Concerns that “free” money provided by the state may discourage work among recipients are longstanding, intuitive, and in some ways legitimate. These concerns date back over 2,500 years. The Roman emperor Augustus was cautious about distributing money to citizens due to potential adverse effects on farm labor. Religious leaders like Martin Luther also expressed reservations about cash donations interfering with work incentives. Foundational economists such as Jeremy Bentham and Thomas Malthus opposed transfer programs because they allegedly created dependency among working-age populations.
These reservations align with widely shared moral values, including a work ethic based on effort and merit, a sense of responsibility and duty toward communities, and the recognition of the pride, meaning, and dignity that come with a job.
Direct cash transfers, as opposed to income earned through labor, may be seen as a threat to these values. It can appear as free riding and amplify the perceived societal divide between hard-working, tax-paying “givers” and demanding, entitled “takers.”
Labor markets are crucial for upward mobility, and employment is closely linked to the likelihood of escaping poverty. Therefore, transfers may interfere with labor supply decisions, as modeled extensively in economics.
Psychologically, financial incentives can undermine intrinsic motivation to work, as discussed in theories of motivation crowding and self-determination.
While skepticism is understandable, it is also debatable. What if cash transfers are compatible with—and even strengthen—the jobs agenda? This counterargument rests on five key points.
First, people need cash from jobs and cash for jobs. Obtaining and maintaining employment is expensive. Costs associated with transportation, skills formation, credit, health, and child care, along with the hidden costs of poverty-induced stress, can hinder efficient and sustained labor market engagement.
Second, today’s transfers are tomorrow’s earnings. Bottlenecks to employment can emerge at early ages, making the transfers’ effects on reducing child mortality and stimulating cognitive development crucial for future economic contributions.
Third, cash transfers preserve the workforce during economic transitions. Unemployment insurance is often limited in contexts of high informality, gig work, and precarious employment. Cash transfers can stabilize the workforce during economic adversity, allowing it to bounce back when activities resume.
Fourth, cash transfers help grow the economic pie. Money given to vulnerable people, due to their high propensity to consume, is largely injected into markets. For every $1 provided as a cash transfer, an additional $1.30 on average is generated in the economy.
Fifth, poor people work hard and continue to work while receiving cash assistance. Six comprehensive reviews on the impact of cash transfers on labor market outcomes consistently find that cash programs do not reduce labor supply and time worked on average, and in many cases, they enhance these metrics.
The dilemma is not whether cash creates disincentives but rather that people can be stuck in poverty despite being covered by social protection, having a job, and even working harder than the rich.
Two competing visions emerge. One view is against the provision of cash assistance in the context of jobs, while the other presents a compelling case for cash as support for work.
History shows that the rhetoric of the former has been more influential and enduring than that of the latter. To break from the past, a new narrative is needed. This means challenging the premises of current thinking.
Constructively reframing the relationship between cash transfers and jobs requires recognizing that it is part of a wider battle of ideas around human nature, power balances, and economic organization.
In this process, we may rediscover that philosophy and economics are closely interlinked.
