Evaluating the labor supply implications of a cash transfer program: Evidence from China

Abstract

This study evaluates the labor supply implications of China's Dibao program, one of the largest means-tested cash transfer initiatives globally. Leveraging its unique payment structure, which ensures a smooth income transition at the eligibility threshold, we employ a fuzzy regression discontinuity design to identify causal effects on employment outcomes. Despite the program's design to minimize disincentives, we find that Dibao beneficiaries are 46.2 % less likely to be employed after enrollment, with effects primarily driven by vulnerable groups, including the elderly and individuals with low educational attainment. Further analysis reveals significant labor supply reductions among low-income-contributing household members, while higher-income members remain unaffected. Our findings contribute to the discourse on cash transfers by highlighting how program design can balance social protection with labor market efficiency, offering insights for policymakers seeking to mitigate work disincentives while ensuring support for vulnerable populations.