The city of Stockton, California, embarked on a bold experiment two years ago: It decided to distribute $500 a month to 125 people for 24 months — with no strings attached and no work requirements. The people were randomly chosen from neighborhoods at or below the city’s median household income, and they were free to spend the money any way they liked. Meanwhile, researchers studied what impact the cash had on their lives.
The results from the first year of the experiment, which spanned from February 2019 to February 2020, are now in. And they’re extremely encouraging for its participants, and for advocates who see unconditional cash transfers as an effective way to help people escape poverty.
The most eye-popping finding is that the people who received the cash managed to secure full-time jobs at more than twice the rate of people in a control group, who did not receive cash. Within a year, the proportion of cash recipients who had full-time jobs jumped from 28 percent to 40 percent. The control group saw only a 5 percent jump over the same period.
The researchers wrote in their report that the money gave recipients the stability they needed to set goals, take risks, and find new jobs. One man in his 30s had been eligible for a real estate license for over a year but hadn’t gotten it because he just couldn’t afford to take time off work. Thanks to the freedom offered by the extra $500 per month, he said, his life was “converted 360 degrees … because I have more time and net worth to study … to achieve my goals.”
Critics of cash assistance programs often say that handing out “free money” will make people less inclined to find jobs. But in the research done to date, unconditional cash does not tend to disincentivize work. In several programs — from Alaska and North Carolina in the US, to Finland and Spain in Europe — it has had no effect on employment either way. In some cases, it seems to embolden people with an entrepreneurial bent; for instance, in Japan, initial survey results have shown that recipients are 3.9 times more interested in launching a new business.
Employment aside, there are clear benefits to unconditional cash programs. The Stockton experiment — which was conducted as a randomized controlled trial and underwent an independent evaluation — adds to the growing body of evidence from basic income experiments around the world, which shows that getting unconditional cash tends to boost happiness, health, school attendance, and trust in social institutions, while reducing crime.
More benefits — and some limitations — of Stockton’s guaranteed income trial
There were other benefits from the Stockton program. Cash recipients reported being less anxious and depressed than the control group. On average, the recipients “experienced clinically and statistically significant improvements in their mental health that the control group did not — moving from likely having a mild mental health disorder to likely mental wellness over the year-long intervention,” according to the researchers.
The cash also enabled recipients to help their family and friends. For example, one woman used the cash to help her siblings buy school clothes for their kids and to help her daughter-in-law pay for car insurance. Another bought diapers for her grandchildren.
This isn’t the first time we’ve seen cash programs have positive ripple effects on the broader community. In Kenya, cash transfers have stimulated the economy and benefited not only the recipients themselves but also people in nearby villages.
It’s worth noting a wrinkle in the Stockton trial: Each participant was given $500 per month on a debit card so that researchers would be able to see how they were using the money. However, 40 percent of it was either withdrawn as cash or transferred to an existing bank account, so researchers had to rely on participants to tell them where the money went.
Of the money tracked on the debit cards, recipients spent most on necessities like food (37 percent), home goods and clothes (22 percent), utilities (11 percent), and car costs (10 percent). They spent less than 1 percent on alcohol or cigarettes.
Though these numbers can’t capture the full picture, they offer a counter to harmful stereotypes and faulty assumptions: that people who become poor get that way because they’re bad at rational decision-making and self-control, and that they’ll blow free money on frivolous things or addictive substances. The evidence does not support these beliefs.
The Stockton experiment was a small study with only 125 cash recipients, so the findings should be seen as offering supporting evidence on the effectiveness of cash programs rather than as definitive standalone proof. Nevertheless, the results of this philanthropically funded program — officially known as the Stockton Economic Empowerment Demonstration (SEED), which received a $1 million grant from the Economic Security Project — help underscore that poverty is a lack of cash, not character, and usefully add to the body of evidence that free money doesn’t disincentivize employment — it can actually boost it.
The implications for policy, during the pandemic and beyond
The message that free money can actually improve job prospects comes at a critical moment, as the Biden administration tries to push through a pandemic aid package that would include direct checks to millions of Americans.
The pandemic has made the idea of direct payments more popular. With the Covid-19 crisis generating so much financial loss and uncertainty, advocates have argued that citizens desperately need some sort of income floor. And against this backdrop, SEED has spawned something much bigger: Mayors for a Guaranteed Income, a coalition of mayors who are pushing for the US to implement a federal guaranteed income. Both SEED and the mayoral coalition are the brainchild of Michael Tubbs, the former mayor of Stockton.
For years now, Tubbs has promoted the idea that a guaranteed income could transform life for Stockton residents, but he’s also made clear this experiment is about a lot more than just his city. “Stockton is a proxy for America: its diversity, its people,” he said. “It’s a place that’s emerging and has big, bold ideas.”
Guaranteed income is a big, bold idea that could improve life for millions of Americans if implemented more widely. That said, it’s not a cure-all for the systemic obstacles that keep people from a healthy, stable life.
As the SEED researchers wrote in their report, “Guaranteed income should not be considered as a singular approach for household stability, but rather as one policy option to be implemented alongside others to shore up market failures.” Other policy options include increasing the supply of affordable housing and raising the minimum wage.
For now, only the first year’s worth of data from the Stockton experiment is available; we have to wait until 2022 for the full results. But the first-year findings signal that guaranteed income programs — combined with better public policy — could go a long way toward fighting poverty.