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Cash Transfers and the Labor Market

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  • Cavalcanti, Tiago
  • Corrêa, Márcio

Abstract

This paper studies the efects of cash transfers to the poor on the labor market. We investigate this issue by building a matching model of the labor market with endoge- nous job destruction in which agents can be in three states: employed, unemployed, or out of the labor force (home production). Workers are heterogenous in their labor market productivity. An idiosyncratic productivity shock arrives at constant instan- taneous rate. Depending on this shock, workers might want to leave the labor market and workers out of the labor force might decide to look for a job. We introduce cash transfers to all agents with income below some threshold level. We found two quali- tative results: (i) The size of cash transfers has a negative e®ect on the employment rate, but an ambiguous e®ect on the unemployment rate; and (ii) the coverage of this welfare program has a positive e®ect on the employment rate, and an ambiguous e®ect on the unemployment rate. We also provide some numerical simulations.

Suggested Citation

  • Cavalcanti, Tiago & Corrêa, Márcio, 2010. "Cash Transfers and the Labor Market," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 64(2), June.
    • Handle: RePEc:fgv:epgrbe:v:64:y:2010:i:2:a:1480
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    2. Santiago Garganta & Leonardo Gasparini & Mariana Marchionni, 2017. "Cash transfers and female labor force participation: the case of AUH in Argentina," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-22, December.

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