A little-noticed study titled “The Employment Effects of Generous and Unconditional Cash Support” was published in February 2023 by the German-based Institute of Labor Economics. The study reviewed the employment and other effects of a recent unconditional cash transfer program benefitting low-income families in Spain. That program is similar in many respects to universal basic income (UBI) programs proposed in Congress and being tested in multiple locations across the US. It also bears similarities to the unconditional expanded child tax credit payments temporarily made to tens of millions of households with children in 2021, which President Joe Biden’s latest proposed budget seeks to revive.  

Those similarities suggest American policymakers should take heed of the study’s findings, which include that “the program had sizeable and adverse employment effects on average.” The effects are significant: “Roughly two years after the start of the program, main recipients in treatment households are 20 percent less likely to work compared to their counterparts in control households.” Households in the cash transfer program were “14 percent less likely to have at least one member working” compared to the control group. As the study ominously warns, employment declines persisted even six months after the last benefits were paid, suggesting they “may be hard to reverse.”

As Jon Baron, a longtime expert on evidence-based policy, recently described, the findings of the “high-quality” randomized control trial reflected in the study “suggest a need for caution in the design of anti-poverty programs, to avoid discouraging work effort.”

Other highlights of the study include:

Goals of the study

While the impacts of unconditional transfer programs in developing countries are well documented, little is known about their effectiveness in higher-income countries. . . . With this study, we aim to advance the literature on unconditional transfer programs by describing their employment effects in the context of an advanced welfare state. Our analysis uses data from a field experiment in Barcelona (Spain), trialing a generous and unconditional municipal cash transfer program.

Main research question

We address the following main research question: What is the effect of generous and unconditional cash support on adult labor force participation?

Comparison with other studies

To the best of our knowledge, the program we study is the first cash transfer in a developed country that provides subsistence-level assistance without any strings attached. Moreover, by exploiting a randomized design and collecting social security data next to self-reported information from surveys, we can circumvent internal validity concerns encountered by earlier studies. Lastly, studying a temporary program and collecting data post-treatment allows us to document the persistence of effects after program termination.

Findings of the study

Our findings for overall impacts can be summarized in four parts.

First, we find strong evidence for sizeable negative labor supply effects. After two years, households assigned to the cash transfer were 14 percent less likely to have at least one member working compared to households assigned to the control group; main recipients were 20 percent less likely to work.

Second, negative employment effects persisted until at least six months after the last payment.

Third, we find tentative evidence that effects are mainly driven by households with care responsibilities.

Fourth, there is no evidence of effects on social participation and education-related activities.

Implications of the findings

In sum, our results suggest that the adverse labor supply effects of unconditional transfers should not be underestimated. While the negative effects reported in previous studies are usually neglectable or moderate, our findings suggest sizeable effects.

The negative effects “may be hard to reverse”

Another important finding concerns the persistence of effects. Employment rates in the treatment group remain lower even six months after the last transfer, indicating that households’ labor supply decisions may be hard to reverse.

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