The Effects of Cash Transfers on Adult Labor Market Outcomes

29 Pages Posted: 16 Apr 2018

See all articles by Sarah Baird

Sarah Baird

George Washington University - School of Public Health and Health Services (SPHHS)

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Berk Ozler

World Bank - Development Economics Research Group (DECRG)

Date Written: April 12, 2018

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.

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

Suggested Citation

Baird, Sarah and McKenzie, David John and Ozler, Berk, The Effects of Cash Transfers on Adult Labor Market Outcomes (April 12, 2018). World Bank Policy Research Working Paper No. 8404. Available at SSRN: https://ssrn.com/abstract=3161818

Sarah Baird (Contact Author)

George Washington University - School of Public Health and Health Services (SPHHS) ( email )

2300 I Street, NW
Ross Hall 106
Washington, DC 20037
United States

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

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

Berk Ozler

World Bank - Development Economics Research Group (DECRG) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/bozler

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