Important study finds that giving money without conditions to the poor increases both employment and wages

A randomized field study recently conducted in Uganda found that giving money to people without conditions actually increases both how much they work and how much they earn per hour. The study gave a $400 one-time grant to 20 young people, chosen randomly out of a group of rural Ugandans who applied to be a part of the study. Essentially, this grant amount is a one-time basic income, sometimes called a basic capital grant.

Perhaps, $400 doesn’t sound like much, but because poverty is so high in rural Kenya, the $400 grant is equivalent to an entire year’s income for the people in the study. Researchers then followed the recipients for two and a half years to see how they behaved relative to rural Ugandans who did not receive the grant. What they found might surprise some readers.

Two-and-a-half years later, receipts of the grant worked 17% more hours than similar Ugandans who did not receive the grant, and they earned higher wages and salaries, so that their incomes increased by even more than the hours the worked for a total increase of 50%. If those who did not receive the grant were making $400 per year, recipients were making $600 per year. No one knows yet how long the differential will last, but it is likely to accumulate for at least several years, perhaps many years.

The reasons for the increase in wages and hours worked are not yet certain, but possible explanations stem back to the extreme poverty experienced by so many people in developing nations. People who face such low wages have very little time to spend either improving their skills or looking for better work. They simply must spend their time focusing on getting enough food for the next day. A basic income gives them the opportunity to step back, improve their skills and/or look for a better job.

The theoretical possibility that basic income could have a positive affect on wages and hours worked (especially among the poorest people) has been understood for a long time. But this study provides an extremely important piece of empirical confirmation.

The basic income debate should take these results seriously. These results challenge the widely-held (yet rarely-empirically-investigated) belief that poor people are poor because they are too lazy either to work hard or to learn better skills. There are billions of people around the world living on less than two dollars per day. Perhaps unconditional cash is what they need most.
-Karl Widerquist, begun in Lerwick, Shetland, Scotland, completed in Beaufort, North Carolina, USA

See earlier posts on BI News about this study.

For more on this study see this blog post by one of the authors of the study: Blattman, Chris, “Dear governments: Want to help the poor and transform your economy? Give people cash,” Chris Blattman: International development, politics, economics, and policy, 23 May 2013

See also the original study: Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda,” the Social Science Research Network, May 20, 2013

And the following editorial: Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor,” Slate May 29, 2013

Blattman, Chris, “Dear governments: Want to help the poor and transform your economy? Give people cash”

In this blog post, author and political scientists, Chris Blattman, reports on a study he helped to organize, which shows that giving cash to poor people in a very poor country significantly increases both their employment rate and their employment income. The study was a randomized field experiment conducted in Uganda.

Blattman, Chris, “Dear governments: Want to help the poor and transform your economy? Give people cash,” Chris Blattman: International development, politics, economics, and policy, 23 May 2013

The original study can be found online at the Social Science Research Network’s website.

Chris Blattman

Chris Blattman

Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor”

Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor”

In the latest of several articles on Basic Income for Slate magazine, Matthew Yglesias reports on a pilot project in Uganda. The project found “recipients of one-off lump-sum cash transfers earn substantially higher annual incomes two and four years after the intervention.”

Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor,” Slate May 29, 2013

Matthew Yglesias

Matthew Yglesias

Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor”

In the latest of several articles on Basic Income for Slate magazine (see earlier articles), Matthew Yglesias reports on a pilot project in Uganda. The project found “recipients of one-off lump-sum cash transfers earn substantially higher annual incomes two and four years after the intervention.”

Yglesias, Matthew, “Good News About Unconditional Transfers to the Global Poor,” Slate May 29, 2013

Matthew Yglesias

Matthew Yglesias

Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda”

Abstract: How to stimulate employment and the shift from agriculture to industry in developing countries, with their young, poor, and underemployed populations? A widespread view is the poor have high returns to investment but are credit constrained. If so, infusions of capital should expand occupational choice, self-employment, and earnings. Existing evidence from established entrepreneurs shows that grants lead to business growth on the intrinsic margin. Little of this evidence, however, speaks to the young and unemployed, and how to grow employment on the extensive margin — especially transitions from agriculture to cottage industry. We study a large, randomized, relatively unconditional cash transfer program in Uganda, one designed to stimulate such structural change. We follow thousands of young adults two and four years after receiving grants equal to annual incomes. Most start new skilled trades. Labor supply increases 17%. Earnings rise nearly 50%, especially women’s. Patterns of treatment heterogeneity are consistent with credit constraints being relieved. These constraints appear less binding on men, as male controls catch up over time. Female controls do not, partly due to greater capital constraints. Finally, we go beyond economic returns and look for social externalities. Poor, unemployed men are commonly associated with social dislocation and unrest, and governments routinely justify employment programs on reducing such risks. Despite huge economic effects, we see little impact on cohesion, aggression, and collective action (Peaceful or violent). This challenges a body of theory and rationale for employment programs, but suggest the impacts on poverty and structural change alone justify public investment.

Blattman, Christopher, Nathan Fiala, and Sebastian Martinez “Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda,” the Social Science Research Network, May 20, 2013