative to Basic Income for Poverty Reduction in the Digital Age. Edward Elgar, Cheltenham 2022.