IZA published an RCT evaluating generous unconditional cash transfers ($8k/year) to low-income households in Spain to reduce poverty. Quick take: High-quality RCT finds sizable (9% point) adverse effect on employment at roughly the 2 year mark.

Program & Study Design:

• The study randomly assigned 1200 low-income households in Barcelona to a treatment group that received (dollar-equivalent) $8000 per year for 2 years vs a control group. The study had excellent baseline balance and measured employment using administrative data with no sample attrition.

Findings:

• At follow-up 3 months before the program's end, the study found a sizable adverse effect on the employment rate of lead household members: 36% treatment (T) vs 45% control (C), p<0.05. The effect diminished, but was still statistically significant, over the 6 months post-program.

• A sub-study found that program features affected the size of the adverse effect. 40% of the treatment group were randomly assigned to a group whose cash transfer was reduced euro-for-euro for additional income they earned; 60% of the treatment group had their transfer reduced 25-35¢ on the euro for additional income.

• The sub-study found that the adverse effect on employment was about twice as large in the euro-for-euro group vs the 25-35 cents-on-the-euro group, and the difference was statistically significant.

Comment:

• These findings suggest a need for caution in the design of anti-poverty programs, to avoid discouraging work effort. There have been some similar RCT findings in the US for programs with a sizable benefit reduction rate on additional income (example).