A new paper on the labor effects of cash transfers
SARAH BAIRD, DAVID MCKENZIE, and BERK OZLER of the WORLD BANK review a variety of cash transfer studies, both governmental and non-governmental, in low- and middle-income countries. Cash transfers aren’t shown to have the negative effects on work that some fear:
"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.
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."
Link to the working paper. Table 2—which covers the channels through which cash impacts labor, is especially worth a read—as many studies on cash transfers don’t go into this level of detail.
- A study on a large-scale unconditional cash transfer in Iran: "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." Link.
- Continuing the analysis of Hauschofer and Schapiro’s controversial results from a cash study transfer in Kenya, Josh Rosenberg at GiveDirectly has, at the end of his overview, some thoughtful questions for continuing research: "Is our cost-effectiveness model using a reasonable framework for estimating recipients’ standard of living over time?… GiveDirectly provides large, one-time transfers whereas many government cash transfers provide smaller ongoing support to poor families. How should we apply new literature on other kinds of cash programs to our estimates of the effects of GiveDirectly?" Link.