The Effects of a Conditional Transfer Program on the Labor Market: The Human Development Bonus in Ecuador

In this paper we estimate the impact of a conditional transfer program, the Bono de Desarrollo Humano, over several labor market outcomes in Ecuador. We use the BDH’s targeting mechanism and rely on a regression discontinuity (RD) strategy to isolate the causal effects of the program over the duration of unemployment, the probability of transiting from unemployment to informal employment and the probability of separation from formal employment. We find that (i) mothers with BDH benefits and workers living in households having the BDH program experience a longer duration in unemployment than the comparable group of workers that do not have those benefits; (ii) the program does not had distortive effects on the finding probability of an informal job for mothers and workers living in households with BDH benefits while it seems to have financed the search process for workers living in households with benefits during the period 2005-2006; and (iii) the BDH program increases the probability of separation for mothers having the benefits with respect to the comparable group of mothers that do not have those benefits. These impacts suggest that the government has some room to intervene in the labor market to try to eliminate or at least reduce the negative effects of the program.