Does a Universal Basic Income Reduce Labour Supply for All Groups? Evidence from Canada’s Negative Income Tax Experiment
Chris Riddell (University of Waterloo), Craig Riddell (University of British Columbia)
We investigate the labour supply effects of the Canadian negative income tax (NIT) experiment known as MINCOME. The North American NIT experiments have received considerable attention in recent years given the renewed interest in a universal basic income. However, while many papers exist on the U.S. NITs, the Canadian NIT experimental literature consists of a single study. We are unable to replaicate the results of that study and question the validity of its conclusions. Our reassessment yields very different results compared to what is currently believed about MINCOME’s labour supply impacts. We find large and statistically significant adverse effects on labour supply for women from two-headed households, but no compelling evidence of a movement out of the labour force. Our point estimates on hours worked for this group are similar to those found in the Seattle-Denver NIT study that offered more generous treatment plans, and the reduction is higher relative to baseline annual hours than U.S. NIT evidence. Conversely, for single parents (90% single mothers) we find large positive treatment effects on hours worked and on the likelihood of working. The single-parent results, which are robust to two different data sources and differences in sample construction, differ from previous NIT evidence in both countries, although are consistent with standard labour supply theory. Finally, we find no significant impact on either the intensive or extensive margin for men in two-headed families. Overall, our results for the Canadian experiment suggest that the guaranteed income benefit reduced hours for women from two-headed households and increased both movement into the labour force as well as hours worked for single parents—impacts that indicate a guaranteed income with NIT features can have offsetting positive and negative work incentive effects.