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Does a Guaranteed Basic Income Encourage Entrepreneurship? Evidence from Alaska

Review of Industrial Organization volume 57, pages 607–626 (2020)Cite this article

Abstract

While the concept has been around for years, recently the policy notion of a “guaranteed basic income” (GBI)—or universal basic income—has had a resurgence of interest. In addition to rationales that relate to fairness and response to structural employment shifts due to automation and globalization, another motivation that is sometimes put forward for these plans is to encourage risk-taking by providing a safety net: There would be greater entrepreneurial activity if an unsuccessful entrepreneur had the GBI to fall back on. In this paper we investigate a rare long-standing example similar to a GBI in the US: the Alaska Permanent Fund Dividend program. This was not put forth as a GBI, and the annual amount is too small to allow an individual to rely fully on these funds; but for a moderate-to-large family the APF can replace a large share of a poverty-level income. Receipt of the APF also does not preclude a family from receiving other safety net benefits—food stamps, unemployment compensation—which suggests that the downside risk for a potential entrepreneur may be lower than in other US states. We initially examine trends in small-firm births in Alaska over time from the Census Bureau’s Business Dynamics Statistics 1977–2014—before and after the institution of the APF program (the first payment was in 1982)—relative to other US states to investigate a possible impact on entrepreneurship; the results suggest a positive effect—which appears to dissipate over time. We then turn to micro data from the Current Population Survey to examine changes in self-employment behavior in Alaska, with somewhat similar findings.

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Notes

  1. See Forget (2011) for a discussion of a past Canadian experiment, and a recent New York Times article that discusses a planned Finnish experiment, as well as other proposals under consideration around the world (https://www.nytimes.com/2016/12/17/business/economy/universal-basic-income-finland.html). Other terms are used to describe this concept: e.g., Basic Income Guarantee, Universal Basic Income.

  2. For a detailed description of the history and implications of the APF program, see Widerquist and Howard (2012).

  3. Imbens et al. (2001) found similar effects on Massachusetts lottery players.

  4. Jones and Marinescu (2018) and Bibler et al. (2019) also examine the labor-market implications of the PFD.

  5. A detailed discussion of the dividend calculation is available on the Permanent Fund Dividend website: http://pfd.alaska.gov/Division-Info/About-Us.

  6. The BDS program reports on both establishment and firm entry; we utilize the firm-level entry data to avoid counting the entry of small establishments that do not represent new entrepreneurial activity.

  7. While serial correlation is always a concern, the Durbin-Watson statistics are in the inconclusive range for the first specification and failing to reject “no serial correlation” in the second.

  8. We obtained the CPS data from the Integrated Public Use Microdata Series (IPUMS), Flood et al. (2018).

  9. When the models are estimated with no labor-hour restriction on who is counted as self-employed, the effect sizes are larger but qualitatively similar to the estimated effects that are presented here.

  10. State GDP data come from the Bureau of Economic Analysis, and state unemployment rates come from the Bureau of Labor Statistics.

  11. The CPS did not collect interstate migration data in 1985 either, so that year is also excluded from the DID regressions.

  12. Column 2 does show a declining effect of the PFD on women’s entrepreneurship over time, although the base-period effect of the PFD is small and not statistically significant.

  13. Jones and Marinescu (2018) use a synthetic control analysis of CPS data to study the effect of the PFD on employment; this analysis is discussed at length in Feinberg and Kuehn (2018). Feinberg and Kuehn (2018) use a DID approach instead of synthetic control approach because of the risks associated with misattributing the employment effects of the oil boom—which happened at the same time—to the PFD.

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Authors and Affiliations

  1. American University, Washington, DC, USA

    Robert M. Feinberg

  2. Urban Institute, Washington, DC, USA

    Daniel Kuehn

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  1. Robert M. Feinberg
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Correspondence to Robert M. Feinberg.

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Feinberg, R.M., Kuehn, D. Does a Guaranteed Basic Income Encourage Entrepreneurship? Evidence from Alaska. Rev Ind Organ 57, 607–626 (2020). https://doi.org/10.1007/s11151-020-09786-8

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Keywords

  • Guaranteed basic income
  • Universal basic income
  • Entrepreneurship
  • Alaska Permanent Fund
  • Small-firm entry
  • Permanent Fund Dividend