Skip to main content

Welfare programs and labor supply in developing countries: experimental evidence from Latin America

Abstract

This study looks at the effect of welfare programs on work incentives and the adult labor supply in developing countries. The analysis builds on the experimental evaluations of three programs implemented in rural areas: Mexico’s Programa Nacional de Educación, Salud y Alimentación (PROGRESA), Nicaragua’s Red de Protección Social, and Honduras’ Programa de Asignación Familiar. Comparable results for the three countries indicate that the effects that the programs have had on the labor supply of participating adults have been mostly negative but are nonetheless small and not statistically significant. However, the evidence does point to the presence of other effects on labor markets. In the case of PROGRESA, there is a small positive effect on the number of hours worked by female beneficiaries and a sizeable increase in wages among male beneficiaries and a resulting increase in household labor income. Moreover, PROGRESA seems to have reduced female labor-force participation in ineligible households. These results imply that large-scale interventions may have broader equilibrium effects.

This is a preview of subscription content, access via your institution.

Notes

  1. Behrman and Todd (1999), Skoufias et al. (1999), Skoufias and Parker (2001) and Gertler (2004), among others, describe the original experimental evaluation strategy of Mexico’s PROGRESA on which the evaluations of RPS and PRAF were based.

  2. A more detailed description of the three programs is provided in Section 3.1 and in the Electronic Supplementary Material.

  3. Moreover, program overlap is less of a problem for program evaluation (Moffitt 2002) in the cases under study: PROGRESA consolidated several different programs in Mexico, while PRAF and RPS represented some of the first attempts made to provide widespread income support in Honduras and Nicaragua.

  4. Yang’s (2008) results for remittances in the Philippines do not point up any significant impacts of windfall income on the adult labor supply. However, the findings of Ardington et al. (2009) concerning migration from South Africa indicate that transfers may influence even more complex within-household interactions, thereby inducing unexpected labor-supply responses.

  5. The structure of each program is detailed in the Electronic Supplementary Material to this study. Further references may also be found in Todd (2004) for PROGRESA, Glewwe and Olinto (2004) for PRAF, and Maluccio and Flores (2005) for RPS.

  6. Baseline data were gathered between November 1997 and March 1998. The first, second, and third follow-ups correspond to November 1998, March 1999, and November 1999, respectively.

  7. These estimates are roughly in line with others given in the literature: Maluccio (2004) reports 4 % for PRAF, 18 % for RPS, and 20 % for PROGRESA, although, for the latter, Gertler (2004) computes the average transfer as one third of total household income.

  8. Since take-up was very high among eligible households, average treatment effects, and average treatment effects on the treated are roughly equivalent (Angelucci and De Giorgi 2009). For simplicity, the ATE terminology is adopted in the description of the results.

  9. Angelucci and De Giorgi (2009) exclude from their analysis a subset of those deemed ineligible in the initial phase of the program because of later changes in the eligibility rules. The analysis here follows Duflo et al. (2008) in exploiting only the primary assignment process regardless of changes in the program rules after the initial stage.

  10. BDM also propose a third correction that involves aggregating the data into group-year cells and estimating this model. However, only results from individual-level data are reported below.

  11. The working-paper version of this document (Alzua et al. 2010) presents the two sets of standard errors, with estimates following the suggestion of Cameron et al. (2008) of reporting bootstrapped CRVE-corrected standard errors.

  12. This is also apparent in a conditional framework, as discussed in the Electronic Supplementary Material in respect of the analysis of the random assignment process, which indicates that the resulting treatment and control localities have significant differences in some dimensions for the three programs.

  13. It is, thus, not possible to distinguish between inactivity and unemployment. This distinction is feasible for the RPS data, but in the interests of comparability, the results detailed below are reported for the same variable for the three programs.

  14. The tables report the effect by round of the evaluation survey and correspond to the difference between the round and the baseline (preprogram) levels. These effects are estimated jointly by multiple time and treatment interactions, not as separate regressions by follow-up period.

  15. Angelucci and De Giorgi (2009) similarly fail to find significant effects on hours worked for non-eligible individuals in PROGRESA.

  16. These additional results for RPS are presented in Table A4 in the Electronic Supplementary Material.

  17. Angelucci and De Giorgi (2009, see Table 5) report that PROGRESA’s average and indirect treatment effects on monthly adult equivalent labor earnings were not significant, based on results obtained by unconditional difference in differences estimation. However, they state in the notes to this table that they found a positive and significant (at the 10 % level) average treatment effect for the third-round estimate when they included conditioning variables in their regressions. This finding is compatible with the result reported in Table 11 in this study, which includes individual controls (for OLS regressions) and individual fixed effects (for FE regressions).

References

  • AlzuaM, Cruces G, Ripani L (2010)Welfare programs and labor supply in developing countries: evidence from Latin America. CEDLAS Working Paper 95

  • Angelucci M, De Giorgi G (2009) Indirect effects of an aid program: how do cash transfers affect ineligibles’ consumption? Am Econ Rev 99(1):486–508

    Article  Google Scholar 

  • Angrist J, Krueger A (1999) Empirical strategies in labor economics. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 3A. North-Holland, New York, p 2097

    Google Scholar 

  • Angrist J, Pischke J (2008) Mostly harmless econometrics: an empiricist’s companion. Princeton University Press, Princeton

    Google Scholar 

  • Angrist J, Imbens G, Rubin D (1996) Identification of causal effects using instrumental variables. J Am Stat Assoc 91(434):444–455

    Article  Google Scholar 

  • Ardington C, Case A, Hosegood V (2009) Labor supply responses to large social transfers: longitudinal evidence from South Africa. Am Econ J: Appl Econ 1(1):22–48

    Article  Google Scholar 

  • Ashenfelter O, Plant M (1990) Nonparametric estimates of the labor-supply effects of negative income tax programs. J Labor Econ 8(1):396–415

    Article  Google Scholar 

  • Baker M, Gruber J, Milligan K (2008) Universal child care, maternal labor supply, and family well-being. J Polit Econ 116(4):709–745

    Article  Google Scholar 

  • Basu K, Hoang Van P (1998) The economics of child labor. Am Econ Rev 88(3):412–427

    Google Scholar 

  • Behrman J, Todd P (1999) Randomness in the experimental samples of PROGRESA (Education, Health and Nutrition Program). Report submitted to PROGRESA. International Food Policy Research Institute, Washington, DC

  • Behrman J, Hoddinott J (2005) Programme evaluation with unobserved heterogeneity and selective implementation: the Mexican “PROGRESA” impact on child nutrition. Oxf Bull Econ Stat 67(4):547–569

    Article  Google Scholar 

  • Bertrand M, Duflo E, Mullainathan S (2004) How much should we trust differences in differences estimates? Q J Econ 119(1):249–275

    Article  Google Scholar 

  • Besley T, Coate S (1992) Workfare versus welfare: incentive arguments for work requirements in poverty alleviation programs. Am Econ Rev 82(1):249–261

    Google Scholar 

  • Bhattarai K, Whalley J (2003) Discreteness and the welfare cost of labor supply tax distortions. Int Econ Rev 44(3):1117–1133

    Article  Google Scholar 

  • Blau D, Tekin E (2007) The determinants and consequences of child care subsidies for single mothers in the USA. J Popul Econ 20(4):719–741

    Article  Google Scholar 

  • Blundell R, MaCurdy T (1999) Labor supply: a review of alternative approaches. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol 3A. North-Holland, New York, p 2097

    Google Scholar 

  • Blundell R, Hoynes H (2004) Has ‘in-work’ benefit reform helped the labor market? In: NBER seeking a premier economy: the economic effects of British economic reforms, 1980–2000. National Bureau of Economic Research, pp 411–460

  • Bobonis G, Finan F (2009) Neighborhood peer effects in secondary school enrollment decisions. Rev Econ Stat 91(4):695–716

    Article  Google Scholar 

  • Bouillon C, Tejerina L (2006) Do we know what works? A systematic review of impact evaluations of social programs in Latin America and the Caribbean. Inter-American Development Bank (IDB), Sustainable Development Department, Poverty and Inequality Unit

  • Browning E (1971) Incentive and disincentive experimentation for income maintenance policy purposes: note. Am Econ Rev 61(4):709–712

    Google Scholar 

  • Cameron A, Gelbach J,Miller D (2008) Bootstrap-based improvements for inference with clustered errors. Rev Econ Stat 90(3):414–427

    Article  Google Scholar 

  • CEDLAS (2012) A guide to the SEDLAC: socioeconomic database for Latin America and the Caribbean. Technical report. Centro de Estudios Distributivos, Laborales y Socials, Universidad Nacional de La Plata, and the World Bank. http://sedlac.econo.unlp.edu.ar/eng/methodology.php

  • Cogan J (1981) Fixed costs and labor supply. Econometrica 49(4):945–963

    Article  Google Scholar 

  • Deaton A (2009) Instruments of development: randomization in the tropics, and the search for the elusive keys to economic development. NBER Working Paper 14690

  • Dickens R, Gregg P, Wadsworth J (eds) (2004) The labour market under new labour: the state of working Britain. Palgrave Macmillan, London

    Google Scholar 

  • Djebbari H, Smith J (2008) Heterogeneous impacts in PROGRESA. J Econ 145(1–2):64–80

    Google Scholar 

  • Donald S, Lang K (2007) Inference with differences in differences and other panel data. Rev Econ Stat 89(2):221–233

    Article  Google Scholar 

  • Duflo E, Glennerster R, Kremer M (2008) Using randomization in development economics research: a toolkit. In: Handbook of development economics. Elsevier, Amsterdam

    Google Scholar 

  • Eissa N, Liebman J (1996) Labor supply response to the earned income tax credit. Q J Econ 111(2):605–637

    Article  Google Scholar 

  • Eissa N, Kleven H, Kreiner C (2008) Evaluation of four tax reforms in the United States: labor supply and welfare effects for single mothers. J Public Econ 92:3–4

    Article  Google Scholar 

  • Fiszbein A, Schady N (2009) Conditional cash transfers: reducing present and future poverty.World Bank, Washington, DC

    Book  Google Scholar 

  • Galiani S, McEwan P (2012) The heterogeneous impact of conditional cash transfers in Honduras. http://ssrn.com/abstract=1931216

  • Gertler P (2004) Do conditional cash transfers improve child health? Evidence from PROGRESA’s control randomized experiment. Am Econ Rev 94(2):336–341

    Article  Google Scholar 

  • Glewwe P, Olinto P (2004) Evaluating the impact of conditional cash transfers on schooling: an experimental analysis of Honduras’s PRAF program. Final Report for USAID

  • Heckman J (2008) Econometric causality. Int Stat Rev 76(1):1–27, 04

    Article  Google Scholar 

  • IFPRI (2000) PRAF, third report: monitoring and evaluation system. IFPRI, Washington, DC

    Google Scholar 

  • Imbens G (2010) Better LATE than nothing: some comments on Deaton (2009) and Heckman and Urzua (2009). J Econ Lit 48(2):399–423

    Article  Google Scholar 

  • Imbens G, Rubin D, Sacerdote B (2001) Estimating the effect of unearned income on labor earnings, savings and consumption: evidence from a survey of lottery players. Am Econ Rev 91(4):779–794

    Article  Google Scholar 

  • Kanbur R, Keen M, Tuomala M (1994) Labor supply and targeting in poverty alleviation programs.World Bank Econ Rev 8(2):191–211

    Article  Google Scholar 

  • Kluve J, Tamm M (2012) Parental leave regulations, mothers’ labor force attachment and fathers’ childcare involvement: evidence from a natural experiment. J Popul Econ. doi:10.1007/s00148-012-0404-1

    Google Scholar 

  • Maluccio J (2004) Effects of conditional cash transfer programs on current poverty, consumption, and nutrition. Paper presented at the second international workshop on conditional cash transfer programs, São Paulo. Brazil, April 2004

  • Maluccio J (2007) The impact of conditional cash transfers in nicaragua on consumption, productive investments, and labor allocation. ESA Working Paper No 07-11. Agricultural and Development Economics Division, United Nations Food and Agriculture Organization (FAO)

  • Maluccio J, Flores R (2005) Impact evaluation of a conditional cash transfer program: the Nicaraguan Red de Protección Social. Report 141. International Food Policy Research Institute, Washington, DC

  • Meghir C, Phillips D (2008) Labour supply and taxes. Working Paper 008/04. Institute For Fiscal Studies, London

  • Michalopoulos C, Robins P, Card D (2005) When financial work incentives pay for themselves: evidence from a randomized social experiment for welfare recipients. J Public Econ 89(1):5–29

    Article  Google Scholar 

  • Moffitt R (2002) Welfare programs and labor supply. In: Auerbach A, Feldstein M (eds) Handbook of public economics, 1st edn, vol 4, chapter 34. Elsevier, Amsterdam

    Google Scholar 

  • Moffitt R (2003a) The negative income tax and the evolution of U.S. welfare policy. J Econ Perspect 17(3):119–140

    Article  Google Scholar 

  • Moffitt R (2003b) The role of randomized field trials in social science research: a perspective from evaluations of reforms of social welfare programs. NBER TechnicalWorking Paper 0295, National Bureau of Economic Research

  • Moffitt R, Scholz J (2009) Trends in the level and distribution of income support. NBER Working Paper 15488, National Bureau of Economic Research

  • Mörk E, Sjögren A, Svaleryd H (2013) Childcare costs and the demand for children: evidence from a nationwide reform. J Popul Econ 26(1): 33-65

    Article  Google Scholar 

  • Orcutt G, Orcutt A (1968) Incentive and disincentive experimentation for income maintenance policy purposes. Am Econ Rev 58(4):754–772

    Google Scholar 

  • Parker S, Skoufias E (2000) The impact of PROGRESA on work, leisure, and time allocation. Final Report, International Food Policy Research Institute. www.ifpri.org/themes/Progresa/timeallocation.htm. Accessed June 2008

  • Ralitza D,Wolff FC (2011) Do downward private transfers enhance maternal labor supply? Evidence from around Europe. J Popul Econ 24:911–933

    Article  Google Scholar 

  • Rawlings L, Rubio G (2003) Evaluating the impact of conditional cash transfer programs: lessons from Latin America. World Bank Policy Research Working Paper No 3119

  • Rawlings L, Rubio G (2005) Evaluating the impact of conditional cash transfer programs. World Bank Res Obs 20(1):29–55

    Article  Google Scholar 

  • Skoufias E, Parker S (2001) Conditional cash transfers and their impact on child work and schooling: evidence from the PROGRESA program in Mexico. Economía 2(1):45–86

    Article  Google Scholar 

  • Skoufias E, Parker S (2006) Job loss and family adjustments in work and schooling during the Mexican peso crisis. J Popul Econ 19(1):163–181

    Article  Google Scholar 

  • Skoufias E, Di Maro V (2008) Conditional cash transfers, adult work incentives, and poverty. J Dev Stud 44(7):935–960

    Article  Google Scholar 

  • Skoufias E, Davis B, Behrman J (1999) An evaluation of the selection of beneficiary households in the education, health, and nutrition program (PROGRESA) ofMexico. Report submitted to PROGRESA. International Food Policy Research Institute, Washington, DC

  • Skoufias E, Unar M, González-Cossío T (2008) The impacts of cash and in-kind transfers on consumption and labor supply: experimental evidence from rural Mexico. Policy Research Working Paper 4778, World Bank

  • Todd P (2004) Design of the evaluation and method used to select comparison group localities for the six-year follow-up evaluation of Oportunidades in rural areas. Technical Note, Social Development Secretariat, SEDESOL, Mexico

  • Todd J, Winters P, Stecklov G (2011) Evaluating the impact of conditional cash transfer programs on fertility: the case of the Red de Protección Social in Nicaragua. J Popul Econ 25(1):267–290

    Article  Google Scholar 

  • Wooldridge J (2001) Econometric analysis of cross section and panel data. MIT, Cambridge

    Google Scholar 

  • Wooldridge J (2007) Difference-in-differences estimation. Lecture Notes 10, Guido Imbens and James Wooldridge course. What’s New in Econometrics, NBER, Summer

  • Yang D (2008) International migration, remittances and household investment: evidence from Philippine migrants’ exchange rate shocks. Econ J 118(528):591–630

    Article  Google Scholar 

Download references

Acknowledgements

This study is based on a background paper entitled, “Labor supply responses to conditional cash transfer programs. Experimental and non-experimental evidence from Latin America,” prepared for the Inter-American Development Bank. The authors wish to thank Santiago Levy for encouraging them to work on this study and Emanuel Skoufias for providing an early draft of his ongoing work. The authors also acknowledge financial support from the CEDLAS-IDRC research project on “Labor markets for inclusive growth in Latin America.” The editor, Erdal Tekin, and an anonymous referee provided valuable feedback. Comments by Felipe Barrera, Sami Berlinski, César Bouillon, Sebastián Galiani, Laura Guardia, Pablo Ibarrarán, Miguel Jaramillo, Julia Johannsen, Santiago Levy, Florencia López Boo, Craig McIntosh, Claudia Piras, Patrick Puhani, Graciana Rucci, Norbert Schady, Guilherme Sedlacek, Ana Santiago, and Yuri Soares are much appreciated. We also gratefully acknowledge the comments received from the participants at the 13th Annual Meeting of the Latin American and Caribbean Economic Association in Rio de Janeiro in 2008, at the AfrEA-NONIE-3ie Impact Evaluation Conference in Cairo, held in April 2009, and at annual conference of the North East Universities Development Consortium held in 2009. Andrés Ham and Nicolás Epele provided outstanding research assistance. The usual disclaimer applies.

The opinions expressed in this report are those of the authors and do not necessarily represent those of the institutions to which they belong.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Guillermo Cruces.

Additional information

Responsible editor: Erdal Tekin

Electronic supplementary material

Below is the link to the electronic supplementary material.

(DOC 51.5 kb)

(PDF 876 kb)

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Alzúa, M.L., Cruces, G. & Ripani, L. Welfare programs and labor supply in developing countries: experimental evidence from Latin America. J Popul Econ 26, 1255–1284 (2013). https://doi.org/10.1007/s00148-012-0458-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00148-012-0458-0

Keywords

  • Welfare programs
  • Income support
  • Labor supply
  • Work incentives
  • Conditional cash transfers
  • Randomized control trials
  • Developing countries

JEL Classification

  • J08
  • J22
  • I38