Cash Transfers and Labor Supply in Peru

Juntos_children

(Editor’s Note: The following post was written by BGSE alumnus Fernando Fernandez (Economics ’13). Fernando is currently a Research Fellow at the Inter-American Development Bank in Washington, D.C.)

The paper:

What do you do when you receive your monthly payment? Do you leave the office a bit earlier and have some drinks with your friends? Now, imagine you are a self-employed, non-paid, agricultural worker who works to support your family in the Andeans regions of Peru. Moreover, suppose you are credit constrained and with limited access to markets. What would you do if you start receiving monthly cash transfers from your generous government? Would not you take a break? After all, you work very hard and need some rest, right?

Such a program does exist and is named JUNTOS (“together” in Spanish). It gives around US $40 per month to mothers of poor children if they send their kids to school and to health centers on a regular basis. The objective of the program is to reduce current and future poverty through cash transfers and investments in children’s human capital.

Labor economists would say that JUNTOS generates an income effect: if your income is higher you would consume more leisure and work less (assuming that leisure is a normal good). However, most of the empirical literature on cash transfers and labor supply find no effects on participation in the labor market, hours of work, and earnings. This literature relies on comparisons between households who receive the transfer to households who do not. Does this mean that labor supply does not respond to cash transfers? Continue reading “Cash Transfers and Labor Supply in Peru”