Across the country, basic income pilots have tested what happens when participants receive cash with no strings attached. However, for decades, one state has been running a program that some researchers say offers similar benefits to universal basic income — which is recurring payments to individuals without the need for pre-qualification.
The Alaska Permanent Fund distributes money to the state’s residents as annual dividends. The amount of the dividend payments varies each year as it depends on the state’s annual oil revenue. For 2023, the Permanent Fund Dividend was $1,312 per person for all residents regardless of socioeconomic status, down from $3,284 in 2022.
Alaskans spend significantly more on goods like clothing, cleaning products, and food in the month they receive the payments, scholarly reports show. Additionally, the fund helped reduce poverty, improve labor market outcomes, better residents’ health, increase the state’s fertility rate, and improve access to clean water.
These results echo the findings of much shorter guaranteed basic income pilots that distribute mainly $500 to $1,000 monthly to Americans. Most pilots cater to financially vulnerable Americans in demographics such as parents, foster youth, or particular racial identities.
To be sure, the Permanent Fund Dividend is not a universal basic income, as the dividend is paid out once a year, is not funded by taxes, and is not enough money to live on each year. The fund also differs from basic-income pilots that cater only to a small subset of the population, meaning findings from Alaska aren’t easily transferable to these pilots.
How does the Alaska Permanent Fund dividend work
In 1976, Alaska’s residents voted to allocate at least 25% of the state’s annual oil revenue to the Permanent Fund so future generations could benefit when oil is less prevalent in the economy. This came after residents expressed frustrations over how the state legislature spent its $900 million bonus from oil field leases. The initial deposit into the fund was $734,000.
“The fund was initially established with revenue from mineral extraction, primarily oil, but within a few years after its initiation, its primary source of revenue is investment returns,” said Sarah Cowan, executive director of the Cash Transfer Lab, which conducts and facilitates cash transfer research on initiatives like basic income. “It diversifies the Alaskan economy because, at this juncture, the revenue from this fund primarily does not come from oil.”
Residents who lived in Alaska during the entire previous year are eligible for the current year’s dividends. And Alaskans are expected to receive their 2024 PFD in October.
As of June 30, the fund’s value was $80.3 billion. The fund is divided into principal and earnings reserve parts, the latter of which is distributed as dividends to applicants. The principal part is not for spending and grows from royalties, capital gains, and inflation-proofing transfers.
Brett Watson, assistant professor at the Institute of Social and Economic Research at the University of Alaska Anchorage, told BI that the money goes a long way for families. He added the dividends represent about 8% of total annual household income for the median household in Alaska.
“Unlike the regular workings of an economy, the way we distribute the PFD in Alaska is all the cash gets direct deposited into bank accounts basically on the same day, so that’s $1 billion to $2 billion every year basically in one fell keyboard stroke,” Watson said.
Alaskans are expected to receive their 2024 PFD in October.
Jacob Boomsma/Shutterstock
How the fund helps residents
A repeated finding over the last few decades is that the Permanent Fund Dividend reduced poverty rates in Alaska. A paper published in May in the quarterly peer-reviewed publication Poverty & Public Policy found using Census data that from 1990 to 2019, poverty rates declined from 2.1 to as much as 4.2 percentage points — and brought the poverty rate for Indigenous Alaskans in rural areas to 22% from 28%.
“Many Native Alaskans choose to forego wage and salary occupation to pursue purely traditional or subsistence lifestyles, but having access to some cash is pretty essential to be able to provide basic provisions, to be able to buy hunting or fishing equipment,” Watson said.
The effects of the Permanent Fund Dividend have somewhat weakened over the last two decades as the dividends adjusted for inflation have declined.
The pros and cons of basic income are hotly debated, but critics of basic income have argued that giving people money with no strings attached could limit the size of the workforce. However, a paper in the American Economic Journal: Economic Policy published in 2018 determined that the Permanent Fund Dividend had no significant impact on employment rates and increased the frequency of part-time work.
A paper in the Journal of Policy Analysis and Management published in 2022 found that a $1,000 increase in the PFD led to a 1.7% greater probability of employment for men. However, for women, employment was reduced by 4%, or 1.25 hours a week, though this decline was concentrated among younger women with lower wages.
“The increased level of employment among male workers may be evidence of a positive labor demand response due to increased demand for goods and services,” said Andrew Bibler, an assistant professor at the University of Nevada, Las Vegas, who co-authored the paper. “In other words, the PFD could create job opportunities for some workers. This can offset the negative labor supply response, which is a common criticism of cash transfers.
The dividends also increased fertility for women ages 20 to 44, according to a paper published last year in Economics & Human Biology. The authors determined that a few years after the first payment, fertility increased annually by 11.3 births per 1,000 women, with the greatest percentage increase in those aged 34 to 44.
Additionally, using PFD data, a paper in the National Bureau of Economic Research published last year determined that an additional $1,000 distributed to families early in a child’s life lowers the chance of neglect and child abuse.
Research shows that dividends also improve health and well-being outcomes for families. An Institute of Social and Economic Research, University of Alaska Anchorage paper published in 2019 outlining the findings of past research about the program shows that the PFD has had significant health benefits, such as reductions in obesity and modestly positive effects on birth weight.
Though property crime fell by 8% in the weeks after payments, substance-abuse incidents rose by 10% four weeks after, according to a paper published in The Review of Economics and Statistics in 2020. Overall, the payments only slightly impacted criminal activity.
Meanwhile, Watson is working on a paper that is expected to show that people from various backgrounds and politics would be willing to move to another state if they received dividends.
Watson noted that lower-income residents often spend their dividends on household expenditures, though he added middle- and higher-income households “disproportionately” spend their checks on their kids, from school supplies to college savings accounts.
However, not all dividend effects are positive. Income inequality in the state has grown in the short and long run, according to a paper published in Energy Economics in 2017. The authors suggest that higher-income groups may save and invest more, while lower-income groups may spend more on goods.
“It’s a very poorly targeted program from a distributional perspective, but that kind of trades off against the lack of stigma associated with targeting this program at a particular subgroup of people,” Watson said.
Residents who lived in Alaska during the entire previous year are eligible for the current year’s dividends.
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How the fund started and changed over the years
Alaska’s governor at the time, Jay Hammond, wrote in an unpublished manuscript how he wanted to “transform oil wells pumping oil for a finite period into money wells pumping money for infinity.”
In 2016, Bill Walker, Alaska’s governor from 2014 to 2018, cut the dividend’s value roughly in half amid falling oil prices. This pattern of cutting dividends continued for the next two years.
Vox reported how current Gov. Mike Dunleavy promised residents up to $6,700 annually to compensate for this lost income, though payments have remained well below this. Dunleavy has advocated for higher dividends recently — proposing a $3,700 annual dividend in 2022 as oil revenues skyrocketed.
Watson said that though the state continues to prioritize the dividends, it competes against other state government spending for education, Medicaid, and other social services as oil revenue falls.
Like Alaska, many other US states have basic income programs. Some are geared toward specific groups, like new parents and pregnant people. Meanwhile, other countries have experimented with basic income, including Canada, Kenya, and Ireland.
Watson said the program and size of the dividends are also “the No. 1 political issue in the state of Alaska.”
“Whether you’re running as a Republican, an Independent, or a Democrat in the state, your political slogan will be your name and then ‘PFD defender’ in large font at the bottom,” Watson said.
Are you an Alaska resident who receives the permanent fund dividend? Reach out to this reporter at nsheidlower@businessinsider.com.
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Publish date : 2024-08-29 15:28:00
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