Cash transfers and female labor force participation: the case of AUH in Argentina

All countries in Latin America launched initiatives to extend social protection, in particular through the implementation of conditional cash transfer (CCT) programs targeted to poor households with children. The literature that analyzes these social protection schemes has strongly grown over the last years.¹ The evidence suggests that these programs have played a very important role in the short-term reduction of poverty and income inequality in the region and in the promotion of human capital accumulation in poor families (Fiszbein and Schady 2009; Ibarrarán et al. 2017). However, there is concern about some potential unintended effects of these programs; in particular, they may imply a labor supply disincentive and a bias towards unregistered labor arrangements (Levy 2008; Levy and Schady 2013; Garganta and Gasparini 2015). Moreover, disincentives to labor market participation may be gender biased. The monetary subsidy raises household income and therefore may reduce the need for an extra paid job, typically provided by the female spouse. Female labor supply may be discouraged through an additional channel, given that women are typically the recipients of the transfers. If the subsidy is perceived as income earned by mothers, it may release them from the pressure to seek employment or to work longer hours.²

The existence and quantitative relevance of these unintended effects are at the core of the current social protection debate in Latin America. The economic literature on the impact of massive income programs on the labor markets is still incipient but growing.³ This study contributes to this literature by assessing the potential impact on female labor force participation of a large cash transfer program implemented in Argentina, targeted to poor unregistered households with children. Specifically, the Universal Child Allowance for Social Protection (AUH for its acronym in Spanish) provides a monthly benefit per child to households whose members are unemployed or working in the informal sector (i.e., unregistered). The AUH is a massive conditional cash transfer program launched in 2009, which covers around 30% of all children under 18 years and more than two million families in Argentina (15% of total households in the country). The real value of the AUH benefit per child, which has remained relatively constant over time, represents 14% of the legislated minimum wage and hence a significant rise of the mean household income for unemployed and informal households with children (i.e., the potential beneficiaries of the program). For a typical poor participant household with three children, the benefit implies an increase of almost 35% in their total household income. These values place the AUH benefit among the largest in Latin America (Stampini and Tornarolli 2013).

Cash transfers to poor informal households with children may reduce the parents’ participation in the labor market compared to the counterfactual situation in the absence of the program.⁴ We expect this effect to be higher for mothers due to at least two arguments. The first one is that the income elasticity of labor supply tends to be larger for females than for males, in particular for married women with children (Michalopoulos et al. 1992; Kimmel 1998; Eissa and Hoynes 1999; Eissa and Hoynes 2004; Naz 2004; Tamm 2009).⁵ This difference is mainly driven by the fact that many women decide their employment status sequentially in response to the decision of their husbands or partners (Michalopoulos et al. 1992). Female labor decisions are more flexible when they are not the only income earners of the household or the principal worker of the family (Kimmel 1998).⁶ In Latin America, the role of women as secondary workers is reinforced by solid traditional family structures with a strong attachment to traditional gender roles and low levels of women’s skills and educational attainment.

The second argument relies on the fact that women are typically the recipients of the subsidy. Administrative data from the AUH program (ANSES 2014) reveals that in 96% of the beneficiary households, the mother is identified as the principal holder/recipient of the benefit. If the benefit is perceived as an income earned by mothers for taking care of the children and checking the conditionalities of the program, it may discourage the search for an additional job in the market. In summary, the program may reduce the economic need for mothers to be actively engaged in the labor market and the family/social pressure to do so.

Although there are reasons to believe that the AUH may reduce the incentives to participate in the labor market, in practice, these disincentives could be quantitatively irrelevant or be compensated by forces operating in other directions. The actual relevance of the potential disincentives of the program can only be determined with empirical evidence. Unfortunately, it is not simple to identify the causal effect of the program since it was not randomly assigned in the population. In addition, no questions aimed at identifying AUH beneficiaries were introduced in the national household survey of Argentina. Due to these constraints, our identification strategy consists in comparing eligible mothers (poor and informal with children) with similar but non-eligible women over time. This strategy of difference-in-differences is effective in alleviating several endogeneity problems that arise when comparing heterogeneous observations.

The evidence we present in this paper suggests fewer transitions from inactivity to labor force participation for eligible mothers after the inception of the AUH, especially among married women. The effect is not negligible: on average, it represents a fall of 24.7% in the probability of participating in the labor market, compared to what would have happened in the absence of the program. We argue that the large size of the cash benefit may account for such a sizeable effect. The program also seems to affect female hours of work, although this result is not entirely robust to alternative definitions of the control group. In contrast, both labor participation and total hours worked by men are not significantly changed by the introduction of the AUH.

Interestingly, we also find an asymmetric labor adjustment to the program: while it seems to reduce the transitions of inactive women to labor force participation, it does not significantly affect the transitions from labor activity to inactivity. Given these differential effects on female labor transitions, we conclude by suggesting that the observed reduction in the labor participation rate among eligible women after the AUH—in comparison with a more stable trend for non-eligible women—is mainly explained by a slower entry of eligible women into the labor force and not to a significant increase in the exit rate.

The welfare implications of these results are not clear and deserve further research. The discouragement of female labor force participation can not only be assessed as a setback in terms of women’s empowerment, gender equality, and poverty relief but can also be seen as a positive outcome of the program, if the subsidy allows poor women to leave low-quality jobs to devote time to take care of their children or to seek for better employment opportunities.⁷

The rest of the paper is organized as follows. Section 2 reviews the literature on social policy and labor force participation. In Section 3, we explain the main characteristics of the Universal Child Allowance program and discuss its potential effects on labor force participation. Section 4 describes the data used in this study and lays out the methodology, while Section 5 presents the main findings. We conclude in Section 6 with some final remarks.

There is a large variety of cash transfer programs implemented around the world with potential consequences on the labor outcomes of the beneficiaries, particularly on women’s participation. Leibbrandt et al. (2013) analyze the various mechanisms involved in the employment decisions of individuals facing the introduction of these policies, stressing their significant incidence on female labor variables. These benefits may entail a strong labor impact on women who are traditionally characterized by low participation rates and an active involvement in household chores and childcare.

One of the income policies with high incidence on female labor participation is the child support grants (CSG). This type of program, implemented by several countries, consists of a cash transfer targeted to households with children focused on easing the childcare process. The objective of CSGs is twofold: improve the quality of childcare and reduce its cost. The evidence indicates that the impact of these programs on labor supply depends strongly on which of these two purposes dominates and how mothers internalize this benefit. Kimmel (1998) shows that the change in childcare price generated by CSG programs tends to restrict the labor supply particularly of married women considering they are not the only income earner of the family. In the USA, women react to this type of income transfer substituting childcare services but without altering their employment rate (Ribar 1995). Other authors find instead an increase in female participation and labor intensity due to the introduction of CSGs both in developed and developing countries (Williams 2007; Lefebvre and Merrigan 2008; Eyal and Woolard 2011). Berger and Black (1992) reveal that women invest this transfer directly on her children, increasing schooling attendance, which enables mothers to devote a higher proportion of their time in the labor market. If this benefit is not exclusively assigned to the child, it can generate a reduction in labor costs for mothers (e.g., financing job-seeking) and therefore may raise their labor force participation (Lefebvre and Merrigan 2008).

Another important group of programs with significant impact on labor results are those universal cash transfers or other minimum income benefits based on certain eligibility criteria (means-test grants). These policies may induce either a positive effect on labor supply (lower labor fixed costs) or a negative change on participation, particularly when the amount of the benefit is close to the potential labor income (Franz et al. 2011). However, the literature shows a relative consensus for this group of programs. The evidence suggests an adverse effect on labor supply, particularly motivated by the lack of conditionalities and the magnitude of the benefits. Lemieux and Milligan (2004) identify a significant reduction both of the employment rate and the total hours worked by participants of a social assistance transfer in Quebec. Terracol (2009) and Bargain and Doorley (2011) evaluate the impact on the labor market of a means-tested program in France. They find an important fall in labor participation and larger unemployment duration, since the transfer reception does not require any condition on seeking job. Similarly, Cavalcanti and Correa (2010) find a negative labor effect of a cash transfer program in Rio de Janeiro which benefits individuals with income below a certain threshold regardless of their employment status. There is also evidence of a differential impact between genders of these programs. For instance, a minimum income policy in Albania discourages labor market participation, particularly of women living in urban areas (Dabalen et al. 2008).

The conditional cash transfers, mainly implemented in Latin America, can also generate diverse labor effects. The evidence on these CCT programs is still scarce and far from conclusive (Bosch and Manacorda 2012). Although several studies have found no significant labor consequences in the short term (Amarante et al. 2011, 2011; Alzúa et al. 2013; Galasso 2006; Skoufias and Di Maro 2008; Skoufias et al. 2008; Edmonds and Schady 2012; Banerjee et al. 2015), some papers provide evidence that CCTs may discourage labor supply in certain groups. Medeiros et al. (2008) reveal that the program Bolsa Familia in Brazil reduced the probability of labor participation among eligible women. Similarly, Ferro and Nicollela (2007), Teixeira (2010), and Scarlato et al. (2014) find that some CCT programs have implied a decline in hours worked by women, in particular those with greater restrictions to meet the requirements of these policies and with less assistance from other household members in domestic tasks. Accordingly, Gammage (2010) sets forth the importance to consider the potential incidence of these programs on women time distribution between unpaid domestic activities and labor market participation. Parker and Skoufias (2000) who show no major labor disincentive effects from the Mexican CCT program (Oportunidades) do find instead a significant increase of female hours aimed to fulfill the obligations set by the program.

In reference to the AUH, the main CCT in Argentina, the evidence related to its labor impact is also incipient and mixed. Some previous studies show that the program generated relevant labor disincentives (Boffi 2013; Garganta and Gasparini 2015; Castillo et al. 2013) while others fail to find significant changes in adults’ labor supply (Maurizio and Vazquez 2014; Kliksberg and Novacovsky 2015). For instance, Maurizio and Vazquez (2014) find a slightly significant but not robust increase in the unemployment rate of beneficiary women. These authors, however, use a different identification strategy and analyze the evidence over a shorter period of time (2009–2010) than our study. In contrast, Castillo et al. (2013) highlight the greater labor precariousness of the AUH participants compared to those workers under the traditional social security system (TSS). They also reveal the lower chance of access to a stable job of the AUH beneficiaries and the relatively worse paid employment they take on. These authors also report a smaller participation rate among recipients and a higher probability of underemployment than TSS workers. They state that this policy reinforces the determination of women as the principal child care provider of the household. Although this can be positive in some respects, it can also perpetuate the traditional domestic roles assigned to them and strengthen their isolation from the labor market.

This paper considers that the AUH may generate a reallocation of roles between genders with a potential reduction in female labor participation. The hypothesis is supported by several arguments detailed in Section 3, some of them are based on general empirical issues, and others are linked to the particular design of this policy.

In November 2009—under stable economic conditions and with ample political support—the Argentinian government implemented a massive program of conditional cash transfers to poor households.⁸ Specifically, the decree 1602/09 created the Universal Child Allowance for Social Protection (AUH) which consists of a monetary subsidy per child for households whose members are either unemployed or working in the informal sector (unregistered workers).⁹ The decree also restricts participation to those unregistered workers earning less than the legal minimum wage. However, this limitation is inconsequential in practice since earnings of informal workers are difficult to monitor.

As any typical conditional cash transfer program (CCT), the AUH requires compliance with education and health conditions: vaccination and health checks for children under age 4 and for pregnant women and school attendance for children aged 5 through 18. To enforce these conditions, the program sets a particular payment mechanism: 80% of the subsidy is automatically received by beneficiary families on a monthly basis, and the remaining 20% is paid annually, once compliance with the conditionalities is proven. If the conditions are not met, not only the 20% is not perceived but also the beneficiary is suspended from future participation in the program.

The program covers a large proportion of the Argentinian population, the majority belonging to low-income strata. Currently, the AUH covers almost four million children, which accounts for one third of all children in the country and 15% of total households. The annual budget of the program—around 0.8% of GDP—is one of the highest in Latin America. The monetary benefit is also high according to international standards (Fiszbein and Schady 2009; Stampini and Tornarolli 2013). At the time of its inception, the AUH transferred ARS 180 (around USD 50) per month for each child under 18 years old up to a maximum of five dependent children per family.¹⁰ The monthly amount per child has been adjusted several times to shield the purchasing power of the subsidy against inflation. By June 2015, the monthly transfer per child was ARS 837, representing around 12% of the mean household income for unemployed and informal households with children and 14% of the legislated minimum wage.¹¹ For a typical poor beneficiary family with three children, the benefit implies an increase of 35% in total household income. The recipients of AUH are not allowed to receive benefits from other social programs.

Being such a large program, the AUH may have a potentially significant impact on economy-wide social and labor variables. The existing literature finds that the AUH had a significant impact on the reduction of poverty and income inequality (Gasparini and Cruces 2010; Agis et al. 2010), discouraged labor market formalization (Garganta and Gasparini 2015), and increased school attendance (Edo et al. 2015). Although there are also some few estimations of the effect of the AUH on adult’s labor supply, no conclusive evidence was found in this regard (Boffi 2013; Castillo et al. 2013; Maurizio and Vazquez 2014; Kliksberg and Novacovsky 2015) and there are still no studies assessing the impact of this program on labor participation with a main focus on the potential gender bias that CCTs could actually incite.

There are several reasons to relate the AUH with a potential work disincentive, particularly for women. The income effect associated to the cash transfer may discourage labor participation of beneficiary family members, but especially of mothers for at least two reasons. First, income elasticity of labor supply tends to be larger for women than for men, particularly for women who act as secondary workers within their household (Michalopoulos et al. 1992; Kimmel 1998; Eissa and Hoynes 1999; Eissa and Hoynes 2004; Naz 2004; Tamm 2009). Many women decide their employment status sequentially in response to the decision of their husbands or partners (Michalopoulos et al. 1992). As a consequence, female labor decisions are more flexible when they are not the only income earners of the household (Kimmel 1998). In particular, Latin American women are likely to act as secondary workers because of the persistent strong attachment to traditional gender roles and the low levels of women’s skills and educational attainment in the region.

The second reason relies on the fact that women are typically the recipients of the cash transfer. According to administrative data from the AUH (ANSES 2014), the mother is the principal holder/recipient of the benefit in 96% of the participant households. Therefore, beneficiary women may perceive the transfer as earned income in exchange for their efforts to ensure compliance with the conditionalities of the program, which encourages the traditional division of gender roles within the household and reduces the pressure on women to seek for a job outside the house. In summary, the AUH may reduce the economic need of mothers to be actively engaged in the labor market and the family/social pressure to do so.

Our analysis is based on microdata from Argentina’s national household survey (Encuesta Permanente de Hogares, EPH) quarterly conducted by the national statistical office (INDEC). The EPH covers 31 large urban areas, which represent 62% of total country population. Since we aim to assess whether the AUH affected female labor supply, we exploit the rotation sampling of the EPH that allows us to observe changes in labor variables over time for each individual in the sample. Specifically, we observe each woman in the survey in two successive quarters, and then, we observe her again 1 year later in the same two consecutive quarters. In particular, we are interested in the transition from inactivity to activity, i.e., women who were inactive in the first round of observation (semester) and experienced a transition towards activity in the last one, either by working or by actively looking for a job.¹²

We focus on the period 2005–2013. Since the AUH was launched in November 2009, the pre-intervention or “before” period includes years 2005 through 2009 while the post-intervention or “after” period covers years 2010 through 2013.¹³ Our sample includes inactive women between 20 and 60 years old who are the spouse or the head of their households. Since the EPH does not include questions to identify AUH beneficiaries, we aim at determining whether the household is a potential beneficiary of the program by checking the eligibility criteria—intention to treat. Specifically, the treatment group is composed of inactive women with children under age 18 who live in poor and informal households. By informal household, we mean that neither the woman nor her spouse is registered in the national social security system.¹⁴ This is the case for unemployed and inactive individuals, unregistered workers, and, typically, self-employed workers.¹⁵ We define poor families as those belonging to the first four deciles of the household per capita income distribution.¹⁶ The control group includes the rest of the women in our sample, i.e., inactive women between 20 and 60 years old who do not meet all the conditions to be eligible. In the next section, we show that the results are robust when using alternative control groups.

Given that these discrepancies hold over time (before and after the AUH) and with no significant changes on their magnitude, we apply a difference-in-differences methodology in order to estimate the impact of the AUH on female labor participation. Specifically, we compare the differences in the outcome of interest—the probability to make a transition from inactivity to activity—between the treatment and the control group, before and after the introduction of the program (Card 1990; Card and Krueger 1994; Bertrand et al. 2004). The identification assumptions are that labor force participation trends for both treatment and control groups would have been similar in the absence of the AUH and that there were no other contemporaneous events to the implementation of the AUH that could have caused a differential impact on that outcome between the two groups. The latter does not appear to be a strong assumption considering that no new social programs nor labor market reforms took place during the period under analysis. In fact, the AUH was the consequence of a political debate on the need to revitalize the social policy in Argentina. While the first assumption cannot be proven, in the next section, we provide evidence to gain confidence in its validity.

The outcome variable FP _it is a binary indicator taking the value 1 for inactive women i who make the transition to activity in the labor market in year t and the value 0 otherwise. More precisely, if a woman i is inactive during her first two appearances in the survey but in the last two interviews—1 year after the first one—she does work or is actively looking for a job, then the dummy variable FP _it equals 1.¹⁷ The model includes the indicator variable Treat that takes the value 1 for the treatment group, the dummy variable After that switches on for observations in post-intervention years 2010 through 2013, an interaction term between them, and a set of individual and household-level controls represented by vector X.¹⁸ Individual controls include age, age squared, educational level, marital status, whether the male spouse is employed, and binary indicators of the head of household and of whether the woman is in charge of household chores or whether other family members help with those tasks. Household controls include per capita family income, family size, and number of family members by age and gender—number of women aged 20 to 60, men aged 20 to 65, and children under age 18. Also, vector X includes region and time fixed effects.

It is worth to mention that in the nonlinear model, the expected value of the potential outcome is not zero as in the linear specification. The treatment effect in this diff-in-diff nonlinear model is the difference between two cross differences: the difference of the conditional expectation of the observed outcome (factual) minus the cross difference of the conditional expectation of the potential or counterfactual outcome. As it is shown in Eq. 3, the treatment effect will then be the incremental probability impact caused by the coefficient of the interaction term (Ai and Norton 2003; Puhani 2012). Being Φ(.) a strictly monotonic nonlinear function, the sign of γ will always coincide with the sign of the treatment effect. These results apply to all nonlinear models with this parametric structure.

In this section, we present and discuss the results of estimating the diff-in-diff probit model in Eq. 2 to evaluate the effect of AUH’s eligibility on the probability of entering the labor market for inactive women. We also estimate the effects on other labor transitions potentially affected by the AUH: from activity to inactivity and from employment to being not employed. Besides these extensive-margin outcomes, at the end of this section, we evaluate the effects on the intensive margin of labor supply by estimating the impact on hours of work.

To reinforce our confidence on the preliminary evidence from Table 2, we test for common trends between groups before the introduction of the program. For this purpose, we run a model of the outcome variable on a constant, the treatment dummy, year dummies, and interactions between the treatment and year dummy variables including only pre-intervention periods. We then apply an F test in which the null hypothesis states that all the coefficients for the interaction terms are jointly equal to zero. We find no evidence to reject the null hypothesis for all women in our sample.²⁰ Therefore, the result suggests the existence of a common underlying trend for the treatment and control groups before the implementation of the AUH, which then appears to have been broken since the introduction of the program.

Another identification assumption is that there were no other contemporary events to the AUH that could have a differential incidence in the outcome of interest between groups. As discussed above, although it is not possible to rule out such contemporary events, this is likely to be the case: the AUH was the main social policy initiative in Argentina during the period under study (Rofman and Oliveri 2011), and it was not accompanied by any other social or employment initiative.

We assess the impact on female labor force participation of a conditional cash transfer program implemented in Argentina in 2009 that delivers cash benefits to poor and non-formal households with children. For this purpose, and given the program design and the nonrandom assignment of the beneficiaries, we use a non-experimental methodology of double differences and identify the potential participants according to the criteria and conditionalities of the program. The evidence suggests the existence of statistically significant disincentives to labor force participation of women driven by the program, but instead, we find nonsignificant effects for men. The AUH also seems to affect female labor intensity, although this result is not entirely robust to different alternative specifications of the control group.

The welfare implications of this result are not clear. Lower labor participation could be detrimental to women empowerment and may offset part of the poverty-reducing impact of the program. On the other hand, the monetary transfer of the program may allow poor women to avoid taking a low-pay job and instead stay at home with their children, which could be beneficial to their education given the scarcity of other good-quality options. More research is needed to have a more comprehensive view of these changes in behavior.