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The effects of cash transfers on adult labor market outcomes

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  • Baird,Sarah Jane
  • Mckenzie,David J.
  • Ozler,Berk

Abstract

The basic economic model of labor supply has a very clear prediction of what should be expected when an adult receives an unexpected cash windfall: they should work less and earn less. This intuition underlies concerns that many types of cash transfers, ranging from government benefits to migrant remittances, will undermine work ethics and make recipients lazy. This paper discusses a range of additional channels to this simple labor-leisure trade-off that can make this intuition misleading in low- and middle-income countries, including missing markets, price effects from conditions attached to transfers, and dynamic and general equilibrium effects. The paper uses this as a lens through which to examine the evidence on the adult labor market impacts of a wide range of cash transfer programs: government transfers, charitable giving and humanitarian transfers, remittances, cash assistance for job search, cash transfers for business start-up, and bundled interventions. Overall, cash transfers that are made without an explicit employment focus (such as conditional and unconditional cash transfers and remittances) tend to result in little to no change in adult labor. The main exceptions are transfers to the elderly and some refugees, who reduce work. In contrast, transfers made for job search assistance or business start-up tend to increase adult labor supply and earnings, with the likely main channels being the alleviation of liquidity and risk constraints.

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  • Baird,Sarah Jane & Mckenzie,David J. & Ozler,Berk, 2018. "The effects of cash transfers on adult labor market outcomes," Policy Research Working Paper Series 8404, The World Bank.
  • Handle: RePEc:wbk:wbrwps:8404
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    1. Vargas Juliana Mesén & Linden Bruno Van der, 2019. "Why Cash Transfer Programs Can Both Stimulate and Slow Down Job Finding," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-27, June.
    2. Jules Gazeaud & Claire Ricard, 2021. "Conditional cash transfers and the learning crisis: evidence from Tayssir scale-up in Morocco," NOVAFRICA Working Paper Series wp2102, Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA.
    3. Jules Gazeaud & Eric Mvukiyehe & Olivier Sterck, 2019. "Cash Transfers and Migration: Theory and Evidence from a Randomized Controlled Trial," CSAE Working Paper Series 2019-16, Centre for the Study of African Economies, University of Oxford.
    4. Mesén Vargas, Juliana & Van der Linden, Bruno, 2017. "Is There Always a Trade-off between Insurance and Incentives? The Case of Unemployment with Subsistence Constraints," IZA Discussion Papers 11034, Institute of Labor Economics (IZA).
    5. Vidhya Unnikrishnan & Kunal Sen, 2020. "Old-age pensions and female labour supply in India," WIDER Working Paper Series wp-2020-90, World Institute for Development Economic Research (UNU-WIDER).
    6. Rafael Novella & Laura Ripani & Claudia Vazquez, 2021. "Conditional cash transfers, female bargaining power and parental labour supply," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(2), pages 422-436, March.
    7. Abhijit Banerjee & Dean Karlan & Hannah Trachtman & Christopher R. Udry, 2020. "Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags," NBER Working Papers 27314, National Bureau of Economic Research, Inc.
    8. Robert D. Osei & Monica Lambon‐Quayefio, 2021. "Cash transfers and the supply of labor by poor households: Evidence from the livelihood empowerment against poverty program in Ghana," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1293-1304, August.
    9. Sakketa, Tekalign G. & Kornher, Lukas, 2021. "Unintended Consequences or a Glimmer of Hope? Comparative Impact Analysis of Cash Transfers and Index Insurance on Pastoralists’ Labor Allocation Decisions," 2021 Conference, August 17-31, 2021, Virtual 315113, International Association of Agricultural Economists.
    10. Ambler, Kate & Godlonton, Susan, 2021. "Earned and unearned income: Experimental evidence on expenditures and labor supply in Malawi," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 33-44.
    11. Asenjo, Antonia, & Escudero, Verónica, & Liepmann, Hannah.,, 2022. "Why should we integrate income and employment support? a conceptual and empirical investigation," ILO Working Papers 995195493302676, International Labour Organization.
    12. Del Boca, Daniela & Pronzato, Chiara & Sorrenti, Giuseppe, 2021. "Conditional cash transfer programs and household labor supply," European Economic Review, Elsevier, vol. 136(C).
    13. Juliana Mesén Vargas, 2018. "Income Effect on Labor Outcomes for People Living in Poverty: the case of PROGRESA," LIDAM Discussion Papers IRES 2018015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    14. Manuela A. de Paz-Báñez & María José Asensio-Coto & Celia Sánchez-López & María-Teresa Aceytuno, 2020. "Is There Empirical Evidence on How the Implementation of a Universal Basic Income (UBI) Affects Labour Supply? A Systematic Review," Sustainability, MDPI, vol. 12(22), pages 1-36, November.
    15. Habimana, Dominique & Haughton, Jonathan & Nkurunziza, Joseph & Haughton, Dominique Marie-Annick, 2021. "Measuring the impact of unconditional cash transfers on consumption and poverty in Rwanda," World Development Perspectives, Elsevier, vol. 23(C).
    16. Sung‐Eun Cho & Young‐Min Lee, 2020. "The Effects of Youth Job Seeker Allowance in South Korea," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 34(2), pages 64-77, November.
    17. Ohrnberger, Julius & Anselmi, Laura & Fichera, Eleonora & Sutton, Matt, 2020. "The effect of cash transfers on mental health: Opening the black box – A study from South Africa," Social Science & Medicine, Elsevier, vol. 260(C).
    18. Kate Ambler & Alan de Brauw & Susan Godlonton, 2018. "Rural Labor Market Responses to Large Lumpy Cash Transfers: Evidence from Malawi," Department of Economics Working Papers 2018-11, Department of Economics, Williams College.
    19. Yang, Xiaozhong & Zhang, Cheng, 2022. "Spatial investments in the real estate industry: Based on the population flow within the city," Journal of Business Research, Elsevier, vol. 140(C), pages 593-603.

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    More about this item

    Keywords

    Economic Assistance; Disability; Services&Transfers to Poor; Access of Poor to Social Services; Employment and Unemployment; Labor Markets; Rural Labor Markets; Health Care Services Industry;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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