Social Policies and Labor Market Outcomes in Latin America and the Caribbean: A Review of the Existing Evidence

Latin America and the Caribbean have become in the last decade or so a formidable laboratory for the design and implementation of innovative social policies. In the face of an unprecedented surge in the number of non-contributory social assistance benefit programs in the region, there is a renewed interest - among policy makers and academics alike - as to whether such programs have "perverse" labor market effects, in particular discouraging participation and formal employment. After having revisited the theoretical arguments behind this concern, this paper reviews the existing quasi experimental empirical evidence for the region. Our reading of the evidence suggests that, consistent with zero income elasticity of leisure among the poor, social assistance has no large significant effects on participation and overall employment, other than possibly among the elderly. Some particular policies are, however, generating a substitution away from formal to informal employment.