Various studies globally are examining the impact of the government's cash support policy on the lives of low-income individuals. While it helps with short-term living stability, the consensus is that it has side effects such as reduced labor supply and slowed economic growth. There is also criticism that even if economic conditions improve, people's perceptions of poverty do not change.
On the 20th, at the World Economics Conference held at COEX in Gangnam, Seoul, the session "Social Safety Net Policies: Lessons Learned from Developed and Developing Countries" revealed research findings from various countries regarding the impact of the government's cash support policy on economic indicators like the labor market and Gross Domestic Product (GDP).
◇ "The Seoul stepping stone project increased consumer expenditure but reduced labor supply"
The first presenter, Professor Lee Jeong-min from Seoul National University, presented a paper analyzing the short-term effects of the 'Seoul Stepping Stone Income' pilot project. This project supports half of the household income shortfall compared to the baseline income for households with median incomes at 85% or below (with assets of 326 million won or less).
The research team analyzed data from a survey of over 5,000 households receiving stepping stone income support from 2022 to 2025. The analysis divided participants into a group below 85% of the median income and another group below 50%. The first group received about 65% of their household income through the stepping stone income project, while the second group received 30% to 40%.
The analysis showed a trend of increased consumer expenditure among households receiving income support. Specifically, food expenditure increased by 5% and medical expenditure by 3%. In contrast, labor supply was found to have decreased. The group below 50% of median income saw a 12.5 percentage point drop in labor supply, while the group below 85% saw a 10 percentage point decline. Overall employment decreased by 1 percentage point as labor supply dropped.
The research team also analyzed the macroeconomic impacts if this experiment were implemented nationwide. Simulation results indicated that labor would decrease by 8%, capital by 15%, and total output by 14%. However, the Gini coefficient, a measure of inequality, decreased from 0.30 to 0.26, showing a significant effect of reducing inequality, and it was suggested that it completely replaced the existing welfare system, the Basic Livelihood Guarantee (MBLS).
The research team analyzed the potential effects of implementing a basic income system nationwide instead of the stepping stone income project. The basic income showed similar effects to the stepping stone income but did not completely replace the Basic Livelihood Guarantee system. Professor Lee noted, "The stepping stone income project is effective in alleviating poverty, but it comes at the cost of reducing GDP," adding that "on the other hand, basic income, when implemented in a budget-neutral manner, is dispersed in small amounts and has almost no effect on poverty alleviation."
◇ U.S. study finds labor market participation decreases by 3.9% after cash support
The phenomenon of reduced labor supply due to basic income was also found in other studies. Patrick Krauss, a researcher at Open Research and the second presenter of this session, introduced findings from experiments in the United States, stating, "Cash support tends to reduce labor supply, but it did not lead to improvements in work quality or life quality."
The research team conducted an experiment where 1,000 low-income individuals in two U.S. states received $1,000 per month for three years, while a control group of 2,000 received $50 per month. As a result, the total income of low-income individuals decreased by $2,000 annually compared to the control group, and labor market participation dropped by 3.9 percentage points. Their weekly working hours decreased by 1 to 2 hours for participants, their spouses, and other household members.
Participants increased their leisure time as they reduced their working hours. Time spent on productive activities such as parenting, exercising, job searching, and self-development showed little difference. The research team stated, "We confirmed the effect of reduced labor supply, but did not find a phenomenon where it was replaced by other productive activities," assessing that "basic income simultaneously illustrated the impact and limitations it has on labor supply."
Imran Rasul, an economics professor at University College London (UCL), presented a paper analyzing the effects of the cash support project 'Big Push' conducted in Punjab, Pakistan. The Big Push provided one-time assets or cash worth $6.2 billion to impoverished households. The research team tracked 15,000 households living in 88 rural villages for four years.
The analysis revealed that the supported low-income individuals gained economic benefits and that overall consumption inequality in the villages decreased. However, there was little change in residents' perceptions, and their attitudes toward redistribution or political leanings did not change. The research team argued that even successful poverty alleviation policies find it very difficult to change people's perceptions or attitudes.