Despite the growing popularity of Conditional Cash Transfers (CCTs), some policymakers remain concerned that these programmes create disincentives to work.
Evidence from a large programme in Mexico shows that cash transfers do not discourage recipients from working.
Research from the World Bank and University College London, in the UK, assesses the impact of Mexico’s PROGRESA programme on poverty and adult work incentives. The research draws on survey data collected from 24,000 households across seven states, between 1997 and 1999.
Started in 1997, PROGRESA (since renamed Oportunidades) offers cash transfers to poor rural families in Mexico, conditional on their participation in health and nutrition programmes as well as their children’s school attendance. By 2004 the programme reached nearly 5 million families, providing an average monthly payment equivalent to 20 percent of pre-programme spending on consumption.
With such sizeable transfers, PROGRESA has the potential to provide eligible households a disincentive to work. At the same time, families who are not eligible may be encouraged to work less in order to become eligible. On the other hand, the income effect of the cash transfer may be weakened by the direct and indirect costs of complying with the programme’s conditions – for example, eligible families are required to stop receiving benefits from other government programmes.
Key research findings on PROGRESA include:
* The programme has no significant effect on adults’ choices regarding work, and this is true for both eligible and non eligible households.
* Some programme beneficiaries may have used part of their transfers, at least initially, to seek salaried work and reduce their participation in low-paid work in family businesses.
* Programme participants do not use their transfers to ‘buy’ more leisure time.
* The programme leads to a substantial reduction in current poverty levels.
* The effects are stronger for reducing the poverty gap and the severity of poverty, rather than reducing the total number of poor people (poverty headcount), suggesting that the largest impacts are achieved in the poorest of poor families.
The success of conditional cash transfer programmes in reducing current poverty depends on whether, and to what extent, the transfers affect adult work incentives. In the case of Mexico’s PROGRESA programme, this research shows that it has no effect on people’s work choices.
The researchers conclude that:
* PROGRESA’s cash transfers have not discouraged people from working.
* The programme has succeeded in reducing poverty in poor rural communities in Mexico.
* The programmes’ poverty impact was correctly estimated in a simulated impact assessment before the programme started.
* This suggests that such simulations can provide a reliable indication of a programme’s likely impact on poverty.