Basic Income: A Helping Hand for Entrepreneurship?

By Matthew Seddon
June 29, 2016

The Ontario government recently announced its intent to launch a Basic Income Pilot following the completion of the Honourable Hugh Segal’s discussion paper on the design and implementation of the pilot. The notion of a basic income replacing most income support programs with a single transfer is increasingly popular among governments, both in Canada and abroad. Some proponents have asserted that by combining the myriad of social support programs and offering an unconditional transfer to citizens, a government can reduce administration costs and poverty, while freeing citizens to spend their time and income as they wish.

The notion is enticing, such that not only is Ontario studying it, but the governments of Canada, and Quebec, and many in Europe are committed to studying the introduction of a basic income. The private sector is interested in this prospect as well, Y Combinator, a distinguished accelerator in the U.S., is running a long-term study on how a basic income affects people’s “happiness, well-being, and financial health”.

Y Combinator’s logic for studying basic income is that its introduction is especially likely given the changing nature of work – due to the introduction of the sharing economy and the increasing risk of automation – will end up eliminating traditional jobs. A more robust welfare state would guard against the much larger economic challenge of a significantly diminished demand for human labour. We at the Brookfield Institute for Innovation + Entrepreneurship are convinced that as people’s relationship with the labour market changes, they become more likely to create their own jobs and pursue entrepreneurship. A basic income would not only alleviate the potential reduced demand for human labour, but could also have a meaningful impact on a person’s decision to become an entrepreneur.

Regardless of the design, a basic income should reduce the amount of risk an individual incurs when they decide to quit their job and start a business. Presumably, a basic income would be enough to fulfil one’s basic needs so they can focus on starting a business. Even if a basic income doesn’t increase the likelihood of someone becoming an entrepreneur, it could increase the likelihood of a new venture’s success by increasing the business’ “runway” because a basic income is meant to be permanent unlike other income support programs like employment insurance.

Knowing this, we urge that the Honourable Hugh Segal recommend evaluating how rates of entrepreneurship are impacted by a basic income. Ontario’s pilot offers an exciting opportunity for the government to develop a robust understanding of the impact of basic income on entrepreneurship, which is interesting to policy makers, academics and civil servants.

Conducting a study would help to understand the many risks inherent in a basic income. There is a huge fiscal cost associated with a basic income due the massive increase in spending needed to ensure all Canadians have access to a basic income. This issue is reinforced by the fact that some evidence shows that a basic income acts as a modest work disincentive, which may reduce economic growth and the government’s ability to pay for a basic income program.

Moreover, it’s challenging to determine exactly how a basic income would change our society and economic system, and theory can only go so far to explain how people will respond to a basic income. We are confident that an experiment is imperative to estimating the impact of a basic income. One added benefit is that regardless of the outcome, testing the relationship between a basic income and entrepreneurship would help inform the broader link between social policy and entrepreneurship.

For media enquiries, please contact Coralie D’Souza, Director of Communications, Events + Community Relations at the Brookfield Institute for Innovation + Entrepreneurship.

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