The people increased their hours of work and also used their money to diversify their business.
In 2010, the Government of Iran set up a five-year program for unconditional cash transfers to all its citizens to reform its welfare system. Under the program, the government aimed to remove fuel and bread subsidies and replaced them with a monthly income of 45$ to all the Iranians unconditionally. The payment accounted for 29 per cent of the median household income of Iran.
How did Iran manage to give Unconditional Cash Transfers to its citizens?
Iran is an oil-rich country and one of the biggest exporters of oil. The Iranian government considered oil as a wealth which belongs to its citizens. So, the government decided to share a part of its oil revenue unconditionally to all their citizens.
Criticism of Unconditional Cash Transfers Program of Iran
One of the major criticism of this scheme was that the unconditional payments will make people lazy and they will not work. This will have a negative impact on the labour force of poor workers and the overall economy of Iran. So far, the fears of the critics have proved to be unsubstantial, despite international sanctions, the domestic economy is booming, and the labour markets are expanding in the Islamic Republic.
Impact of Unconditional Cash Transfers on the people of Iran
In Iran, the cash transfers given to people did not make them lazy. It was observed that there was no drastic change in the rate of labour force participation after the cash transfers. In fact, the poor people increased their hours of work and also used the money to diversify their business.
The cash transfers had a positive impact on the poverty rate of Iran. According to Iranian Household Expenditure and Income Survey for 2011-12, the headcount ratio of poverty in rural areas was reduced from 44 percent to 23 percent and from 13 percent to 5 percent in urban areas.
The program also helped to reduce the inequality in the country. The Gini Coefficient as per capita expenditure which shows the wealth distribution in a country improved from 0.42 in 2009 to 0.37 in 2013. Gini Coefficient of 1 implies that all the wealth of the country is concentrated in one individual whereas the coefficient of 0 implies perfect wealth distribution.
The cash transfer also led to an increase in tertiary education enrollment rate. According to the data from the World Bank, enrollment in institutes of higher learning increased from 42 to 72 percent for males, and from 42 to 65 percent for females between 2010 and 2016.
The Iran model proves that the concept of Universal Basic Income can be constructive in reducing poverty and inequality. It also shows that people do not stop working because of cash transfers. It is time that we accept that people, not politicians, know how to spend their money in the most effective way.