2019-02 Does a guaranteed basic income encourage entrepreneurship? evidence from Alaska

While the concept has been around for years, recently the policy notio n of a “guaranteed basic income” (GBI) – or universal basic income -- has had a resurgence of interest. In addition to rationales relating to fairness and response to structural employment shifts due to automation and globalization, another motivation sometimes put forward for these plans is to encourage risk-taking by providing a safety net. One would think this would imply greater entrepreneurial activity if an unsuccessful entrepreneur had the GBI to fall back on. In this paper we investigate a rare long-standing example similar to a GBI in the US, the Alaska Permanent Fund Dividend program. This was not put forth as a GBI and is frankly too small an annual amount to fully allow an individual to rely on these funds, but for a moderate-to-large family the APF can replace a large share of a poverty-level of income. Receipt of the APF also does not preclude a family from receiving other safety net benefits (e.g., food stamps, unemployment compensation), suggesting that the downside risk for a potential entrepreneur may be lower than in other US states. We initially examine trends in small-firm births in Alaska over time from the Census Bureau’s Business Dynamics Statistics 1977-2014 – before and after the institution of the APF program (the first payment was in 1982) – relative to other US states to investigate a possible impact on entrepreneurship, with results suggestive of a positive effect (perhaps wearing off over time). We then turn to micro data to look at changes in self-employment behavior in Alaska, with somewhat similar findings.