Subtle effects of cash transfers on labor supply in Pakistan

SUBTLE EFFECTS OF CASH TRANSFERS ON LABOR SUPPLY IN PAKISTAN

by Kate Ambler and Alan de Brauw | July 24, 2021

Cash transfers to poor households have become a cornerstone of social protection policy in developing countries. While they clearly benefit recipients, a main concern among governments and other policy makers is whether cash transfers will negatively affect adult labor supply among recipients. This concern comes from a standard model of consumer behavior, in which individuals trade off labor for leisure. If non-labor income increases, then the value of leisure also increases, and labor supplied to the market declines.

On the other hand, transfers can act as a form of insurance, allowing people to either try riskier activities or search for better jobs. Within households, transfers can also increase the recipient’s bargaining power (also see here).

These competing mechanisms can affect both recipients and non-recipients of transfers within transfer receiving households. Therefore, it is not surprising that most studies find that standard cash transfers do not have large average effects on overall household labor supply.

Similar to other papers on the effects of cash transfers on labor supply, our analysis of the impacts of Pakistan’s Benazir Income Support Program (BISP) on household and individual adult labor supply does not suggest that the BISP transfer affects overall household labor supply. However, when we dig a little deeper, there are some interesting nuances.

The BISP transfer is unconditional and delivered to women within households that are deemed eligible through a poverty score. We examine the impacts of the BISP transfer on the labor supply of women and men in 2013 (soon after program rollout) and in 2016. While only women are eligible to receive transfers, men account for the vast majority of employment. This setting thus provides an opportunity to analyze the impacts of BISP on labor outcomes for both recipients and non-recipients.

Speaking of recipients (women), within households, we find weak evidence of a shift in the composition of labor supply from women to men. Men appear to start working more as households receive transfers, while women appear to reduce their labor supply outside the household. At the individual level, there is also weak evidence that women would like more involvement in the labor force. We follow the international definition of unemployment and find that there is a slight increase in the proportion of women who self-report being unemployed.

Our most consistent result is among men from the households receiving the BISP transfer. We estimate an increase of approximately 4 hours of labor supply per week among men, suggesting a 12 percent increase. This result is particularly strong in 2016, the 4th year of the program, when men from recipient households are both more likely to be employed and individually increase the number of hours they work compared with those from the nonrecipient households. We find no impacts on child labor.

In sum, our findings are consistent with much of the literature on effects of modest size transfers on labor supply in developing countries; we find no effect of the BISP transfer on aggregate household labor supply. However, we do find evidence of a positive effect of the transfers on male labor. We can only speculate why and how this is happening. One possible explanation is that the transfers provide a steady source of income allowing for job search eventually resulting in a more stable and lucrative employment. The transfer money might also work as necessary initial investment for a small business. In Pakistan, cultural norms may influence the decision to work. If women have a guaranteed income through the BISP program, men may feel that it is important to either work or find additional work to re-assert their status as the main household breadwinner.

Regardless of the mechanism, this evidence should be encouraging for policy makers both in Pakistan and elsewhere who might be concerned that social protection policy will reduce employment.

 

This work was undertaken as part of PIM's Flagship 4: Social Protection for Agriculture and Resilience and financially supported by the World Bank. Kate Ambler is a research fellow and Alan de Brauw is a senior research fellow in the International Food Policy Research Institute (IFPRI).


Photo: At the Benazir Income Support Program, low-income women clients open accounts that will allow them to receive government support payments Islamabad 2016 . Credit: UNSGSA/Robin Utrecht

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