Work pays: different benefits of a workfare program in Colombia

Abstract

Workfare programs provide a low paid employment guarantee to individuals in selected public works. They are designed to self-select the poor and provide insurance against job losses by informal sector workers at the possible cost of crowding out private labor effort. We analyze the impact of a Colombian workfare program called Job in Action [Empleo en Acción] to shed light on the following issues in the particular context of a middle-income economy: (1) whether the program crowds out labor effort by members of the household different from the participant, (2) whether there are gains in household labor income, but also in consumption, which is important to assess the role of the program as an insurance mechanism and (3) whether there are some gains from participating in the program six months after the program has finished. Our results show no evidence of the program crowding out private labor effort by other household members. In addition, we find that the program had large positive transfer benefits, as the program increased individual’s labor income and labor supply in large urban as well as small rural municipalities. There is a positive significant impact in small municipalities on consumption which is doubled when focusing only on food consumption. Finally, we do find that the program had a positive effect on individuals’ outcomes as well as on households’ monthly labor income per capita in small rural municipalities six months after the program ended. We shed light on the potential channels explaining this novel result in the literature on public work schemes.