More evidence that giving people money does not discourage work

Demoh Contel (left) receives a cash transfer payment from Patrick Lamboi (far right) and David A. Kargbo (center left), who work for Splash in Freetown, Sierra Leone on June 21, 2015. (Dominic Chavez/World Bank)

The Chinese proverb that it is better to teach a man to fish than give a man a fish is not quite true when the fish is replaced with cash. A new analysis of 56 programs and 165 studies in 30 countries shows that giving people money is effective and does not discourage work. It builds on the growing evidence that cash just might be king when it comes to the fight against poverty.

The new analysis by a team of researchers with the London-based think tank the Overseas Development Institute showed that giving people money, also known as cash transfers, was generally effective at improving areas like health, education, income and savings. But cash will not replace all humanitarian programs anytime soon. The review also uncovered the limitations of cash transfers. For example, giving families money helped increase school attendance, but that did not translate into more learning.

Poorly designed programs or not giving people enough money may be why some studies show evidence of poverty reduction and others do not, the report authors said. And as seen in the education gap, there is only so much that cash can do when education systems are failing. The strongest evidence dispels the widely held myth that giving people money will prompt them to stop working.

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“The idea that providing money to those in need discourages people from working is simply not borne out by the evidence,” said report author Francesca Bastagli, in a statement. “For more than half of the studies we looked at, cash transfers had no impact on employment levels, while most of those that did report a significant effect actually found an increase in work participation.”

For the most part, giving people money had the right effect on labor participation. The people who did stop working tended to be caretakers, children and the elderly – people who would likely not be working if their household was doing better financially. On the other hand, most of the studies showed that people worked more and harder after getting the money.

In addition to that, here are other things that cash transfers do:

  • Increase spending on food
  • Reduce poverty
  • Increase use of health services
  • Increase livestock ownership
  • Increase purchases of agriculture inputs (seeds, fertilizer, etc.)
  • Increase women’s decision-making power and choices
  • Increase savings
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There were some limits. Cash transfers did not always reduce emotional abuse experienced by women nor did it lead to significant improvements in the weight and height of children. And while there are some improvements seen on a wide range of women’s empowerment measures, there is also a notable increase in pregnancy rates.

The long-term evidence is also not all that great. The authors said that this may be due to the lack of robust evidence over the long term, since the studies were only taken from the past 15 years. But it also could be the result of the limitations of giving people cash. However, there is strong support for the positive impacts that cash transfers can have on the short term.

“There is also robust evidence that cash transfers can impact on first-order indicators that are generally not the immediate focus of a program, such as savings and productive investments,” according to the report. “This suggests that cash transfers not only play a role in reducing poverty by redistributing resources to the poor, but can also foster greater economic autonomy and self-sufficiency.”

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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.