Dependence or Constraints?: Labor Supply Responses from a Cash Transfer Program

Decreases in labor supply among cash-aid recipients are often cited as potential drawbacks of cash-transfer programs. In developing countries, such concern might be misplaced: This paper documents increases in labor supply due to a cash-transfer program. Using variation across cohorts and over time in the eligibility criteria of a nationwide conditional cash transfer program in Bolivian public schools, difference-in-differences estimates show that the probability of working increases by 4 percentage points in the case of adult females from households of eligible children. The results are unlikely to be explained by a relief of time constraints for adult females, as the results are driven by mothers whose children would have attended to school in absence of the program. Instead, this paper finds increases in self-employment and that the increases in labor supply are mostly driven by females from areas with limited access to financial services. The results suggest that cash transfer programs may relax liquidity constraints and may boost entrepreneurship among adult females.