Abstract
ᅟThe basic economic model of labor supply has a very clear prediction of what we should expect 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. We discuss 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. We use 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 to 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.JEL ClassificationO15, J22, I38, H23
Highlights
1 Introduction Cash transfers are a key component of social protection globally, and there is a growing interest in the promise of cash transfers to improve outcomes for poor people in low, middle, and even high-income countries
Bryan et al (2014) use a mixture of theory and additional experimentation to find evidence suggesting that the main channel in their case is through an insurance effect. These results suggest that conditional cash transfers for search assistance can be effective in helping individuals find work in other labor markets
4.2 Cash transfers for small business start-up and growth A second form of cash transfer program with an explicit work focus comes from grants made to potential or existing small business owners, with the goal of getting individuals to start firms, or to invest in growing their firms to earn higher profits and increase survival
Summary
Cash transfers are a key component of social protection globally, and there is a growing interest in the promise of cash transfers to improve outcomes for poor people in low-, middle-, and even high-income countries. A third channel is an insurance effect: poor individuals may not attempt to undertake risky activities with high potential rewards (like starting a business or migrating to a better job) because of the risk of failure. In practice many cash transfers are only given to individuals and households that satisfy certain eligibility criteria and/or that undertake specified actions These conditions can effectively change the relative prices of labor and leisure, which can in turn affect labor supply and labor earnings. 2.4 Summary Taken together, these potential channels show that there are many reasons why the labor response to cash transfers need not be as simple as that predicted by an “Econ 101” model of the labor/leisure trade-off Most of these channels provide mechanisms to offset the fall in labor expected with higher income, or to even result in an increase in labor hours and earnings. We turn to the empirical evidence to see what has happened when individuals in LMICs receive cash transfers
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
