Cash transfers don’t discourage working, says ODI

27 Jul 16

Cash transfers do not discourage the world’s poorest and most vulnerable adults from working, research by the UK’s Overseas Development Institute has found.



The think-tank analysed evidence on the effects of cash transfers – where aid money is delivered directly to recipients in cash or electronically, rather than in kind – from 165 studies, spanning 15 years and covering 56 cash transfer programmes across 30 low- and middle- income countries.

Francesca Bastagli, leader of the ODI’s social protection programme and author of the report, said the idea that delivering aid this way discourages people from working is “simply not borne out by the evidence”.

In most of the cases where cash transfers did have an impact on employment levels, the effect was to increase rather than deter work participation. In more than half of the studies, delivering aid in this way had no impact on employment.

 “There is also strong evidence that cash transfers bring other benefits,” Bastagli added. These include fostering economic autonomy and decision-making power for women in particular, increasing savings and investments in livestock or agricultural assets, reducing poverty and improving the use of health services.

 “It is clear such programmes can be a powerful policy instrument that delivers real outcomes for the world’s poorest people,” Bastagli said.

The study found that cash transfer programmes had a significant and positive impact on school attendance, health service use and savings and investment.

However, the ODI highlighted that certain outcomes, related to better learning or health measures, such as improved body weight, are harder to influence through such initiatives. The report suggested this is because other variables, for example the quality of education provided, also play a role.

There was one area of the labour market where the ODI found that cash transfers are associated with less participation – children’s work.

The report said that all the studies with significant findings, which were all found in Latin America, showed that cash transfer initiatives reduced the prevalence of child labour and the number of hours worked, with school attendance increasing instead.

The ODI also found that core design features of such programmes, in particular the size of the transfer and the duration of its receipt, are crucial to achieving greater impacts.

Many cash transfer programmes, such as one of the world’s largest and most successfully targeted initiatives in the Philippines, link payments to requirements such as ensuring children attend school or visit the doctor.

But the ODI said while including an element of conditionality can lead to greater impact, this is not always the case. Clear communication about the importance of using services and related support is associated with greater service uptake, the ODI said.

Payment mechanisms can also affect outcomes, it continued, but “not necessarily those intended by policymakers”.

For example, policymakers often opt for electronic transfers not only because they are safer, cheaper and more convenient, but also because they are believed to incentivise saving behaviour.

However, two studies reviewed by the ODI that analysed a payment programme in which recipients were paid electronically concluded this did not affect the indicators for savings. Instead, studies found that such programmes did increase dietary diversity and the variety of crops recipients chose to grow, compared with those who received their payments in cash.

Another design factor is whether the transfers are supplemented by training, grants or products. The ODI found that including other complementary initiatives in the programme can strengthen its outcomes, in particular, for savings, investment, production and health. However, it warned these can also produce unintended results.

The report concluded: “One of the clearest results to emerge from this review is just how powerful a policy instrument cash transfers can be.”

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