A new study conducted in Compton, California, has shed light on the impact of a guaranteed-income program on low-income households during the COVID-19 pandemic. The research, published by the National Bureau of Economic Research, focused on the Compton Pledge initiative, which provided $500 per month to 698 randomly selected low-income households over a two-year period. The study aimed to alleviate economic hardships caused by the pandemic and improve the financial security of recipients.
Unlike universal basic income programs, which aim to reach all individuals regardless of wealth or need, guaranteed income programs target individuals or households most in need of financial assistance. The Compton Pledge initiative was designed to provide unrestricted, recurring payments to low-income households, with the goal of improving their financial stability and reducing economic stress.
The study found that regular cash payments from the government had a positive impact on recipients’ perception of housing security. Many households used the money from the program to pay down debt, leading to a decrease in non-housing debt balances over the 18-month study period. This suggests that the additional income provided by the program helped recipients manage their finances more effectively and reduce their debt burden.
One interesting aspect of the study was the frequency of the cash transfers. Half of the households received payments twice per month, while the other half received payments once per quarter. The researchers found that households receiving more frequent payments experienced a greater decrease in credit card debt compared to those receiving quarterly payments. This highlights the importance of the timing and frequency of cash transfers in influencing recipients’ financial behavior.
Despite concerns that guaranteed income programs may discourage workforce participation, the study found that cash transfers did not significantly affect recipients’ desire to work. While there was a slight decline in workforce participation among recipients working fewer than 20 hours per week at the start of the program, overall, the payments did not have a significant impact on full-time employment.
The study also revealed some differences in the impact of cash transfers based on demographic characteristics of recipients. Male recipients reported larger negative impacts from the transfers, while female recipients reported improved financial security. Single mothers, in particular, experienced an increase in income even before accounting for the additional funds from the program, highlighting the positive impact of guaranteed income on this vulnerable group.
Overall, the study provides valuable insights into the effectiveness of guaranteed income programs in improving the financial security of low-income households. The findings suggest that regular cash payments can help reduce debt, improve housing security, and provide a sense of stability for recipients. Further research is needed to explore the long-term effects of such programs and their potential to enhance resilience in the face of economic challenges and emergencies.
