Labor supply effects of a universal cash transfer

I investigate the labor supply effects of the introduction of an exceptionally large unconditional cash benefit. I exploit the unique design of the child benefit program in Poland to identify the effects of the monthly transfer in a difference-in-differences design. The transfer had no short-term effects but caused sizable negative medium-term effects on household labor supply. In the medium run, population estimates indicate that for every extra 100 dollars in monthly child benefit transfers households received, they reduced their after-tax earnings by 25 dollars, spent 32 dollars on consumption, and saved 43 dollars. These negative labor supply effects are much larger and much more precisely estimated among households with low socioeconomic status. Additional evidence shows that the program had a positive impact on investments in human capital and home production efficiency. • I estimate the impact of the introduction of a large universal child benefit. • I find no short-term effects on household labor supply. • The cash transfer had a negative medium-term impact on household labor supply. • These effects were concentrated among low-socioeconomic status households. • Households increased their consumption, including investments in human capital and home production efficiency. • Households increased their savings by 20 percent.