Cash Transfers and Labor Supply: Evidence from A Large-Scale Program in Iran

We study the impact of a nation-wide unconditional cash transfer program on labor supply in Iran. In 2011, the government started monthly deposits of cash into individual family accounts amounting to 29% of the median household income. We use panel data and fixed effects to study the causal effect of the cash transfers on labor supply using the exogenous variation in the intensity of treatment, which we define as the value of cash transfers relative to household income in the year before transfers. We also use a difference-in-differences methodology that relies on exogenous variation in the time households first started receiving transfers. With the exception of youth, who have weak ties to the labor market, we find no evidence that cash transfers reduced labor supply, while service sector workers appear to have increased their hours of work, perhaps because some used transfers to expand their business.