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

45 Pages Posted: 12 Mar 2010  

Maria Laura Alzua

CEDLAS, Universidad Nacional de La Plata

Guillermo Cruces

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS); IZA

Laura Ripani

Inter-American Development Bank (IDB)

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Date Written: March 9, 2010

Abstract

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.

Keywords: welfare programs, income support, labor supply, adult work incentives, conditional cash transfers, randomized control trials, developing countries

JEL Classification: J08, J22, I38

Suggested Citation

Alzua, Maria Laura and Cruces, Guillermo and Ripani, Laura, Welfare Programs and Labor Supply in Developing Countries - Experimental Evidence from Latin America (March 9, 2010). Available at SSRN: https://ssrn.com/abstract=1567832 or http://dx.doi.org/10.2139/ssrn.1567832

Maria Laura Alzua

CEDLAS, Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
United States

Guillermo Cruces (Contact Author)

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) ( email )

Centro de Estudios Distributivos, Laborales y
Sociales, Calle 6 e/47 y 48
La Plata, Provincia de Buenos Aires 1900
Argentina

HOME PAGE: http://cedlas.econo.unlp.edu.ar

IZA

P.O. Box 7240
Bonn, D-53072
Germany

Laura Ripani

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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