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Welfare Programs and Labor Supply in Developing Countries. Experimental Evidence from Latin America

  • María Laura Alzúa

    (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - FCE - UNLP)

  • Guillermo Cruces

    (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - FCE - UNLP and CONICET)

  • Laura Ripani

    (Inter-American Development Bank)

This paper studies the effect of welfare programs on work incentives and the labor supply of adults in developing countries. The document builds on the experimental evaluations of three programs implemented in rural areas: Mexico’s PROGRESA, Nicaragua’s Red de Protección Social (RPS) and Honduras’ Programa de Asignación Familiar (PRAF). The impact of welfare on labor supply has been widely studied in developed countries, where most recent initiatives attempt to mitigate negative effects on work incentives. The programs under study are conditional cash transfers (CCT), which combine monetary benefits with incentives for curbing child labor and fostering the accumulation of human capital. Unlike their counterparts in developed economies, however, they do not account for potential impacts on the labor supply of adults, and there is little systematic evidence on this aspect despite a wealth of empirical studies on their intended outcomes. Comparable results for the three countries indicate mostly negative but small and non-significant effects of the programs on the employment of adults, no reallocation of labor between agricultural and other sectors, and a reduction in hours worked by adults in eligible households in RPS. Moreover, PROGRESA had a positive effect on beneficiaries’ wages. The programs did not imply major disincentives to work, despite substantial transfers, but they had some effects on local labor markets. This mechanism is related to recent findings on the indirect impact of CCTs on ineligible households, and implies that future evaluation studies and designs should account for the equilibrium effects of the interventions.

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Paper provided by CEDLAS, Universidad Nacional de La Plata in its series CEDLAS, Working Papers with number 0095.

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Length: 45 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:dls:wpaper:0095
Contact details of provider: Postal: Calle 48 No555 - La Plata (1900)
Phone: 21- 1466
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Web page: http://cedlas.econo.unlp.edu.ar/

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