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Research Summary

When Governments Send Money, Do People Still Work?

Joe Peck October 23, 2023
Source: NBER Working Paper Title: The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund Author(s): Damon Jones and Ioana Marinescu Original Publication Date: February 2018, Revised January 2020 Read Full Research Article

In every year since 1982, each resident of the state of Alaska receives a universal and unconditional cash transfer from the state government. Alaskan residents receive an annual payment of around $2,000 per individual, or an average of $3,900 per household, from the state’s oil reserve royalties. It doesn’t matter who you are or what you do for a living: as long as you have lived in Alaska for at least one year, you get paid under this program.

There is an increasingly prevalent debate about the merit of programs of this kind among academics, policymakers, and everyday people. Whether referred to as cash transfers, unconditional payments, or universal basic income, these programs offer a potential and novel policy mechanism to alleviate poverty and help workers adjust to the automation of labor. Yet as unconditional payment ideas have gained steam, so too have worries about the potential of cash transfer programs to increase inflation and decrease employment—if you give people money, the fear is that they will be less likely to work.[1]

In this article, researchers Damon Jones and Ioana Marinescu estimate the impact of cash payments on employment by examining the Alaskan government’s cash transfer program. Their study uses the Current Population Survey to compare employment data in several states with similar employment characteristics to Alaska before and after the payments started.

Key findings
  • Cash transfers in Alaska have no impact on the overall employment rate in the state. Despite the large sums of money sent to individuals in Alaska every year, they do not make people on the whole less likely to work. The authors model what employment in Alaska would be like without the payments (based on the economic trajectories of similar states) and find no difference between employment in the model and actual employment in Alaska.
  • Within sectors, cash transfers reduce employment by just under 5 percent in tradable sectors (jobs that provide goods that could be shipped anywhere, like agriculture) and have no impact on employment in nontradable sectors (like health care and government jobs, whose services are place based).
  • Universal payments to Alaskan residents increase the share of people working part time, especially among women. Cash transfers increase part-time employment by around 1.8 percent for the population as a whole and by 3.5 percent for women. While some of this increase comes from workers moving from full- to part-time work, it also includes individuals moving into part-time work from unemployment and from out of the labor force.
  • One potential reason these cash transfers do not damage aggregate employment in the state is because they give families the freedom to spend more. By increasing household incomes, they spur spending in the state that, in turn, supports the demand for labor. In other words, despite the tradable sectors, aggregate employment remains constant because the consumption of nontradable goods has a positive impact on employment.
Policy and practice implications

WorkRise has identified the following implications for policy and practice:

Implications for practitioners:

  • Support nongovernmental cash transfer programs: Charities and organizations interested in alleviating poverty should consider the limited downsides to cash transfer programs of this kind. Nongovernmental organizations can offer these unconditional cash transfer programs themselves.

Implications for policymakers:

  • Follow research to understand the merits of cash transfer programs: Policymakers should engage with studies such as this one, which shows that unconditional cash transfers can be a strong and effective way to subsidize incomes in addition to traditional social insurance and income support programs without damaging employment rates.
  • Institute more natural experiments: Leading politicians, such as former President Obama, have discussed the potential of unconditional cash transfers to help workers adjust to a changing economy, yet few programs have been initiated in the United States outside of Alaska and a few small localities, such as in Stockton, CA

Implications for researchers:

  • Reexamine long-running programs: There is limited research into the impact of unconditional cash transfer programs on employment. In part, this is the result of limited data—unconditional programs of this kind are rare. But among those that do exist, as in Alaska, more studies are needed to examine the employment and income dynamics they produce.
  • Analyze new cash transfer programs: Finland, the Canadian province of Ontario, and Stockton have all recently instituted universal cash transfer programs. While these programs offer limited information into the long-running effects of this kind of intervention, they can inform policymakers and practitioners on the short-run impacts of cash transfer programs.
  • Better understand any potential inflationary effects: Because few of these programs are universal, it is hard to grasp exactly how they might give rise to inflationary pressures. New opportunities for research must attempt to tackle this issue, as prior research has not found definitive answers.

Unconditional cash transfers, which were briefly introduced in the pandemic-era fiscal stimulus packages, could play a significant role in policy debates going forward. Hilary Clinton’s 2016 policy platform contained within it a desire to trial some form of universal basic income program, and the Biden administration’s child tax credit—which cut child poverty in half—have been described in the same terms.

As policymakers think more about the most efficient ways to design unconditional, large-scale cash transfer programs, research on Alaska might offer some insight. These findings reveal the labor market impacts of a cash transfer program that is universal, unconditional, and permanent. Unconditional payments have the potential to raise incomes for low-wage workers and respond to the increasing automation of our economy, while protecting employment for all.

[1] Existing research on this subject provides some inconclusive evidence as to whether employment decreases when people receive unearned income. A study of the Eastern Band of Cherokee Indians, some of whom receive an unconditional cash transfer from casino profits, indicates that these payments had little impact on employment. Research into lottery winners—a different type of payment—suggests that a 10 percent rise in unearned income results in a 1 percent reduction in labor earnings. This effect also holds in other parts of the world: in Kenyan villages, cash transfer programs have been found to have a fiscal multiplier of 2.6. The most difficult part about studying these policies is that cash transfers rarely impact all people within a geographic area. Normally, pilot studies only impact a small fraction of the total population.

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