Universal Basic Income: High Cost, Low Returns, and Unintended Consequences
Latest Evidence and Real-World Limits of Unconditional Cash Transfers
Another high-profile study just landed, adding to a growing body of research that shows limited evidence of the transformative effects often attributed to Universal Basic Income (UBI). UBI is a policy proposal that provides all adults with regular, unconditional cash payments, typically intended to ensure a basic standard of living.
Over the past decade, UBI has evolved from a fringe idea into a recurring fixture of mainstream policy debates. Progressives champion it as a bold tool for ending poverty; libertarians imagine it as a sleek replacement for the welfare state. And in an age of AI anxiety and automation, UBI is increasingly sold as the essential safety net for the future of work. But as pilot programs scale and randomized trials proliferate, one pattern keeps repeating: the promised benefits rarely materialize.
A growing roster of rigorous studies, including the above-mentioned 2025 NBER working paper titled “The Impact of Unconditional Cash Transfers on Parenting and Children,” shows that UBI-style policies routinely fail to deliver on their promises. Most experiments find no significant long-term benefits in areas such as education, health, or financial well-being. Worse, UBI consistently reduces labor force participation and earnings. UBI, when combined with its immense fiscal cost, offers a weak case at best for scaling beyond small pilot programs.
Modest Parenting Gains, No Child Benefits
The Open Research Unconditional Income Study, ORUS, was one of the largest U.S.-based randomized controlled trials (RCTs) on cash transfers. From 2020 to 2023, 1,000 low-income adults were given $1,000 per month, no strings attached. The latest findings from the project, published by NBER in July 2025, examined effects on parenting and child development. The study found small, statistically significant improvements in parenting behaviors, including increased supervision and reduced use of corporal punishment. Modest gains were more pronounced among the lowest-income and single-parent households.
These behavioral improvements, however, did not translate into better outcomes for children. There were no statistically significant impacts on school attendance, behavioral problems, academic performance, or health outcomes. In some cases, child stress and developmental issues appeared worse. The authors suggest these effects may be due to increased parental attentiveness, but even this optimistic interpretation implies no net improvement.
In short, giving parents more money resulted in some changes in how they interacted with their children, but those changes did not yield better outcomes.
Labor Supply Declines, Household Income Shrinks
The July 2024 NBER study titled “The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States” evaluated labor outcomes from the same ORUS program. The findings are hard to ignore: Participants receiving the $1,000 monthly payments reduced their labor supply by 1.3 to 1.4 hours per week on average and were 3.9 percentage points less likely to be employed.
Moreover, the decline in hours worked occurred almost entirely on the extensive margin — people leaving work entirely rather than cutting back on hours. This aligns with earlier findings from the Negative Income Tax experiments of the 1970s, the Eastern Cherokee casino payments, and Alaska's Permanent Fund dividends.
Household income excluding the UBI payment fell by about $4,100 per year. That is, for every $1 in transfer income received, participants lost $0.29 in earned income. And contrary to optimistic projections, participants did not reallocate their time to more productive or entrepreneurial activities. Most of the freed-up time was used for leisure, not education or caregiving.
Compton Pledge: Debt Reduction, But at What Cost?
Another major study, conducted in Compton, California, tested a smaller UBI-style program: Roughly 700 low-income households were randomly assigned to receive $300 to $600 per month for two years. By the end of the program, researchers found a statistically significant $333 decline in earned income and a $302 drop in consumption spending among recipients.
Labor force participation among part-time workers declined by a full 13 percentage points. While some recipients used the transfers to reduce debt and improve housing security, there were no meaningful effects on food security, financial security, or psychological well-being. Total income rose by only $92 per month despite the $450 average monthly transfer — a sign of substantial displacement.
Interestingly, the only subgroup to exhibit a clear positive response was single mothers. Among this group, labor supply increased, and total income rose by more than the value of the transfer. But this result was isolated and not replicated across other subgroups.
UBI Fails in Human Capital and Child Outcomes
If UBI programs were to encourage long-term investment in education or skill development, their labor market effects might be justified. But the ORUS and Compton studies found no significant improvement in education outcomes.
A 2024 paper by Bartik et al. using administrative data from the National Student Clearinghouse found no increases in college enrollment or graduation. GED attainment rose marginally, but the effects were weak and often not statistically significant. These findings are consistent with the Baby’s First Years study, which found no impacts on children’s language skills, pre-literacy, or social-emotional development after four years.
Using the same randomized control trial, Duncan et al. published findings in JAMA Pediatrics on child and mother health outcomes and concluded that unconditional cash transfers did not improve maternal mental health, maternal or child BMI, or overall child health.
In short, UBI did little to help recipients invest in their futures or improve child or mother health.
High Fiscal Cost, Low Social Return
A 2019 NBER paper titled “Universal Basic Income in the US and Advanced Countries” highlights the fundamental challenge of UBI: It is incredibly expensive. A true universal, unconditional income set at the poverty line would cost around $4 trillion annually — more than total U.S. discretionary and mandatory spending outside Medicare, Medicaid, and Social Security.
Replacing existing programs with UBI would direct a much larger share of funds to younger, non-disabled workers and to families without children. In other words, it spends a lot to help people who aren’t poor. Adding UBI on top of current programs would require massive tax increases, which themselves create economic distortions. Either way, a universal UBI would upend the existing safety net in exchange for a policy that consistently fails to generate meaningful improvements in labor, education, or health outcomes.
UBI Is Not the Solution
UBI remains an elegant idea in theory, but the evidence tells a different story. The most robust empirical studies from the past five years paint a consistent picture:
No meaningful improvements in child development, education, or health
Persistent reductions in labor force participation and earned income
Only modest, often short-lived gains in subjective well-being
No statistical improvement in long-term economic mobility
And all of this comes at a staggering fiscal cost.
Means-tested cash transfers can play a role in a well-designed safety net. But universal, unconditional payments are not the right tool. Policymakers should instead pursue targeted programs that reward work, encourage investment in human capital, and address specific barriers to mobility. The dream of UBI may be alluring, but it is time to wake up to what the data say.