Is universal basic income (UBI) a viable solution to inequality in the 21st century?

This essay examines the theoretical background, practical application and long-term viability of universal basic income (UBI) through logical analysis and historical evidence. In an era marked by unprecedented technological advancements, rising inequality, and the looming threat of job displacement from technological advancements (AI), UBI has entered the Overton window as a bold, unique policy proposal. It refers to a form of social security which provides regular and uniform cash payment to all citizens, without means testing or the requirement to work. Proponents argue that it offers a revolutionary solution to the cycle of poverty and inequality by redistributing wealth and ensuring a minimum standard of living for all. However, critics question its economic feasibility, potential to disincentivize work, and suitability across diverse economies. This analysis aims to determine whether it can be a practical and sustainable tool for fostering a balance between growth and equity in the modern world.

The concept of Universal Basic Income has evolved over centuries, rooted in philosophical and economic debates surrounding social justice and economic security. Early iterations can be traced to the Enlightenment period, where thinkers like Thomas Paine proposed a “citizen’s dividend” in his 1797 pamphlet Agrarian Justice, advocating for redistributive payments funded by landowners to compensate for unequal access to natural resources. In the 20th century, the idea gained traction among economists across the ideological spectrum. Free-market advocate Milton Friedman proposed a form of UBI through his Negative Income Tax model1 in the 1960s, aimed at reducing poverty while preserving individual freedom and market efficiency. Simultaneously, progressive scholars and social democrats saw UBI as a pathway to social equity and economic stability in increasingly automated economies. The resurgence of interest in UBI in the 21st century has been fueled by the dual forces of technological disruption and growing inequality, prompting pilot programs and policy debates across both developed and developing nations. Its evolution reflects a longstanding struggle to balance economic efficiency with moral responsibility, positioning UBI as both a radical and historically grounded response to modern inequality.

Inequality today is primarily driven by wealth inequality, where assets are concentrated in a small elite, leaving much of the population relatively financially insecure. As of 2021, the top 10% of the population in the UK owned 57% of total wealth, while the bottom 50% held less than 5% (JRF, 2023). As a result, a growing number of workers compete for jobs in a labour market where opportunities are increasingly influenced by a small, asset-rich elite. The imbalance in labour supply and demand suppresses wages, reducing workers' purchasing power and limiting access to essential goods and services.  

Economic instability theories establish a causation between extreme wealth inequality with weakened consumer demand and reduced long-term growth (Piketty, 2014). In highly unequal economies, financial resources concentrate among the wealthy, who save rather than spend (Dynan et al., 2004). UBI counteracts this by redistributing income toward lower-income individuals, increasing consumption, and reducing inequality-driven economic stagnation.

The negative income tax aligns in sentiment with UBI but differs greatly in the mechanism. It pays individuals a certain amount of cash (negative tax) if they earn no income. As they start to earn more, the negative tax benefit diminishes while they are guaranteed to receive more money on aggregate. This preserve completely the incentive to work and to be self-sufficient in the long run.

Economic disparities are exacerbated as asset owners generates passive income through rent and investments, while ordinary workers transfer earnings to landlords and creditors. Over time, wealth inequality perpetuates a self-reinforcing cycle that further concentrates wealth at the top, leading to limited social mobility within society. 

Various taxation policies, regressive in nature, are further contributing to the financial strain on lower income households. In 2020–21, the poorest 10% of households paid 9.8% of their income in council tax, compared to 1.5% for the richest 10% (Resolution Foundation, 2023). This has heavily reduced their disposable income and therefore intensifying economic hardships among vulnerable groups in society.

These factors collectively highlight the structural challenges in the UK’s economic landscape, where wealth inequality is entrenched and inadvertently perpetuated by existing policies.

UBI’s economic foundation is framed within a post-Keynesian perspective, viewing the policy as a tool to combat economic instability, unemployment and inequality by stimulating demand and promoting financial security. 

Post-Keynesian economists emphasise the importance of Aggregate Demand in driving economic growth and maintaining stability. UBI operates as a direct fiscal stimulus by increasing disposable income, particularly for low-income individuals who have a high marginal propensity to consume. As a result, consumption rises, stabilising Real GDP growth and reducing the risk of demand-side recessions, as theorised by Keynesian multipliers (Bregman, 2017). Moreover, the Harrod-Domar growth model suggests that economic growth is driven by savings and investment. By reducing financial strain, UBI allows low-income individuals to save more, increasing the pool of investable funds. If these funds are directed toward productive capital formation, the economy benefits from higher investment-driven growth, as predicted by the model (Domar, 1946).

Overall, the increased aggregate demand will reduce unemployment as more workers are hired in the production of goods and services. More importantly, the induced monetary security enables workers to escape exploitative and precarious jobs without the fear of losing financial stability. It further encourages people to pursue education, training and entrepreneurial ventures, increasing the mobility and resilience of labour markets. 

In addition to the traditional economic arguments, a behavioural economic perspective, as explored by Mullainathan and Shafir (2013), shows that financial scarcity imposes a cognitive burden on the poor, limiting their ability to plan. This 'scarcity mindset' leads to short-term decision-making that traps individuals in poverty. UBI alleviates this burden by providing a predictable income stream, enabling recipients to make long-term investments in education, skills, and entrepreneurship. 

However, UBI also attracts criticisms on its viability and side-effects. An increase in aggregate demand, given there is no change in the productive capacity in the economy, will likely cause inflation. From a Keynesian perspective, UBI's inflationary risks depend on the economy's output gap—the difference between actual and potential equilibrium real GDP. If UBI raises aggregate demand in an economy with high unemployment and underutilized resources, businesses can respond by increasing production rather than raising prices, mitigating inflationary pressures. However, if the economy is already operating near full capacity, increased spending could outpace production, leading to demand-pull inflation. This characteristic suggests that UBI will be more effective in developing nations where the economy operates under its full capacity.

Nevertheless, UBI has been successfully implemented in many pilot programs throughout the last decade. A project that granted unconditional monthly income grants to individuals in Madhya Pradesh (India) generated statistically significant improvements in debt reduction, education, and nutrition. Greater financial security empowered communities to negotiate better wages and working conditions against exploitative employers. In addition, an extensive study in Kenya signalled that a lump sum cash aid produced greater benefits than a monthly payment. The key difference was lump-sum recipients started 19% more enterprises with 80% high revenues on average. This affirmed the theory that people are trapped in poverty by a lack of capital for transformative investments necessary to vault them into higher incomes. Some monthly income recipients also emulated this with a ‘rotating savings club’ that converted their payments in a lump sum for an individual within the community. The display of creativity and unity shows that those in poverty does not necessarily lack the vision and determination to succeed, therefore being able to UBI effectively as an opportunity to break out of the poverty cycle. Therefore, there is a strong case for UBI to be proposed in developing countries with the intention to eliminate poverty. 

Contrasting results were produced in a study in America during 2020-2023, which involved 3000 low-income families in Dallas, Texas and Chicago, Illinois (Vivalt et al., 2024). Monthly payments of $1000 USD were given to some families for three consecutive years alongside with a control group receiving $50 USD per month. Constant surveys on income, spending pattern and living standards disclosed that full UBI recipients earn 1500 USD less than control group on average, while also working 1.3-1.4 hour less work. The extra time were spent mainly in leisure activities, compared to an emphasis on education and enterprise demonstrated by the Kenyans. Despite asking detailed questions about amenities, researchers found no impact on quality of employment, and their confidence intervals can rule out even small improvements. Overall, results suggest a moderate labour supply effect that does not appear offset by other productive activities, undermining the human capital argument in favour of UBI. 

Moreover, the U.S.-based UBI trial revealed limited impact on health outcomes, despite popular assumptions that increased income correlates with better well-being (Miller et al., 2024). Over a two-year period, researchers found no measurable improvements in physical health, as assessed through both self-reported indicators and biological markers derived from blood samples. Mental health showed marginal improvement in the first year, but by the second year, even small gains could be statistically ruled out. Additionally, there were no significant effects on health-related behaviours such as sleep quality, exercise frequency, preventive care, or access to healthcare services. These findings suggest that unconditional cash transfers alone may not be sufficient to reduce health inequality. Instead, more targeted interventions—such as public health initiatives or direct access to services—may be necessary to address the complex links between poverty and health outcomes, at least in higher-income contexts where basic health infrastructure is already in place.

Counterintuitively, the net worth of recipients was on average 1000 USD lower while attaining 36,000 USD in total, tax free (Bartik et al., 2024). The uplift in asset values was marginal and largely offset by higher debt levels, leading to little net improvement in overall wealth. Although recipients reported enhanced financial health and modest gains in credit scores, there were no significant changes in delinquency rates, credit limits, or bankruptcy incidence. Estimated marginal propensities to consume ranged between 0.44 and 0.55 for non-durables and around 0.21 to 0.26 for durables, while the propensity to reduce debt remained near zero. These findings imply that while temporary UBI can stimulate consumption and improve perceived financial security, it may fall short in creating lasting improvements in the financial positions of low-income households without complementary financial literacy programs or structural reforms. The inability of UBI to encourage wealth accumulation fails to satiate its proposed objective of reducing wealth inequality. 

The study, though revealing fundamental contradictions within the policy, should not serve as a definitive objection to its implementation. The economy within the timeframe of the research (2020-2023) faced heavy distortions due to the COVID pandemic, with results therefore being less generalisable to UBI’s effects in normal circumstances.

Beyond its immediate effects on poverty and inequality, UBI’s long-term sustainability depends on how it integrates into our current welfare system. As automation threatens mass job displacement, welfare programs will become increasingly costly, raising the question of whether UBI can serve as a more efficient alternative. 

Currently, paperwork and administrative hurdles have led to inefficiencies and delays in support distribution. For instance, up to 30% of welfare spending goes toward administrative costs instead of direct aid in the US (Moffitt, 2016). On the other hand, the administrative demand for UBI is relatively low, reducing costs and ensuring direct support. More importantly, the benefit of the improved efficiency will become more apparent as our welfare needs scale up.

In conclusion, Universal Basic Income presents a compelling yet context-dependent solution to inequality in the 21st century. Empirical evidence suggests that while UBI can improve consumption and subjective financial well-being in the short term, it may fall short in driving long-term improvements in health or wealth accumulation—particularly in developed economies. However, its success in developing contexts, where capital constraints are more binding and welfare infrastructure is weaker, highlights its potential as an effective anti-poverty tool. As the world confronts rising inequality and technological disruption, UBI offers a streamlined and potentially more efficient alternative to complex welfare systems. While it is not a universal fix, its promise—particularly when paired with complementary policies such as education, healthcare access, and financial literacy—merits further exploration. Ultimately, UBI is not a panacea, but it is a serious policy contender that deserves more than theoretical curiosity; it warrants real political and economic consideration in a rapidly evolving global economy.