Economist explains guaranteed annual incomes

Wayne Simpson

The Globe and Mail asked U of M economist professor Wayne Simpson for his thoughts on something called “guaranteed annual income”, an idea that was tested in Winnipeg and Dauphin in the 1970s.

Here’s an excerpt from the interview:

Can you explain the concept of a guaranteed annual income and why it’s worth talking about?

The guaranteed annual income came out of the American notion of the negative income tax. The idea was to offer people a guaranteed amount of money to address household poverty. As people earned more income, the benefit would be reduced. The simplicity of it is valuable because it integrates with the modern tax system. When you reach a certain point, instead of paying taxes, you receive benefits. So it’s a negative tax. In some sense, we already have a guaranteed income and it’s called social assistance, which is provincially regulated. The difference is that this is an income transfer delivered through the tax system.

Wouldn’t a guaranteed income exacerbate skills shortages and discourage people from working?

This was always one of the questions. But the results suggested that work disincentive effects were relatively small. This was not as serious a problem as some had thought it would be.

What else did we learn from the Manitoba experiment?

Not a lot, because the experiment was mothballed after it was completed in 1979. There is some later research on the Dauphin experiment, which found some positive effects on health and education. There was also some work done on marital stability. The danger is if you don’t get the design right, couples may be better off separate than together.

How would you get from where we are to a guaranteed annual income?

That’s a messy question. The provinces would have to be brought on board, without making it look like the federal government is intruding on their rights and responsibilities. That’s a trickier question than it was in the 1970s. The provinces are more inclined to exert their authority now.

Why does the concept hold appeal for both the left and the right?

The concern on the left is that they want to see something done about poverty because they think it matters a lot. The concern on the right is the same, but they think a guaranteed income would deal with poverty in a fashion that doesn’t intrude unnecessarily on free markets, including labour markets. And you end up with a more efficient delivery mechanism that reduces the cost of government.

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Looking at this from another angle

Evelyn Forget

University of Manitoba professor Evelyn Forget, Community Health Sciences, analyzed health records and other material (using the U of M’s Manitoba Centre for health Policy‘s repository) to track the health and social outcomes of the people in the aforementioned study. She made comparisons with similar demographics in Manitoba and issue her report, The Town With No Poverty.

She found:

• A significant reduction in hospitalization, especially for admissions related to mental health and to accidents and injuries, relative to the matched comparison group
• Physician contacts for mental health diagnoses fell relative to the comparison group
• A greater proportion of high school students continued on to Grade 12
• No increase in fertility, no increase in family dissolution rates and no improvement in birth outcomes

“Our results document the value of health administration data for historical analysis, and demonstrate that a relatively modest [Guaranteed Annual Income] can improve population health suggesting the possibility of health system savings,” she states in the report, which can be read here.