Earned and unearned income: Experimental evidence on expenditures and labor supply in Malawi

Though the differential impacts of earned and unearned income have long been of interest to economists and policymakers, the study of this question is often conflated by other differences between the income streams. We conduct a field experiment in Malawi in which we examine the differential short-term effect of earned and unearned income on the allocation of expenditures and labor supply, holding all other factors constant. All participants receive an equal size cash payment and make the same time investment; half are required to work, and half are not. Our main finding is that the work requirement results in a reallocation of labor supply away from household work in the very short term. Conversely, there is no evidence that the allocation of expenditures across categories is affected.