Running head: Does a Guaranteed Basic Income Affect Motivation to Work 1

Does a Guaranteed Basic Income Affect Motivation to Work?

Mark Barrett, Michael Dewey, Kim Ehntholt, Blair Wigney

ECON 4340: Experimental and Behavioral Economics

Dr. Jennifer Pate

6/5/2016
Guaranteed Basic Income And Motivation to Work 2

Introduction:

Does the provision of a basic income affect a person's motivation to work? A basic

income guarantee, as well as other models of welfare systems based on compensation schemes

and motivation, has been a strongly debated topic in legislatures throughout the world. The main

goal of these provisions is to fight poverty. The Netherlands have taken steps to implement a trial

run of guaranteed basic income in four of its cities within the near future. Switzerland will hold a

referendum on this exact issue in June of 2016 (Flowers, 2016). Relevant literature on the

subject assists these countries that might offer a guaranteed income. As countries begin to

consider the policy implications of providing citizens with a basic income, our experiment seeks

to study whether or not this provision will affect attitudes toward labor. Similarly, countries with

robust unemployment benefits have often been criticized for taking away a strong economic

incentive to go to work. In this context, our experiment seeks to answer whether a basic income

reduces motivation to work.

A study by conducted at Kansai University in Japan looks at a similar question on

compensation schemes (Takahashi, Shen & Ogawa, 2016). This is similar to our research

question and could be rephrased as, does a basic income crowd out peoples motivation to work

efficiently or to work at all? The researchers tested five different compensation schemes and

looked at subjects corresponding performance. The compensation schemes were no pay1, low

incentive pay, high incentive pay, low fixed pay, and high fixed pay. The results of the no

payment treatment were used as baseline to compare the other results to. As with Takahashi,

Shen & Ogawa, we will use a menial task and a logic task to look at the difference in subject

performance under two compensation schemes, endowed and not endowed.

1 The no payment treatment was conducted as part of a class subjects were enrolled in.
Guaranteed Basic Income And Motivation to Work 3

The study found for the menial task game an inverse U-shape relationship between the

points and the magnitude of incentives, which suggests that in comparison with no payment, a

high incentive payment does not improve the level of effort, although low incentive pay does

improve performance (Takahashi, Shen & Ogawa, 2016). The same inverse U-shape

relationship can be observed for fixed pay schemes, where performance in fixed pay schemes

stayed below incentive pay performance. There is an increase in performance with low incentive

pay in comparison to the control (no payment treatment) and a decrease in performance with

high fixed pay. This finding contradicts basic economic theory, which predicts that the higher the

monetary incentive, the higher the effort and average performance of a subject when performing

a task. In the logic game task of this experiment, the results followed economic theory. Increased

performance with increased incentive pay was observed, which was significant for low as well as

for high incentive pay. With low and high fixed pay, performance did not deviate significantly

from the constant or each other.

Kathrin Pokorny found the same inverse U-shape relationship for increasing incentive

pay and effort levels in her experiment conducted at the University of Bonn and University of

Cologne (Pokorny, 2016). The experimenters explained that the inverse U-shaped relationship

observed for the incentive pay treatment might be due to the fact that subjects go into the

experiment with an approximated amount they want to earn, working as a reference point.

Therefore, they had to work harder/better when compensated with a low incentive pay and less

with a high incentive pay.

Another experiment was run in the late 1960s and early 1970s. The federal government

sponsored four field experiments which were run in Iowa, North Carolina, Indiana, Seattle and

Denver (Forget, 2011). All of the experiments tested the effect of a basic income with different
Guaranteed Basic Income And Motivation to Work 4

tax rates on labor activity and other factors including consumption, investment, and family

stability for low income families. They found that a guaranteed income reduced work effort, and

the highest absolute reduction was in the group that received the highest basic income. Other

factors the experimenters analyzed in response to a basic guaranteed income was family

dissolution, consumption, investment and child well-being. However, these results showed no

difference in motivation to work among primary earners, but in secondary and tertiary earners2.

Additionally, the finding of greater dissolution of families was later disregarded as a statistical

error.

New Treatment Section:

This paper will modify the experimental design of Takahashi, Shen & Ogawa to study

the effect of a basic income on subject performance in a menial task and a logic task. Instead of

testing for fixed versus incentive pay, our experiment will split the group of subjects and give

one half a basic income, and then let both groups perform a menial task and logic task with

incentive pay. With this modification, we see how a basic income can influence performance by

analyzing subject performance in both tasks. Further, we will give subjects the option to state

their preference for either the menial or the logic task to see if subjects getting their preferred

task perform well regardless of basic income. Based on the previous findings on guaranteed

basic income, we tested for three hypotheses.

H1: Subjects who do not receive a basic income will earn more than subjects who did

receive a basic income.

H2: The basic income group will work less/exert less effort while working compared to

the no basic income group.

2 Secondary earners tended to be spouses, and tertiary earners tended to be adolescent males
Guaranteed Basic Income And Motivation to Work 5

H3: Subjects who enjoy doing logic tasks, and were assigned to the logic task, will work

more, regardless of endowment.

Experimental Design/Procedure:

The experimental subject pool consisted of 16 undergraduate students from Loyola

Marymount University, of which the majority completed at least an introductory economics or

business course. 10 of the 16 subjects participated in the experiment as part of their course

Experimental and Behavioral Economics. There were 8 male and 8 female subjects; 1 of the 16

subject was a Health and Human Sciences major who did not take any economic courses. The

rest were recruited by the experimenters and had not participated in any previous economic

experiment.

The experiment consisted of two treatments in which subjects each completed one of two

tasks. Subjects were randomly assigned to treatments. The treatments were conducted

simultaneously in the Economic Laboratory of Loyola Marymount University, with 2

experimenters and 8 subjects in each room. There was no interaction between rooms or subjects

within the rooms. The experimental treatment required that one group start out with 0

experimental dollars, the other with 10 experimental dollars which represented the basic income

group.

Instructions (Appendix) were handed out to each subject and read out loud by one of the

experimenters. Subjects were asked to indicate, on a separate sheet, the task they would prefer to

perform. The sheets were then collected by the experimenter.

The first task was a menial task in which subjects had to add together two numbers

which were one, two, or three digits each. The second task was a logic game task in which

subjects were working on LSAT preparation questions from the analytical reasoning section of
Guaranteed Basic Income And Motivation to Work 6

the June 2007 official LSAT. There was an example question for each task on a sheet of paper

that was given to participants (Appendix). After reviewing the sample question, subjects were

asked to rate their preferences on the Pre-Experiment Preferences List sheet (Appendix).

An equal amount of subjects within each treatment performed the menial and the logic

task. If possible, subjects were give their preferred task, otherwise it was randomly decided

which subject(s) did not receive their preferred task. Both treatment sessions lasted 15 minutes.

At any time subjects could stop working on the task, hand in their answers, and use the

remaining time however they wanted as long as they did not disturb the other subjects. At the end

of the 15 minutes, all answer sheets were collected. The subjects were asked to indicate their

preferences again, and this time they were given three choices which included the free time

option.

The experimenters corrected the answer sheets and calculated each subject's earnings

based on a set piece-rate per correct answer. Subjects earned 2.80 experimental dollars per

correct answer in the logic game task and 0.10 experimental dollars per correct answer in the

menial task. The conversion rate from experimental dollars to US dollars was .08, but this

conversion was unknown to participants.

There were a few problems encountered in this study. If it were to be performed again,

changes would be made to the instructions, because we believe some did not realize they could

stop working because none of the subjects handed in their task in the 15 minute period. We

would also increase the time period because 15 minutes may not be long enough that participants

would experience any marginal benefit from free time (e.g. working on homework). There were

also slight variation in the instructions given in both groups, where the non-endowed group was

given a 5 minute warning to let them know how much time was left in the experiment, while the
Guaranteed Basic Income And Motivation to Work 7

endowed group was not given this warning. This variation may have skewed the results,

although still no participant turned in their task before time was up.

We would also prefer a more efficient way of grading because grading the menial task by

hand took a considerable amount of time. This could be improved by administering the tasks on

a computer, and having the computer grade the answers almost instantaneously. Our surveys

could also be improved by offering open answer rather than a restricted tick the box system.

This would allow us to retrieve continuous data rather than binary which would have been more

useful for some questions. Additionally, some questions were worded in a way that seemed like

there was no option for not applicable which we would change in order to get more accurate

results.

Results

The data gathered from the experiment, due to the small subject pool and some confusion around

the instructions makes it difficult to arrive at any distinct conclusions around intrinsic

motivations to work. Figure 1 below demonstrates the regressions run on the data to test for

whether or not being endowed had an effect on the earned pay of the subjects. We define earned

pay as the amount of experimental dollars subjects earned from the actual work they did,

removing the endowment from the payout. We introduce several controls to limit any bias in the

regression, as well as to test for the effect of preferences around work attitudes both before and

after the task is completed.

This data reveals several important facts. First and foremost, the data on whether or not a

subject is endowed is demonstrating significance at the 10% level. What is more surprising here

is the coefficient on endowed, our 1, is less than 0 (i.e. endowed subjects earned less). While 0
Guaranteed Basic Income And Motivation to Work 8

falls within the confidence interval on this variable at 5%, it only barely makes it. The upper

limits of the 95% confidence intervals for the 3 regressions run here are, respectively, as follows:

0.14, 0.24, and 0.52. We believe that there may be a reduction in the motivation to work as a

result of receiving the endowment, but we cannot reject the null hypothesis (H1) that endowment

has no effect on motivation to work. This finding is in line with the Takahashi, Shen & Ogawas

Figure 1: Earned Pay regressed against endowment, game played, and percentage of

questions correct (of those attempted)

findings surrounding the menial task where changes to the payout structure did not affect

performance past a certain point of payout. However, several problems prevent us from

definitively concluding an effect (or lack thereof) in motivation to work based on the payouts.

The first is the small sample size, and the second is the fact that every subject in the nonendowed

group was a part of the Experimental and Behavioral Economics course, which means they may

have had testing experience that other subjects lacked. This exposes the data to a potential

confounding effect in which the students who are more likely to take the kinds of tests that were

administered are also in the group where we are looking for a higher motivation to work.
Guaranteed Basic Income And Motivation to Work 9

Therefore, we cannot prove the effect that receiving an endowment lowers the amount of money

a subject earns through working.

We next examine whether or not a motivation to shirk exists. That is to say, whether or

not students who are offered a basic income would turn in their papers earlier and elect to not

work due to the guaranteed income afforded to them. H2, which suggests that subjects with a

basic income will choose to work less, captures this idea. In our testing, no subjects elected to

turn in their papers but rather kept working throughout the entire 15 minutes in which the

experiment took place. As such, analyzing the extent to which students choose to shirk less as it

differs between the groups is a difficult task, and the results of this experiment with respect to H2

are unclear. However, we did attempt to proxy the motivation to work based upon the questions

attempted, controlling for a few factors and introducing subjects task preference after the

experiment was run. We include these preferences to examine any effect induced by the

individual proclivity to want to have free time. Such subjects may have elected to take more

breaks in between the questions they answered. Figure 2 demonstrates the regression we ran to

proxy an incentive to shirk. The results here are decidedly unsurprising. Significance holds for

the binary logic regressor and the constant value because there were significantly fewer

questions possible in the logic game (24 as compared to 328), and because the subjects

preferences and endowment did not significantly factor into their questions attempted. For the

endowment variable, we see indications of a negative effect but no real significance to the trend.

As with most variables in this study, having more observations could significantly reduce the p-

values output by the regression, but as it stands, H2 is rejected and no effect on motivation to

shirk can be definitively concluded based on basic endowment.

Guaranteed Basic Income And Motivation to Work 10

Figure 2: Questions attempted regressed against game played, post preferences, and

endowment
Finally, we examine whether or not subjects who will play logic games will choose to

work more than the students who complete the menial task. Our H3, that subjects assigned the

logic task who preferred the logic task would work more, speaks to an innate desire to work.

Looking at these results, we examine whether or not a love of the job exists, as the subjects

who prefer the logic games are more likely to prefer them due to an inherent affinity for

completing these types of puzzles. Figure 3, pictured below, first regresses subjects earned pay,

and then introduces their attempted pay - that is, how much they would have earned had they

correctly answered every question they attempted. Most of the regressors lacked significance,

although there did appear to be an indication of increased attempted pay in the logic task. In the

final column, a subject who answered all the questions in the logic game in the last few moments

without exerting effort to figure out the correct answer was removed and we see a slightly lower,

but still insignificant effect.

Guaranteed Basic Income And Motivation to Work 11

earnpay earnpay attpay attpay attpay

logic 0.825 0.825 13.637 13.637 7.610

(0.51) (0.57) (1.97) (1.91) (1.84)

endowed -2.900 -2.763 -8.790

(1.99) (0.39) (2.12)

_cons 15.175 16.625 15.762 17.144 20.158

(13.38)** (13.17)** (3.22)** (2.77)* (5.76)**

R2 0.02 0.25 0.22 0.23 0.41

N 16 16 16 16 15

* p<0.05; ** p<0.01

Figure 3: Earned pay and Attempted pay regressed against logic and endowment.

Column 5 controls for outliers

Conclusion

Using the split-task design with the choice to stop did not induce subjects to utilize the

free time option. Our assumption that subjects would opt for free time instead of the menial task

was incorrect. This was surprising, but in hindsight the free-time option should have been made

more appealing. As such, in future research the time limit should be increased and a real non-

work alternative should be introduced. We would have preferred to have the option of watching a

YouTube video and choosing this task is far less cognitively taxing than being given the

ambiguity of free time. In order to provide some kind of incentive to avoid work, we should

provide a simple alternative rather than a complex alternative.

Our goal in this experiment was to determine whether there is a change in motivation for

subjects who receive an initial endowment. We found that those endowed tended to earn nearly
Guaranteed Basic Income And Motivation to Work 12

$3 less than those who were not endowed, at the 10% significance level. However, we cannot be

sure whether this is due to less effort exerted, the difference in groups because of our small

sample size, or the differences in subjects experience with economic experiments. It would be

interesting to see the results of this experiment conducted with more saliency. A large number of

subjects in this experiment understood our budget limitations and may have performed

differently because of this fact.

Given the problems we noticed and our suggested improvements, we believe the study

should be expanded and fortified with the understanding of these flaws. Additional lines of

research should focus on how endowment affects rationality or generosity in ultimatum games,

and experiments involving cooperation. Given our knowledge of reference points, the strength of

a persons altruistic traits may be diminished or amplified depending on the initial endowment of

funds. It may be the case that those endowed with very little are less generous, and those

endowed with a lot are more generous. However these traits may also be intrinsically dependent

rather than extrinsically dependent. We conclude that it appears that endowment does not clearly

affect motivation to work. However, the area requires further study considering the fundamental

function of endowment in experimental economics.

Guaranteed Basic Income And Motivation to Work 13

References

Bailey, C. D., & Fessler, N. J. (2011). The moderating effects of task complexity and task

attractiveness on the impact of monetary incentives in repeated tasks. Journal of

Management Accounting Research, 23(1), 189-210.

Boffey, Daniel. Dutch city plans to pay citizens a basic income, and Greens say it could work

in the UK. The Guardian, December 26, 2015

Flowers, A. (2016, April 25) What Would Happen If We Just Gave People Money?. Retrieved

from http://fivethirtyeight.com/features/universal-basic-income/

Forget, E. L. (2011). The town with no poverty: the health effects of a Canadian Guaranteed

Annual Income Field Experiment. Canadian Public Policy, 37(3), 283-305.

Gneezy, U., & Rustichini, A.. (2000). Pay Enough or Don't Pay at All. The Quarterly Journal of

Economics, 115(3), 791810. Retrieved from http://www.jstor.org/stable/2586896

Munell, A.(1986). Lessons from the Income Maintenance Experiments: An Overview Economic

Conference Series, 30 Retrieved from

https://www.bostonfed.org/economic/conf/conf30/conf30a.pdf

Pokorny, Kathrin. Pay - But Dont Pay Too Much: An Experimental Study on the Impact of

Incentives. Journal of Economic Behavior and Organization 66.2 (2006): 251-64. Web.

1 Apr. 2016

Takahashi, H., Shen, J., & Ogawa, K. (2016). An Experimental Examination of Compensation

Schemes and Level of Effort in Differentiated Tasks. Journal of Behavioral and

Experimental Economics.
Guaranteed Basic Income And Motivation to Work 14

Appendix

Figure 1: Instructions Sheet - Group 1

Group 1 Instructions

Instructions

Thank you for your participation in this study about work attitudes. Please read the
instructions carefully. You will be asked to indicate whether you would prefer to
complete a series of logic games, or a series of basic tasks for the next 15 minutes
(samples of the questions will be available when you make your decision). After
everyone in your group has made their selection, you will be assigned one of the two
tasks. At any point during the task, you may opt to hand in your paper and stop working.
If you choose to do so, you will not be able to resume working for the remainder of the
time, but you are free to use your phone or the computers, listen to music, or whatever
you please, so long as you do not distract anyone around you. Please notify one of the
experimenters if you wish to stop working by raising your hand.

For your participation in this experiment, you will start out with $10 experimental dollars.
Additionally, if you are assigned to do a basic task, you will be paid $0.10 per correct
answer out of 328 possible questions. If you are assigned to complete the logic games
task, you will be paid $2.80 per correct answer out of 24 possible questions.
Guaranteed Basic Income And Motivation to Work 15

Figure 2: Instructions Sheet - Group 2

Group 2 Instructions
Thank you for your participation in this study about work attitudes. Please read the
instructions carefully. You will be asked to indicate whether you would prefer to
complete a series of logic games, or a series of basic tasks for the next 15 minutes
(samples of the questions will be available when you make your decision). After
everyone in your group has made their selection, you will be assigned one of the two
tasks. At any point during the task, you may opt to hand in your paper and stop working.
If you choose to do so, you will not be able to resume working for the remainder of the
time, but you are free to use your phone or the computers, listen to music, or whatever
you please, so long as you dont distract anyone around you. Please notify one of the
experimenters if you wish to stop working by raising your hand.

For your participation in this experiment, you will start out with $0 experimental dollars.
Additionally, if you are assigned to do a basic task, you will be paid $0.10 per correct
answer out of 328 possible questions. If you are assigned to complete the logic games
task, you will be paid $2.80 per correct answer out of 24 possible questions.
Guaranteed Basic Income And Motivation to Work 16

Figure 3: Sample Questions Examined Before Pre-Experiment Preferences are Chosen

Sample Questions

Addition Example Logic Game Example

37 + 12 = A store sells shirts only in small, medium, and large sizes, and
only in red, yellow, and blue colors. Casey buys exactly three
22 + 14 = shirts from the store.

83 + 7 = A shirt type consists of both a size and a color.

Casey does not buy two shirts of the same type.
Casey does not buy both a small shirt and a large shirt.
No small red shirts are available.
No large blue shirts are available.

Which of the following could be the three shirts that Casey

purchases?

You will be given options of A, B, C, D, or E to choose from

(If more than one answer is selected, the question will be
marked incorrect)
Guaranteed Basic Income And Motivation to Work 17

Figure 4: Order of Preferences Pre-Experiment

Preferences List Pre-Experiment

Please indicate your preference of task by ranking your ideal first-choice task with a number 1
and your second choice task with a number 2

Addition Task: ____________

Logic Games: _______________

Figure 5: Order of Preferences Post-Experiment

Preferences List Post-Experiment

Please indicate your preference of task by ranking your ideal first-choice task with a number 1
and your second choice task with a number 2 and your third-choice task with a number 3

Addition: ________

Logic Games: ________

Free Time: _________

Guaranteed Basic Income And Motivation to Work 18

Figure 6: Experimenters Sheet to Record Stop Time

Participant Record Sheet

Subject ID Stop Time Correct Answers

10

11

12

13

14

15

16

17

18

19

20
 Guaranteed Basic Income And Motivation to Work 19

Figure 7: End-of-Experiment Survey

Demographics Questions

1. Age
18-21
22-25
26-30

2. Where are you from? (city, state, country)

City: _____________________
State: ____________________
Country: __________________

3. Gender
Male
Female
Prefer to not disclose

4. Are you planning on going to graduate school?

Yes
No
If Yes, what kind (Masters/Doctoral/MBA)? ______________________

5. Have you started studying for the GMAT/LSAT/GRE?

GMAT
LSAT
GRE

6. Do you have any work experience?

No
Yes