Cash transfers and women’s labour supply: theory and evidence from Brazil

Women’s participation in the labour force has been a powerful driver of economic growth, lifting millions out of poverty. Today, cash transfer programmes have come to dominate government efforts to reduce poverty. Whilst effective at providing short-term relief, these programmes may also undermine long-term poverty reduction by disincentivising labour supply. To study the direction and magnitude of the impact of cash transfers on labour supply, as well as the underlying mechanisms, I measure the effect of an exogenous increase in Brazil’s main transfer programme on the employment of men and women. I find no effect for men, whereas women increase their labour supply by 7.4% over two years. This is driven by mothers with children of pre-school age, for whom the transfer relaxes childcare constraints, enabling them to join the labour force. Exploring regional disparities, I find that the effect is stronger in areas that are poorer, but that have better availability of local public services. I causally estimate complementarities between cash transfers and local public good provision levering discontinuities on the allocation of public funds to Brazil’s 5570 municipalities. I show that this has potentially important fiscal implications for the long-term costs and benefits of cash transfer programmes. Overall, my paper illustrates that there is no trade-off between short-term relief and long-term poverty reduction. Rather, cash transfers encourage women’s labour force participation, particularly when complementary public goods, such as educational facilities, are available.