4.11 Positive effects of welfare transfers on local formal employment

102 e mployment in Crisis

inject funds into local economies, potentially raising the demand for labor, including in the formal sector. The paper links administrative records on the universe of Bolsa Familia recipients and formal workers in Brazil to provide evidence of the program’s effects on formal labor markets. Using variation across municipalities in the program’s expansion in 2009, the paper finds that this expansion increased formal employment. Its evidence is consistent with the large multiplier effect of Bolsa Familia benefits, which dominate the negative effects on the formal labor supply at the individual level, as is also documented using variation caused by income eligibility thresholds.

Importantly, Gerard, Naritomi, and Silva (2020) also show that the program expansion had positive aggregate effects beyond its effects on individual beneficiaries through spillovers to nonbeneficiaries. Taking advantage of their linked data on formal employment and the poor and vulnerable, they investigate whether the additional formal employment they observe comes from beneficiaries or nonbeneficiaries. Panel a of figure 4.11 presents their results: the effect of the program’s expansion is positive and significant among noneligible families. This increase in formal employment could occur through either the creation of new jobs or the formalization of jobs that were previously informal (although in the latter case, the program expansion would not be associated with an increase in overall employment). The program’s expansion did in fact have positive and significant effects on GDP (figure 4.11, panel b), suggesting that the expansion led to employment creation, not just the conversion of informal jobs to formal jobs. Local gross products increased by 1.5 percent as a consequence of the program expansion. These results highlight the importance of accounting for both the individual and the aggregate effects of social assistance welfare programs in policy debates.

To deliver emergency social transfers in response to crises and to maximize their positive effects, the LAC countries must ensure their cash transfer programs are sufficiently responsive and adaptive to the needs created by systemic shocks, and they must substantially augment their delivery capacity. Key to this change is expanding population registries to cover all the poor and vulnerable— indeed, extending the registries as far up the income distribution as is practicable—and sharing their information among all social

FIGURE 4.11 Positive effects of welfare transfers on local formal employment

a. Spillovers within municipalities: E ect on formal employment among nonbene ciaries b. E ect on local GDP per capita

t of an (exogenous) expansion E ec gra m p ro Bolsa F amilia of the 0.06

0.04

0.02

0.00

–0.02

–0.04 2007 2008 2009 2010 0.06

0.04

0.02

0.00

–0.02

–0.04 2011 2012 2007 2008 2009 2010 2011

Source: Gerard, Naritomi, and Silva 2020. Note: This figure shows the effect of a 2009 expansion of the Bolsa Familia program on the number of formal employees among nonbeneficiaries (panel a) and local GDP per capita (panel b). The vertical lines represent 95 percent confidence intervals on the basis of robust standard errors clustered at the municipality level In panel a, the data are from the first quarter of all years shown.

t ow A rd A n i ntegr A ted p oli C y r esponse 103

programs rather than keeping registries program-specific. Moreover, because most LAC countries use social assistance transfers as an instrument in crisis response, these countries’ governments must better manage the processes of enrollment, registration, and recertification for these transfers and make these processes rapid and effective. The administrators of the region’s national cash transfer programs aspire to make more flexible enrollment and exit processes for beneficiaries so that previously nonpoor families can receive benefits when needed and so that those whose incomes grow beyond the programs’ eligibility thresholds have every incentive to move into sustainable, productive livelihood activities. However, because CCT programs are designed to address chronic poverty, they typically have lengthy intake processes to identify, enroll, and recertify beneficiaries that are implemented uniformly across all prospective beneficiary households.11

Thus, although the LAC countries with national CCT programs and other cash transfer programs have used them to effectively help households adjust to shocks, these programs are not yet a sufficiently nimble policy instrument to address the needs of poor and nonpoor vulnerable groups during transient systemic shocks (such as financial crises or long recessions). Because of the demands they make on administrative capacity, cash transfer systems on their own are not yet effective substitutes for fuller national risk-sharing arrangements.

Crises are very costly for some workers, and for most people, policy responses to these crises have failed to compensate for the costs or to offer effective remedies. One key reason for this failure is that social protection and labor systems in the LAC region are not yet fully in place, so they are certainly not yet able to provide a dynamic safety net that responds robustly to shocks and crises (Packard and Onishi 2020; Williams and Berger-Gonzalez 2020).

What can be done?

Social assistance cash transfers are an important source of income support during crises in Latin America. In many cases, because of these programs’ administrative capacity and broad registries, they are one of the few options to deliver benefits to the population quickly. However, the support they provide in response to crises is insufficient, and many are left behind, because these programs are targeted at the preexisting poor. Going forward, it will be important to improve the capacity of these programs to countercyclically increase their level of benefits and their coverage of vulnerable populations.12

There are three main policy priorities to improve the dynamism of social assistance cash transfers. The first is to improve the adaptability of these programs—that is, their capacity to be responsive to households suffering the impacts and repercussions of various shocks, including hurricanes, earthquakes, and tsunamis as well as economic crises. This reform will include establishing comprehensive and dynamic social registries that are usable by all social programs, such as Brazil’s Cadastro Unico (Lindert et al. 2020). The second priority is to move from budgeted programs and rationed cupos to protection guarantees, that is, from merely assisting the chronically poor to building safety nets that can expand to catch all who are vulnerable to impoverishment before they become poor. (Packard et al. 2019). And the third is to prevent the emergence of assistance “ghettos” by structuring benefits to incentivize the return to work (with support from augmented reemployment services).

The COVID-19 global pandemic has spurred governments to quickly enact many parts of this agenda (see box 4.3). Many of the needed changes and additions to the LAC region’s social protection and labor systems were already under way prior to the 2020 pandemic, especially in the countries more vulnerable to climate change and other natural disasters (Bowen et al. 2020; Williams and Berger-Gonzalez 2020). Many of the changes that make a social protection system responsive to households suffering the impacts of natural disasters also improve the system’s function as part of a country’s automatic stabilizers against other systemic