Alaska Permanent Fund: How it works, offers similar benefits to UBI

Alaskans spend far more on goods like clothing, cleaning products and food in the month they get their paychecks, academic reports show. In addition, the fund has helped reduce poverty, improve labor market outcomes, improve 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 mainly distribute $500-$1,000 per month to Americans. Most pilots target financially vulnerable Americans from demographics such as parents, youth in foster care, or certain racial identities.

Certainly, the Permanent Fund Dividend is not a universal basic income because the dividend is paid once a year, is not tax-funded, and is not enough money to live on every year. The fund also differs from basic income pilots, which only target a small subset of the population, meaning the Alaska findings are not easily transferable to these pilots.

How the Alaska Permanent Fund Dividend Works

In 1976, Alaskans voted to allocate at least 25 percent of the state’s annual oil revenue to the Permanent Fund so that future generations can benefit when oil is less prevalent in the economy. That came after residents voiced their frustrations with how the state legislature spent its $900 million oil field lease bonus. The initial deposit into the fund was $734,000.

“The fund was originally established with income from mineral extraction, primarily oil, but within a few years of inception, its primary source of income is investment returns,” said Sarah Cowan, chief executive of Cash Transfer Lab, which also runs facilitate research on cash transfers on initiatives such as basic income. “It diversifies Alaska’s economy because right now the revenue from this fund is not primarily from oil.”

Residents who lived in Alaska for the entire previous year are eligible for current year dividends. And Alaskans are expected to receive the 2024 PFD in October.

As of June 30, the value of the fund was $80.3 billion. The fund is divided into main parts and reserve for earnings, the latter being distributed as dividends to applicants. The main part is not for expenses and grows from royalties, capital gains and inflation-proof transfers.

Brett Watson, an assistant professor at the Institute for Social and Economic Research at the University of Alaska Anchorage, told BI that the money goes a long way for families. He added that dividends represent about 8 percent of total annual household income for the average Alaskan household.

“Unlike how an economy normally works, the way we distribute the PFD in Alaska is that all the money is deposited directly into bank accounts basically the same day, so it’s anywhere from $1 billion to $2 billion every year basically in one keystroke.” Watson said.

How the fund helps residents

A repeated finding in recent decades is that the Permanent Fund Dividend has reduced poverty rates in Alaska. A paper published in May in the peer-reviewed quarterly Poverty & Public Policy found, using census data, that from 1990 to 2019, poverty rates fell from 2.1 to as much as 4.2 percentage points — and brought the poverty rate for Alaska Natives in rural areas. to 22% from 28%.

“Many Alaska Natives choose to forgo wage and salary occupation to pursue purely traditional or subsistence lifestyles, but having access to some money is quite essential to be able to provide basic supplies, to be able to purchase equipment hunting or fishing,” Watson said.

The effects of the Permanent Fund Dividend have weakened somewhat over the past two decades as inflation-adjusted dividends have declined.

The pros and cons of basic income are hotly debated, but critics of basic income have argued that giving people money without any strings attached could limit the size of the workforce. However, a paper in the American Economic Journal: Economic Policy published in 2018 found 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 PFDs led to a 1.7% higher probability of employment for men. However, for women, employment was reduced by 4%, or 1.25 hours per week, although this decline was concentrated among younger women with lower wages.

“The increased employment rate among male workers may be evidence of a positive labor demand response due to increased demand for goods and services,” said Andrew Bible, assistant professor at the University of Nevada, Las Vegas, who co-authored the paper. . “In other words, the PFD could create employment opportunities for some workers. This may offset the negative labor supply response, which is a common criticism of cash transfers.

Dividends also increased fertility for women ages 20 to 44, according to an article published last year in Economics & Human Biology. The authors found that within a few years of the first payment, fertility increased by 11.3 births per 1,000 women annually, with the largest percentage increase among those aged 34 to 44.

Additionally, using PFD data, a National Bureau of Economic Research paper published last year found that an additional $1,000 distributed to families early in a child’s life decreases the chance of child neglect and abuse.

Research shows that dividends also improve family health and well-being outcomes. A paper by the Institute for Social and Economic Research, University of Alaska Anchorage, published in 2019, highlighting the findings of previous research on the program, shows that PFD had significant health benefits, such as reduced obesity and modest positive effects on birth weight.

Although property crimes fell by 8 percent in the weeks after the payments, substance abuse incidents rose by 10 percent four weeks after, according to an article published in The Review of Economics and Statistics in 2020.. In general, the payments had little effect on criminal activity.

Meanwhile, Watson is working on a paper that expects to show that people from various backgrounds and politics would be willing to move to another state if they received a dividend.

Watson noted that lower-income residents often spend the dividends on household expenses, though he added that middle- and higher-income households “disproportionately” spend their checks on their children, from supplies to college savings accounts.

However, not all effects of dividends are positive. Income inequality in the state has increased in the short and long term, according to an article published in Energy Economics in 2017. The authors suggest that groups with higher incomes can save and invest more, while groups with lower incomes can spend more on goods.

“It’s a very poorly targeted program from a distributional perspective, but that kind of trades off with the lack of stigma associated with targeting this program at a certain subset of people,” Watson said.

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 “turn oil wells that pump oil for a finite period into money wells that pump money for infinity.”

In 2016, Bill Walker, Alaska’s governor from 2014 to 2018, cut the dividend by about half amid falling oil prices. This pattern of dividend cuts continued over the next two years.

Vox reported how current Gov. Mike Dunleavy promised residents up to $6,700 annually to make up for this lost revenue, though payments fell well short of that. Dunleavy recently advocated for higher dividends – proposing an annual dividend of $3,700 in 2022 as oil revenues soared.

Watson said that while the state continues to prioritize dividends, it competes with other state government spending on education, Medicaid and other social services as oil revenue declines.

Like Alaska, many other US states have basic income programs. Some are aimed at specific groups such as new parents and pregnant women. Meanwhile, other countries have experimented with basic income, including Canada, Kenya and Ireland.

Watson said the schedule and size of dividends is also “the No. 1 political issue. 1 in the state of Alaska.”

“Whether you’re running as a Republican, independent or Democrat in the state, your political slogan will be your name and then ‘PFD defender’ in big letters at the bottom,” Watson said.

Are you an Alaska resident receiving the fund’s permanent dividend? Contact this reporter at [email protected].