Universal Basic Income and Sweden : -A simulation of the Swedish economy

Abstract: What if you could separate your salary from work, what would happen? How would individuals in a society react? Would they invest more in human capital, would they work halftime or at all? These are questions that follows if Universal Basic Income (UBI) would be implemented. What is Universal Basic Income? UBI is a suggestion of a welfare system where every month the state gives its citizens a sum of money without conditions. The idea is old but has resurfaced lately due to the fear that automation is destroying jobs in a faster rate than new jobs can be created. But Sweden also faces other challenges. After the crisis in Syria, Germany and Sweden were the two European countries who took in the most refugees which will contribute to the rising gap of unemployment between natives and people who are born outside of the country. Research done by Försäkringskassan, a public institute in Sweden shows that people who end up in long term illness has increased over time, and the prediction is that more people are heading towards that direction. With these challenges, the potential of UBI was interesting to examine. With an DSGE-model, the behaviour of the agents in the economy was simulated in a closed economy. The results showed that the UBI grew the sectors size compared to the baseline model without the UBI. Households of various skills increased their purchsing power with UBI compared to households without UBI. The simulations also showed that the price that the firms had to pay to compensate workers for labour increased with UBI, indicating that UBI is possibly inflationary. The simulations were compared with two surveys about the attitudes towards UBI and the labour market. Some of the answers about labour hours were in line with the simulations, while others were not. The majority of the respondents answered that UBI would not affect their labour hours, indicating that the model with rational expectations does a poor job of catching attitudes, because agents don’t always act rational. It could also depend on that most of the respondents are highly educated and have different preferences compared with other individuals who have lower skills. An improvement of the study is firstly to include a central bank as an additional agent to capture the effects of monetary policy and inflation, secondly open up the economy to capture the effects of trade.