The employment effects of a means-tested guaranteed income policy

Abstract

Through a randomized controlled trial, we study the labor market effects of a generous means-tested guaranteed income policy targeting low-income families in Barcelona. Two years into the program, beneficiaries are 22 % less likely to work compared to subjects assigned to a control group. A lower phase-out of transfers attenuates negative employment effects and reduces the government cost per euro of benefit by two-thirds. Participation elasticities for a family of four range from 0.39 to 0.49. Treatment effects persisted at least 6 months after the program ended. We find indications that effects are driven by subjects with care duties, suggesting substitution of labor for care tasks.