Do government income transfer programs tend to discourage work?

Responsible researcher: Viviane Pires Ribeiro

Article title: DEBUNKING THE STEREOTYPE OF THE LAZY WELFARE RECIPIENT: EVIDENCE FROM CASH TRANSFER PROGRAMS

Article authors: Abhijit V. Banerjee, Rema Hanna, Gabriel E. Kreindler and Benjamin A. Olken

Location of intervention: Philippines, Honduras, Indonesia, Mexico, Morocco and Nicaragua

Sample size: Seven randomized control trials

Big topic: Job market

Type of Intervention: Impacts of government income transfer programs on labor supply

Variable of main interest: Job offer

Evaluation method: Others - Randomized controlled trials

Assessment Context

Government income transfer programs for low-income people are increasingly common in developing countries. A 2014 review of programs around the world by Gentilini, Honorati and Yemtsov found that 119 developing countries have implemented at least one type of unconditional income assistance program and 52 countries have conditional cash transfer programs for families. most economically vulnerable. Totaling 1 billion people in developing countries who participate in at least one assistance program. Some studies show that these programs serve to reduce poverty, improve educational outcomes and access to health services. However, some politicians and even the general public express concerns regarding the discouragement of work as a result of these programs. 

Although much of the discourse surrounding transfer programs is that these programs tend to discourage work, the theory is ambiguous. On the one hand, transfer programs can reduce incentives to work: individuals may not work — or withdraw from visible forms of work — to ensure receipt of benefits, or they may stop working simply through the income effect. On the other hand, these programs can have positive effects on work, helping to reduce the credit constraints of the poor and allowing investment in small businesses or allowing them a standard of living basic enough to be productive workers. Given that the theory has a certain ambiguity, Banerjee et al. (2017) reanalyze data from seven randomized controlled trials of bank transfer programs in six developing countries to examine the programs' impacts on labor supply.

Intervention Details

In the study carried out by Banerjee et al. (2017), the authors included seven randomized control trials of cash transfer programs for low-income families in emerging nations in the analysis. The programs analyzed are: Honduras' Programa de Asignación Familiar II (PRAF II), Morocco's Tayssir, Mexico's Progresa and Programa de Apoyo Alimentario (PAL), Philippines's Pantawid Pamilyang Pilipino Program (PPPP), Indonesia's Program Keluarga Harapan (PKH) and Nicaragua's Red of Social Protection (RPS).

A notable feature of all seven programs is that they are implemented by national governments. In terms of program type, the majority are conditional cash transfers (CCTs), in which benefits are conditional on desired social conduct behaviors, such as ensuring that the recipient's children attend school and are vaccinated. The two exceptions were: (1) Mexico's PAL program, in which benefits were not conditional on behavior and (2) Morocco's Tayssir program, which has two different types of treatment, with conditional and non-conditional income transfer.

Methodology Details

An advantage of harmonizing and reanalyzing the databases, according to the authors, is that this allows the data to be grouped and an underlying treatment effect estimated, generating lower statistical limits than any of the other previous studies, allowing the identification of a zero or close to zero effect. from zero. Thus, Banerjee et al. (2017) included seven randomized control trials of transfer programs in their analysis, identified according to three criteria: (1) being an evaluation of a government transfer program (conditional or unconditional) in a developing country; (2) be possible to obtain data for adult men and women in the assessment; and (3) randomization must have at least 40 clusters. Thus, the authors obtained data for transfer programs from six countries: Honduras, Indonesia, Morocco, Mexico (two different programs), Nicaragua and the Philippines.

Results

The results found by the authors show no significant effect of belonging to a transfer program in relation to employment in six of the seven programs. They only found an impact in one program: in Honduras, that is, a 3 percentage point decrease in the probability of work that is significant at the 10 percent level; however, when analyzing multiple coefficients, this was expected. The transfer program also shows no effect on hours worked per week: none of the individual coefficients are significant, even in the data from Honduras, where they observed a decrease in employment status.

Even if overall labor force participation has not changed, the type of work that families participate in could change as a result of the transfers. In particular, families may choose not to work outside the home due to fears that this form of employment could disqualify them from receiving benefits. However, even taking this point into consideration, no clear systematic pattern emerges, identifying no statistically observable impact on any type of work.

Men and women were analyzed separately, given differences in labor force participation. The impact of cash transfer programs on men's labor supply is only significantly different from zero in one program (Philippines), a positive impact, but the overall hours worked do not change significantly. For women, the impact is significantly different from zero in one program (Honduras), negative impact. However, neither program significantly affects hours worked.

Public Policy Lessons

Do government income transfer programs tend to discourage work? Despite claims in the political debate that these programs tend to discourage work and induce increased spending on “temptation goods” such as alcohol and tobacco, Banerjee et al. (2017) reanalyzed data from seven randomized controlled trials of cash transfer programs in six developing countries, but found no systematic evidence that cash transfer programs discourage work for either men or women. Furthermore, the authors cite the study carried out by Evans and Popova (2014), which also found no evidence of this relationship. Therefore, considering the positive effects of transfer programs documented in the literature, Banerjee et al. (2017) suggest that transfers can be an effective policy to help combat poverty and inequality.

References

BANERJEE, Abhijit V. et al. Debunking the stereotype of the lazy welfare recipient: Evidence from cash transfer programs. The World Bank Research Observer, vol. 32, no. 2, p. 155-184, 2017.