Cash Transfers to the Poor and the Labor Market: An Equilibrium Analysis

Abstract

This paper studies the effects of cash transfers to the poor on the labor market. This is investigated in a matching model with endogenous labor market participation and job destruction. Depending on their productivity, workers might want to stay in the job, become unemployed, or leave the labor market; in addition, workers out of the labor force might decide to search for a job. Cash transfers are introduced to all agents with income below a given level. Two qualitative results are found: (i) The size of cash transfers has a negative effect on the employment rate, but an ambiguous effect on the unemployment rate; and (ii) the coverage of this welfare program has a positive effect on the employment rate, and an ambiguous effect on the unemployment rate. The numerical simulations also show that: (i) if the government target is to reduce inequality and poverty, the more efficient policy is to increase the level of benefits instead of increasing the eligibility of the program; (ii) compared with a welfare program that condition eligibility to labor market participation, the "unconditional" cash transfer program has a stronger impact on inequality and poverty, but with a reduction in labor market participation and output.

(Incumbent) politics and burdens in the social construction of target groups: The Brazilian Bolsa Família conditional cash transfer programme

“…The cash transfers are also dependent on the number of resident children (R$20 per child aged 15 and below up to a maximum of three children, around $5 in August 2015); and R$30 per resident adolescent aged 16 and 17 up to a maximum of two (around $8 in August 2015). All in all, these families can receive benefits amounting to around 40% of Brazil's minimum wage (Cavalcanti, & Corrêa, ).…”

“…Additionally, 73.2% support retaining the programme. However, they have misgivings about the effect on birth rates among beneficiaries, since income is attached to the number of children of each family (Cavalcanti & Corrêa, ). Many Brazilians suspect that birth rates among beneficiaries will increase – something that remains unproven for beneficiaries.…”