Table 2 Summary of different channels through which cash transfers affect labor outcomes

Income effect/labor-leisure trade-off

Reduces amount of work at both extensive and intensive margins, with no change in income per hour worked. Most apparent when transfers are large or prolonged, and when recipients face no other constraints: e.g., lottery winners, pensions.

Health productivity effect

Increases amount of work, and income earned per hour worked. This channel is unlikely to apply in most settings, but may have an impact for transfers to the very poorest.

Self-employment liquidity effect

Increases amount of self-employment work at both extensive and intensive margins, and income earned from self-employment. Typically a smaller, but positive, impact on all work. Clearest for programs that target entrepreneurs, particularly men, but also apparent in remittance transfers and UCTs.

Human capital accumulation effect

Increases schooling attainment for youth in recipient households that can result in long-term increases in income from higher human capital when they become adults. Impact on amount worked is minimal. Evidence from existing CCTs mixed between zero and positive impacts.

Insurance effect

Changes the type of work people do, towards riskier activities that increase expected income, like self-employment, migration, or different crops, with less impact on amount worked. Applies most when transfers are reliable and repeated: e.g., some CCTs

Investment in labor search effect

Reduces likelihood of working in very short term as workers search for better matches. Increases job quality, and income per hour worked in medium-term, with little impact on amount work. Applies most for transfers conditioned on job search, like transport subsidies.

Conditionality effect from conditioning on work or not working

Increases amount of work if grants given conditional on operating a business or other work activity. Some evidence from grants to microenterprises suggest this channel operates. Decreases work or income if grant eligibility depends on means-testing, or on not working. More of an issue for upper middle income and rich countries, with little evidence of this channel for most low- and middle-income country cash transfers.

Conditionality effect from conditioning on time-consuming activities

Reduces work if individuals must spend time on activities in order to receive grant, but little evidence of this channel operating. Can increase amount worked, particularly by women, if condition is for children to be in school. Most apparent for CCTs.

Human capital/scarring effect

Counteracts labor/leisure tendency to reduce work if transfers are known to be temporary. Appears plausible, but no evidence for this channel in existing literature.

General equilibrium effects

Transfers can increase work and work income for non-beneficiaries if self-employment opportunities increase and transfer recipients move away from wage labor; may reinforce labor/leisure trade-off if value of leisure rises when others also increase leisure. Limited evidence, although ultra-poor program in Bangladesh and emigration studies find increased wages for others in village.