International Journal of Advanced Science and Technology

Vol. 29, No.02, (2020), pp. 734-752

The Effect of Universal Child Benefits on Female Labor Supply and

Household Expenditure: Case of Mongolia

[1]
Khishigt Dandarchuluun, [2]Hyung Jai Choi
[1]
Associate Professor, [2]Professor,
[1]
Department of Economics, School of Arts and Sciences,
National University of Mongolia, [2] Department of Economics and Statistics,
Korea University, Sejong Campus

Abstract: This study investigates the causal impact of Mongolia’s universal child benefit program on
female labor supply and household expenditure using Difference-In-Difference-In-Differences
approach. In addition, we focused on the how households spend their benefit income. To examine the
relationship between benefit income and household expenditures, we use Seemingly Unrelated
Regression model. We use cross-sectional data from the Integrated Household Income and Expenditure
Survey with Living Standards Measurement Survey of 2002/2003 and Household Socio-Economic
Survey of 2007/2008 from the National Statistical Office of Mongolia. We find that between 2002/2003
and 2007/2008, women with children decreased their relative labor force participation by 12.27
percentage points. The estimated adverse effects of child benefit program on labor force participation
are proved by linear regression of annual hours of worked. When we estimate the effects of UCBP on
worked hours conditional on hours exceeding zero, women with children decreased their relative
working hours conditional on working by 155.32 hours. Moreover, we find that the effects of UCBP on
household expenditures depending on household behavior. For households involved in agriculture,
households receiving benefit income increased their expenditures on non-durable goods than food and
durable goods. Contrary, households not involved in agriculture, they increased their expenditures on
food items than durable and non-durable goods. For the low and middle-income group, there are
positive UCBP effects on the broad variety of food and non-durable expenditure categories. However,
there have been almost no significant effects of UCBP on the expenditures for the high-income group.
In addition, we found that the income transfers are shared between children and their parents.

Index Terms: Universal Child Benefit, Difference-In-Differences Approach, Propensity Score

Matching, SUR model, Female Labor Force Participation, Female Labor Supply, Household
Expenditure

I. INTRODUCTION

Child benefit program (sometimes called family allowance) is one of the important tools of social
protection and poverty reduction strategies. Governments of many countries (e.g. OECD countries,
most of EU countries) offer a cash benefit to families with children. In most cases, cash benefits have
targeted at low-income families and provide families with children based on the family net income, and
presence, number, age, and sometimes the birth order of child. Cash benefits can be unconditional,
conditional on child’s school enrollment, immunization, and nutrition, or else conditional to the parental
work requirement. The primary goals of these programs typically include encouraging fertility,
improving the wellbeing and long-term opportunities for children, and reducing poverty. However, it is
hard to evaluate the policies achieve their goals and whether there are any potential side effects.
Especially, consequences regarding labor market outcomes have been mostly ignored.The child benefit
program of Mongolia, which we focused on this study, is a universal cash benefit paid to a child under

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the age of 18, regardless of family income. There is no requirement that certain amount must be spent
on particular services or goods. The stated original goals of the program were to reduce poverty,
increase children’s education, health, and nutrition, and redistribute mining revenues to Mongolian
families living below the poverty line. In January 2005, the Mongolian government introduced the
conditional child benefit (CCB) and expanded it into universal child benefit (UCB) in July 2006. In this
study, we examined the effects of UCBP on female labor supply and household expenditure using
Difference-In-Differences (DD) approach with Propensity Score Matching (PSM) method. In addition,
we focused on the how households spend their benefit income. In order to examine the relationship
between benefit income and household expenditures, we use Seemingly Unrelated Regression (SUR)
model.

I. AN OVERVIEW OF THE CHILD BENEFIT PROGRAM IN MONGOLIA

In the early 2000s, the Mongolian government approved contracts for the mining projects and began
to receive increased revenues from early exploratory mining projects. As a result, Mongolian economy
recovered, and GDP growth increased from 1% to 7% between 2000 and 2003. In 2003, the government
announced the government’s interest in conditional social development programs and constituted a
framework for the creation of the Conditional Child Benefit Program (CCBP) within the scope of the
Social Security Sector Master Plan. In January 2005, the Mongolian government introduced the
conditional child benefit (CCB) and expanded it into universal child benefit (UCB) in July 2006. UCB
program covering all children under the age of 18, regardless of family income, number, age, and birth
order of the child. In addition to the monthly allowance of MNT 3,000 (approximately USD 2.5), it
provided a disposable transfer of MNT 100,000 (approximately USD 86) for a newborn child. Further,
in January 2007, the UCB is increased by an additional quarterly payment of MNT 25,000
(approximately USD 21.4) each child. An average monthly benefit accounted approximately 20.4% of
MSL in 2007. The UCBP has discontinued the use of targeting mechanisms such as living with parents,
immunizations, school enrollment, but use a soft form of conditionality of school enrolment.
In 2003, the poverty headcount index was 36.1%, and it decreased to 35.2% in 2008. However, this
decline of 0.9 percentage points has not the same in the rural and urban area. The poverty rate had
increased dramatically in a rural area. During 2003 to 2008, there was economic growth which averaged
about 9%, but inequality had risen from 32.9 to 35.8. After the UCBP which started in July 2006, school
enrollment rates and some health indicators of children are deteriorated.
In 2006, the UCBP costs equal to 2.6% of total government spending, or 1% of GDP. In 2007, the
budget included a substantial increase in the benefit level, adding new quarterly payments of MNT
25,000 (approximately USD 21.4) per child. As a result, an annual child benefit had risen from MNT
36,000 (approximately USD 31) to MNT 136,000 (approximately USD 116.3), and the overall cost of
the program represent about 9.5% of government expenditure or 3.9% of GDP. It means an enormous
amount of money is spent on child benefit.
From another perspective, the cash transfer program was one of the political commitments that to win
the election. Before the political elections of 2004 and 2008, the cash transfer program has expanded
and adopted. Moreover, political considerations aside, the UCBP was also an attempt to avoid the
resource curse that has affected other resource-rich developing countries. Ying Yeung and Stephen
Howes (2015) reported that Mongolia is the only one developing country that has introduced a
resources-to-cash scheme.

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II. THEORETICAL BACKGROUND AND LITERATURE REVIEW

A. Theoretical Background
2.A.1. Child benefits and female labor supply
According to the household production model, having children may negatively affect the labor force
participation of mother. In contrast, having children may increase a probability of participation because
of bringing up children may lead to an additional income requirement. According to the simple standard
static model of labor supply, non-labor income such as child benefit shifts the budget constraint. Then
individual has a pure income effect which means that individual receiving the benefit are expected to
purchase more normal goods. If leisure is a normal good, individuals to purchase more leisure (to reduce
their hours of work) when receiving the benefits. To analyze the behavior of labor force participation,
economists often use the concept of reservation wage, which is defined as the wage rate at which an
individual would be indifferent between participating and not participating in the labor force. The
decision to participate in the labor market thus depends on the reservation wage. An increase in non-
labor income such as child benefit increases the reservation wage and thus lead an individual’s refuse
to participate in the labor market.

2.A.2. Child benefits and household expenditure

According to the economic theory of the consumer, consumers choose the best parcel of goods they
can afford. Consumer consumption is constrained by the budget. For purpose of the study, we can divide
the household’s choice between child-related goods and other goods. The budget constraint of the
household requires that the amount of money spent on the two goods not exceed the total amount the
household has to spend. Suppose that household income increases by child benefit while all prices
remain the same. It will lead to shifting outward in the budget line. Assuming that “child-related goods”
is an inferior good, the demand for “child-related goods” decreases when household income increases.
However, in reality, “child-related goods” are not inferior. Assuming that “child-related goods” is a
normal good, then demand for “child-related goods” increases when income increases. If there is no
restriction on the spending of benefit income, budget line shifts outward in parallel. In this case,
households can spend their benefit income more for “Other goods”. If there is a restriction on spending
of benefit income such as has to be spent on child-related items, it will shift the budget line to the right
by benefit amounts. It means that the household can consume more child-related goods, regardless of
how much they spend on other goods.
B. Literature Review
2.B.1. Child benefits and female labor supply
Here we report some literature about child related benefit and female labor supply.
1. The effect of child care costs on female labor supply: There is a large study that effect of child care
costs on labor market outcome of married women (David C. Ribar 1992; David M. Blau and Philip K.
Robins 1988; Charles Michalopoulos and Philip K. Robins 1992; Rachel Connely 1992). They suggest
that a reduction of the cost of market child care will have a strong positive effect on the labor supply of
married women. Furthermore, both the decision to become employed and the decision to purchase
market child care are sensitive to childcare costs.
2. The effect of child care subsidy on female labor supply: Mark C. Berger and Dan A. Black (1992),
who report that mother’s employment increases 25 percentage points as a result of the average weekly
subsidy of USD 46. Moreover, Marcia K. Meyers, Theresa Heintze, and Douglas A. Wolf (2002) also
found a positive relationship between childcare subsidies and employment.
3. The effect of child cash benefit (sometimes named family allowance) on female labor supply:
There are few empirical studies on the relationship between universal child benefit and female labor

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supply. Nada Eissa and Jeffery B. Liebman (1996) have examined the labor supply response to the
earned income tax credit. They conclude that after the Tax Reform Act, single women with children
increased their relative labor force participation by up to 2.8 percentage points. Alexis Leon (2003) find
that statistically insignificant negative effect of family allowance on female labor force participation
using British Household Panel Data. Ghazala Naz (2003) evaluates the impact of Norwegian family
policy reform and find that negative effect of reform on women’s labor force participation. Highly
educated mothers decreased more than that of less educated mothers. Robert McNown and Cristobal
Ridao-Cano (2004) studied the effects of Canadian child benefit policies on fertility and female labor
supply. They highlighted that child benefit policies are expected to have positive effects on fertility,
with reverse effect on female labor supply. More recently, Tammy Schirly (2014) studied the universal
child-related income transfer on the labor supply of married individuals. She concludes that the
Canadian Universal Child Benefit has significant negative effects on labor supply. Lower-educated
mothers reduced their labor force participation 3.2 percentage points when receiving the benefit.

2.B.2. Child benefits and household expenditure

There is an extensive literature that relationship between household income and household
expenditure. Empirical studies have used child-related tax credit, income tax returns, tax rebates, and
child cash transfers. James M. Poterba (1988), Nicholas S. Souleles (1999), David S. Johnson et al.
(2006), Kanishka Misra and Paolo Surico (2011), and Johannes Haushofer and Jeremy Shaprio (2013),
they examine how consumption responds to income changes. James M. Poterba (1988) found a
transitory tax-induced income increase raises consumer spending by roughly one-fifth as much.
Nicholas S. Souleles (1999) has found significant evidence of excess sensitivity in the response of
households’ consumption to their income tax refunds. The response of total consumption was more than
35% of refunds. David S. Johnson et al., (2006) estimate the change in consumption expenditures caused
by the 2001 federal income tax rebates. They find that households spent 20% to 40% of their rebates on
nondurable goods shortly after they arrived rebates. Johannes Haushofer and Jeremy Shaprio (2013)
examined the response of poor rural households in Kenya to large temporary income changes. They
find that strong consumption response to unconditional cash transfer on food, medical and education
expenditure. Kanishka Misra and Paolo Surico (2011) estimate the heterogeneous response to the 2001
income tax rebates across American households. They find that the consumption response to rebates is
associated significantly with income and household behavior. Moreover, Angus S. Deaton et al. (1989),
Kelvin J. Lancaster (1975), Richard R. Nelson and Davide Consoli (2010) argue that household
consumption behavior depends on household behavior and household composition.
Duncan Thomas (1993) has focused on the impact of income, distinguishing that attributed to women.
They found that income in the hands of women leads to a large increase in the share of household budget
on household services, health, education, and leisure goods. Jane Hopkins, Carol Levin, and Lawrence
Haddad (1994) explore that the flow of gender-specific income is important determinants of household
expenditure. They found that female income flows have a significant impact on both total expenditures
and food expenditures while males are better able to smooth consumption through savings or borrowing.
The UK, the United States, the Netherlands, and Canada are great examples of universal child cash
transfer programs. Paul Gregg et al., (2005), they provide evidence that how UK government’s welfare
reform affected the well-being of children in low-income families. They find that between the pre-
reform period (1995-1998) and post-reform period (2000-2003), low-income families with children are
increased more their expenditures on durable goods and child-related items. Lauren E. Jones, Kevin S.
Milligan, and Mark Stabile (2015) examined the impact of CCTB (Canada Child Tax Benefit) on the
expenditure of child-related items. They used Household Spending Survey data from 1997 to 2009 and
exploit that the benefit is used across a broad variety of expenditure categories for low-income families.
They conclude that additional benefit income increases expenditure on education, health, and child-

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related everyday items. In addition, some families reduce spending on risky behavior items such as
alcohol and tobacco. David S. Johnson, Jonathan A. Parker, and Nicholas S. Souleles (2006) estimate
the change in consumption expenditures caused by the 2001 federal income tax rebates. They find that
households spent 20% to 40% of their rebates on nondurable goods shortly after they arrived rebates.
The expenditure responses were relatively large for low-income households. Kooreman (2000) studied
the effect of universal child benefits in the Netherlands and found that child benefit payments were
spent disproportionately on child-related goods. Furthermore, there is evidence that the child benefit
program did not meet its goals. Laura Blow, Ian Walker, and Yu Zhu (2005) examined household
expenditure patterns affected by universal child benefit using data from the Family Expenditure Survey
of the UK from 1980 to 2000. They find that households spend their child benefit income differently
than other income. Surprisingly, the child benefit is disproportionately spent on adult goods such as
alcohol. They find that this effect is much bigger for couples.

III. ESTIMATION STRATEGY AND DATA

A. Estimation Strategy
3.A.1. Child benefits and female labor supply
In this study, we present two major hypotheses based on the situation that described in the previous
statement.
Hypothesis 1. The UCBP to be a negative impact on labor supply of women with children.
Theoretically, non-labor income shifts the budget constraint. Then individual has a pure income effect
which means that individual receiving the benefit are expected to purchase more normal goods. If
leisure is a normal good, individuals to purchase more leisure (to reduce their hours of work) when
receiving the benefits. Moreover, an increase in non-labor income such as child benefit increases the
reservation wage and thus lead an individual’s refuse to participate in the labor market. Hypothesis 2.
The UCBP has a greater impact on the labor force participation of woman with children who lives in a
low-income household than those women with children who lives in a high-income household. The
UCBP is not targeting the low-income household. Since the benefit amount is same for all income
group, the share of benefits on household income is higher for the low-income group than the high-
income group. Therefore, its impact on participation will be higher for the low-income group.
Our estimation strategy compares the labor force participation (and worked hours) of women with
children before and after the UCBP. We use all women with children as our treatment group and all
women without children as the control group. The difference between the change in labor force
participation of women with children and the change in labor force participation of women without
children is our estimate of the effect of UCBP on participation. That is essentially the DD approach,
and it will control for any concurrent shocks to the participation of women with children through the
change in participation in the control group. The probit model is used to estimate the effect of UCBP
on labor force participation, and the OLS linear regression model is used to estimate the effect of UCBP
on worked hours.
We use the following probit equation for labor force participation:
𝑃(𝑙𝑓𝑝𝑖𝑡 = 1) = 𝛷(𝛼 + 𝛽𝑍𝑖𝑡 + 𝛾𝑜 𝐶ℎ𝑖𝑙𝑑𝑖 + 𝛾1 𝑃𝑜𝑠𝑡𝑡 + 𝛾2 (𝐶ℎ𝑖𝑙𝑑 ∗ 𝑃𝑜𝑠𝑡)𝑖𝑡 ) (1)

where lfp is a dummy equal to one if a woman who has worked during the last 12 months or looking
for a job last 3 months, zero otherwise. The vector 𝑍𝑖𝑡 represents the baseline set of controls we used.
In our baseline specification, 𝑍𝑖𝑡 includes age, age squared, marital status, household size, household
assets, asset squared, household income, the number of children, the number of preschool children,
Agriculture dummy, and Bachelor dummy variable, etc. 𝑍𝑖𝑡 also includes regional dummy variables.
𝐶ℎ𝑖𝑙𝑑𝑖 is a dummy equal to one for a woman who has a child under the age of 18, zero otherwise. We

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expect 𝛾0 to be positive, which means women with children have higher participation rates than those
women without children. Because bringing up children may lead to an additional income requirement.
𝑃𝑜𝑠𝑡𝑡 is a dummy equal to one for after the UCBP, zero otherwise. 𝛾1 measures the average changes in
labor force participation for both women with children and without children between 2003 and 2008.
Our key coefficient is 𝛾2 (coefficient on the interaction Child*Post). We expect 𝛾2 to be negative,
which means that UCBP reduces the labor force participation of women with children.
Our OLS regression for worked hours is as follows:

𝐻𝑜𝑢𝑟𝑠𝑖𝑡 = 𝛼 + 𝛽𝑍𝑖𝑡 + 𝛾𝑜 𝑐ℎ𝑖𝑙𝑑𝑖 + 𝛾1 𝑃𝑜𝑠𝑡𝑡 + 𝛾2 (𝐶ℎ𝑖𝑙𝑑 ∗ 𝑃𝑜𝑠𝑡)𝑖𝑡 + 𝑒𝑖𝑡 (2)

where 𝐻𝑜𝑢𝑟𝑠𝑖𝑡 is total worked hours of a woman during the last 12 months.

3.B.2. Child benefits and household expenditure

The following four hypotheses will shed light on the impact of UCBP on household expenditure,
based on the situation that described in the previous statement.
Hypothesis 1. The UCBP to be positive effects on the broad variety of expenditures in low and middle-
income households compared to the high-income households. The UCBP is not targeting the low-
income household. An amount of benefits to per child is same for the low and high-income group. Since
the benefit amount is same for all income group, the share of benefits on household income is higher
for the low-income group than the high-income group. Therefore, its impact on consumption will be
more for the low-income group.
Hypothesis 2. Household expenditure pattern which affected by the UCCPB will differ between
households involved in agriculture and households not involved in agriculture. Traditionally,
Mongolia’s economy based on the animal husbandry. In the rural area, households still live in nomadic
style. In 2003 and 2008, 40.3% and 33.6% of the households were involved in animal husbandry
respectively. Angus S. Deaton et al. (1989), Kelvin J. Lancaster (1975), Richard R. Nelson and Davide
Consoli (2010), and Kanishka Misra and Paolo Surico (2011), they concluded that household
consumption behavior depends on household behavior. Therefore, the consumption behavior of
household involved in agriculture could be different from that household not involved in agriculture.
We expect that households involved in agriculture spend their benefit income for other goods than food.
Because households involved in agriculture can provide their necessities of foods such as meat, milk,
eggs, and vegetables from their own enterprises.
Hypothesis 3. Households spend their child benefit income mostly for food and non-durable goods
rather than durable goods. Households in different positions in relation to income have systematically
different consumption structures. The high-income households spend a lower percentage in income for
food and other basic needs. Mongolia is a lower middle-income country and in 2003, on average,
households devoted approximately 50% of their expenditure to food items.
Hypothesis 4. The child benefit income consumed both child and adult-related goods and services
because of there are no restrictions on spending of benefit income.
First, we investigate the change in household expenditures caused by the UCBP. Our estimation
strategy compares the expenditure of household with children before and after the UCBP.

Our main estimating equation is as follows:

𝑆𝑝𝑒𝑛𝑑𝐶𝑖𝑡 = 𝛼 + 𝛽1 𝑋𝑖𝑡 + 𝛽2 𝐶ℎ𝑖𝑙𝑑𝑖 + 𝛽3 𝑃𝑜𝑠𝑡𝑡 + 𝛾(𝐶ℎ𝑖𝑙𝑑 ∙ 𝑃𝑜𝑠𝑡)𝑖𝑡 + 𝑢𝑖𝑡 (3)

where 𝑆𝑝𝑒𝑛𝑑𝐶𝑖𝑡 is the variable describing household spending in category C of household 𝑖 in period
t; 𝑋𝑖𝑡 is a vector which represents the baseline set of controls we used. In our baseline specification, 𝑋𝑖𝑡
includes age of head of household, age squared, marital status, household size, household assets,
household income, a number of children, agriculture dummy, and householder’s education dummy

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variable, etc. 𝑋𝑖𝑡 also includes the regional dummy variables. 𝐶ℎ𝑖𝑙𝑑𝑖 is a dummy equal to one if a
household has a child under the age of 18, zero otherwise. 𝑃𝑜𝑠𝑡𝑡 is a dummy equal to one for after the
UCCBP, zero otherwise. Our key coefficient is 𝛾 (coefficient on the interaction Child*Post), and it
measures an average causal effect of UCBP on household expenditure. We estimate equation (3) by a
system of equations using Seemingly Unrelated Regression (SUR), which is more efficient than
estimates that each spending equation separately through OLS, because the SUR model considers the
variance-covariance structure of error terms in each equation. In addition, SUR allows us to perform
Wald test of joint significance of the treatment coefficient.Moreover, we estimate the change in
expenditure structure of household caused by the UCBP. Does UCBP affect the household expenditure
structure? If the UCBP affects household expenditure structure, whether there are similar effects on the
different behavior of household is also interesting. We use the share of each spending category as a
dependent variable in the equation (3) and run all share equations simultaneously through SUR model.
Our set of M linear equations as follows:

(𝑆ℎ𝑎𝑟𝑒𝐶1 )𝑖𝑡 = 𝛼1 + 𝛽1 𝑋𝑖𝑡 + 𝛾1 (𝐶ℎ𝑖𝑙𝑑 ∙ 𝑃𝑜𝑠𝑡)𝑖𝑡 + 𝑢1𝑖t

(ShareC2 )it = α2 + β2 Xit + γ2 (Child ∙ Post)it + u2it (4)
⋯
(ShareCM )it = αM + βM X it + γM (Child ∙ Post)it + uMit
B. Data
We use cross-sectional data from Integrated Household Income and Expenditure Survey with Living
Standards Measurement Survey (HIES with LSMS) of 2002/2003 and Household Socio-Economic
Survey (HSES) of 2007/2008 of the NSO of Mongolia.The NSO of Mongolia has been conducted the
HIES since 1966. It merged the LSMS in July 2007 under the name of HSES and had been conducting
this HSES since then. The first LSMS was carried out in 1995 with technical and financial support from
the World Bank (WB) and the second LSMS followed in 1998 with the support from United Nations
Development Programme (UNDP). The integrated HIES with LSMS 2002/2003 that was one of the
first biggest national survey carried out by an international methodology with technical and financial
support from the WB and UNDP. The households of integrated HIES with LSMS 2002/2003 are a
subset (equally distributed among the four quarters) of the household interviewed for the HIES 2002.
That is why the survey referred as Integrated HIES with LSMS 2002/2003. The HIES 2002 interviewed
11,232 households which equally distributed in four quarter over the period of one year. One-third
(3,308 households) of the HIES 2002 households was conducted again and interviewed on the LSMS
topics.
The LSMS questionnaire has following sections: households’ general information, household roster,
housing, agriculture, livestock, non-farm enterprises, other sources of income, savings and loans,
remittances, durable goods, and energy. The HIES collected monthly consumption information for each
household. The HSES 2007/2008 is an improved version of the HIES and was carried out between July
2007 and June 2008. It was the latest among other household surveys implemented by the NSO to
evaluate the living standards of the Mongolian population such as the LSMS 1995, and 1998; and the
HIES/LSMS 2002/2003. The NSO developed the sampling frame of the HSES based on population
figures for 2005 from local registration offices, and it interviewed 11,172 households. The HSES has
collected data through the following modules: basic socio-economic information, education, health,
migration, employment, wage, job search, agriculture and herding, non-farm family business, income,
savings and loans, housing and energy, durable goods, nonfood expenditures and food consumption.
Our sample includes females who are between 20 and 54 years old. We exclude any female who was
disabled, or in school full time during the last 12 months. We also exclude a woman with child (under
the age of 18) who did not get child benefits during the last 12 months. The resulting sample size is

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12,851 observations.For the impact of UCBP on household expenditure which provided the fifth
section, we exclude households that did not have complete data, and the resulting sample size is 14,333
observations. The “Integrated HIES with LSMS 2002/2003” and “HSES 2007/2008” data provides
information on an extensive set of spending categories. However, some spending categories were not
directly comparable, so we grouped the categories broad areas. Moreover, for the purpose of this study,
we attempt to group household spending categories into child-related spending and adult-related
spending.

IV. EMPIRICAL RESULTS

A. Child benefits and female labor supply
Table 1 presents summary statistics of the characteristics of treatment and control groups. Column
(1) and (3) of Table 1 shows the mean of the characteristics of women without children (control) and
women with children (treatment) respectively. The results imply that the mean value of labor force
participation of women with children is lower than the mean value of labor force participation of women
without children (44 percent versus 50 percent). However, women with children also have other
observable characteristics that can explain lower participation. They are less educated (12 percent
versus 18 percent has a bachelor degree), most of them married (79 percent versus 39 percent), tend to
be live in a rural area (56 percent versus 65 percent lives in Urban areas). Also, average earnings,
household other income, and assets for women with children are less than women without children. In
addition, 47 percent of women have a preschool-age child. The average number of children up to 18
years old are two.
From Table 1, we can conclude that there are some differences between treatment and control groups
in demographic characteristics. The observed differences in labor force participation may reflect
underlying differences between the treatment and control groups rather than a treatment effect. The DD
approach will control for demographic differences in our analysis.

Table:

Control group Treatment group

Without children With children
(Obs=3625) (Obs=9226)
Std. Std.
Variable Mean Mean
Dev. Dev.
(1) (2) (3) (4)
Labor force
0.50 0.50 0.44 0.50
participation
Annual hours
of worked 2200.0 868.6 2180.7 814.7
(Hours>0)
Age 35.62 12.12 35.63 7.88
HH size 4.37 2.11 4.78 1.69
Earned
677 1134 580 1031
Income
Other Income 3306.8 8312.9 3008.9 15700.0
Total assets 12300.0 25600.0 9398.26 15600.0
Married* 0.39 0.49 0.79 0.41
Bachelor* 0.18 0.39 0.12 0.33

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Preschool
- - 0.47 0.50
children*
Number of
- - 2.00 1.05
children
Urban area* 0.65 0.48 0.56 0.50

Note: 1) * denotes a dummy variable 2) Labor force participation equal to one if a woman who has
worked (not include work on an own account, in the household farm, and herd) during the last 12 months
or looking for a job last 3 months, zero otherwise.
We estimate the effect of UCBP on FLFP using DD probit model. We use the PSM method with our
probit regression, to ensure that we are estimating the actual effect of UCBP on FLFP. The PSM method
will reduce the imbalance in covariates between treated and control groups. We use one-to-one, nearest-
neighbor propensity score matching to find the control individual with the propensity score closest in
value to the treatment individual. After the matching, we discard 5,601 treated observations and the
resulting sample size is 7250 observations.
Each column of Table 2 presents the separate probit results. Column (1) reports the result of DD
model and column (2) the results of matched DD model. In Table 2, expected participation response
was negative and statistically significant at the 1% level. The Married dummy, Agriculture dummy, the
interaction between Child and Post variable, log(Income), the number of children, the number of
preschool children, and Unemployment rate variables are negative; the Bachelor dummy, Age,
log(Asset), household size, Child dummy, and Post dummy variables positively correlated with labor
force participation. There is a coefficient of Child (γ0 ) is positive. It means that woman with children
has tended to be higher probabilities of participation than the participation of those women without
children. Also, γ1 is positive which suggesting that there is an overall positive trend in average
participation in the two groups. The key coefficient γ2 is a negative sign and the other coefficients on
the demographic characteristics, and regional variables are all economically (all have expected signs)
and statistically significant.

Table 2. DD Probit Results: The Effects of UCBP on FLFP

DD Matched DD
Estimate coefficients
Child (γ0 ) 0.330*** 0.321***
Post (γ1 ) 0.341*** 0.350***
Child*Post (γ2 ) -0.367*** -0.393***
Age 0.145*** 0.128***
Age_sq -0.002*** -0.002***
Married -0.191*** -0.191***
Bachelor 0.674*** 0.588***
Hhsize 0.080*** 0.072***
Hhsize_ sq -0.006*** -0.006***
Children_pre -0.155*** -0.211***
Children -0.066*** -0.03
Log_Income -0.032*** -0.035***
Log_Asset 0.164 0.11
Log_Asset_ sq -0.006* 0.00
Agriculture -0.428*** -0.385***
Unemployment -0.046*** -0.042**

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Log Likelihood -7277.81 -4194.87

Observations 12851 7250
Predicted
participation -0.1165*** -0.1288***
response (γ2 )

Note: 1) The dependent variable is labor force participation. Labor force participation equal to one for
a woman who has worked (not include work on an own account, on the household farm, and herd)
during the last 12 months or looking for a job last 3 months, zero otherwise. 2) *, **, and *** indicate
significance at 10%, 5% and 1% level, respectively. 3) The estimated coefficients on Region dummy
variables are not reported. The probit is a nonlinear model. Therefore, the coefficients cannot be used
directly as marginal effects. Also, in a nonlinear model, the cross difference does not represent the
treatment effect. Patrick A. Puhani (2008) shows that, in a nonlinear “difference-in-differences” model,
the treatment effect is the cross difference of the conditional expectation of the observed outcome minus
the cross difference of the conditional expectation of the potential outcome without treatment. Estimated
average participation responses of women with children are reported in the last row of Table 2. Since
PSM reduces the imbalance in covariates between the treated and control groups, we will explain the
results of matched DD model. When we add all variables in our probit model, we find that women with
children decreased their relative labor force participation by statistically significant 12.88 percentage
points.
In order to check the Hypothesis 2, we use income interaction variables in our probit model. We
estimate the following Difference-In-Difference-In-Differences (DDD) regression model:
(lfpit = 1) = Φ(α + βZit + γo Childi + γ1 Post t + γ2 (Child ∗ Post)it + γ3 LowInci
+ γ4 (LowInc ∗ Child)i + γ5 (LowInc ∗ Post)it
+ γ6 (LowInc ∗ Child ∗ Post)it ) (5)

where LowInc is a dummy equal to one for a woman who lives under the MSL, zero otherwise. If γ6 is
negative, it indicates that the UCBP has had more impact on the low-income group. We expect γ6 to be
negative. The results are reported in Table 3. The DDD and Matched DDD results are much similar
again. The coefficient of γ6 has negative, however, it has statistically insignificant. In other words, we
have not found any significant results for whether the UCBP has more impact on the low-income group.

Table 3. DDD Probit Results: The Effects of UCBP on FLFP

Matched
DDD
DDD
Estimated coefficients
Child (γ0 ) 0.297*** 0.276***
Post (γ1 ) 0.333*** 0.297***
Child*Post (γ2 ) -0.341*** -0.358***
LowInc (γ3 ) -0.282** -0.290***
LowInc* Post (γ4 ) 0.063 0.083
LowInc*Child (γ5 ) -0.026 -0.078
LowInc*Child* Post
-0.061 -0.072
(γ6 )
Age 0.142*** 0.125***
Age_sq -0.002*** -0.002***

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Married -0.207*** -0.203***

Bachelor 0.658*** 0.564***
Hhsize 0.102*** 0.092***
Hhsize_sq -0.007*** -0.006***
Children_pre -0.153*** -0.213***
Children -0.056*** -0.019
Log_Income -0.033*** -0.036***
Log_Asset 0.109 -0.124
Log_Asset_ sq -0.005 0.004
Agriculture -0.420*** -0.375***
Unemployment -0.038*** -0.032

Log Likelihood -7236.85 -4168.31

Observations 12851 7250
Predicted participation - -
response (γ2 ) 0.1123*** 0.1227***

Note: 1) The dependent variable is labor force participation. Labor force participation equal to one for
a woman who has worked (not include work on an own account, on the household farm, and herd)
during the last 12 months or looking for a job last 3 months, zero otherwise. 2) *, **, and *** indicate
significance at 10%, 5% and 1% level, respectively. 3) The estimated coefficients on Region dummy
variables are not reported.
Theoretically, an individual has a pure income effect when receiving the benefits. It means that
individual receiving the benefit are expected to purchase more goods that are normal. If the leisure is a
normal good, individuals to purchase more leisure (reduce their hours of work) when receiving the
benefits. Our next estimate is the effect of UCBP on worked hours.
When we estimate the effects of UCBP on annual worked hours conditional on hours exceeding zero,
women with children decreased their relative working hours conditional on working by 155.32 hours
(for the full sample 157.51 hours). That result reported in Table 4. The coefficient estimate of γ6 is
again statistically insignificant. It means that there is no significant difference in the response of worked
hours between low and high-income groups. Altogether the UCBP has negative effects on the annual
working hours of women with children.
Table 4. DDD OLS Results: The Effects of UCBP on Annual Worked Hours, Hours>0
Matched
DDD
DDD
Estimated coefficients
Child (γ0 ) 163.81** 160.73*
Post (γ1 ) -29.11 -42.92
Child*Post (γ2 ) -157.51** -155.32*
LowInc (γ3 ) 291.64** 276.09**
LowInc* Post (γ4 ) -364.34** -347.94**
LowInc*Child (γ5 ) -341.02** -393.41**
LowInc*Child* Post
317.2 327.82
(γ6 )
Age 48.92*** 42.65***
Age_sq -0.63*** -0.56***

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Married -23.87 -19.67

- -
Bachelor
141.17*** 152.56***
Hhsize 28.61 16.53
Hhsize_sq -1.37 -0.63
-
Children_pre -87.09***
176.62***
Children -26.98 12.93
Log_Income -6.57*** -3.22
Log_Asset -94.6 -286.15
Log_Asset_ sq 2.37 8.36
Agriculture 87.23*** 56.07
Unemployment -0.86 5.11

Observations 5009 2947

Note: 1) The dependent variable is annual hours of worked. 2) *, **, and *** indicate significance at
10%, 5% and 1% level, respectively. 3) The estimated coefficients on Region dummy variables are not
reported.
B. Child benefits and household expenditure
The results that reported in Table 5 support our research hypothesis one, two, and three. For the low
and middle-income group, there are positive effects on the food and non-durable expenditure categories.
However, there have been almost no significant effects of UCBP on the expenditures for the high-
income group. In addition, the pattern of household spending affected by the UCBP depends on whether
households are engaged in agriculture or not. After the UCBP, households involved in agriculture
increased more their non-durable expenditure while households not involved in agriculture increased
more their food expenditure.
Table 5. Matched SUR Results: Effects of UCBP on Household Expenditure
Dependent Variables (MNT)
Durable Non-Durable Food
Full Sample
95954.47 225607.516** 280705.716***
(Obs=7268)
Low-Income
-13092.3 162622.1 242256.349**
(Obs=2183)
Middle-
Income 122269.3 186514.321* 288213.248*
(Obs=2905)
High-Income
-108911 76065.58 201848.5
(Obs=2180)
H’s Involved
in
112138.9 263743.342*** 259533.6
Agriculture
(Obs=2717)
H’s Not
100701.8 197392.4 288344.295***
Involved in

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Agriculture
(Obs=4551)

Note: 1) We estimate each spending equation separately through OLS, and then estimate equation by
a system of equation using SUR. OLS and SUR results have been much similar to each other,
so we reported only SUR results because the SUR model considers the variance-covariance
structure of error terms in each equation. In addition, SUR allows us to perform Wald test of
joint significance of the treatment coefficient. The model includes the full set of variables such
as age, age_sq, married, bachelor, child_18, adults (or hhsize), agriculture, income, asset, urban,
region2, region3, region4, region5, Child, Post, and Child*Post. Households are classified
income groups based on the household per consumption (Lowest 30%, Middle 40%, and
Highest 30%).
2) Each cell of the Table corresponds the coefficient estimate of
Child*Post interaction which is our key treatment coefficient.
3) *, **, and *** indicate significance at 10%, 5% and 1% level,
respectively.

Table 6 correspond the coefficient estimates of benefit income variable by different subgroups of
households. For low and high-income households, an additional MNT of annual benefit income
increases household spending on food by MNT 0.436 and MNT 0.948 respectively. For household not
involved in agriculture, an additional MNT of benefit income significantly increased household food
expenditure by MNT 0.935. For household involved in agriculture, however, we did not find any
significant effects on durable, non-durable, and food expenditure. It is not surprising results because
households engaged in agriculture provide their necessities of some foods from their own enterprises.
For the more detailed categories of household expenditure which reported in panel (B), (C), and (D)
of Table 6, low and high-income households spend their benefit income for some risky behavior like
tobacco and cigarettes. The magnitude of this response is much bigger for high-income households.
Households involved in agriculture tend to spend their benefit income for non-durable items, while
households not involved in agriculture tend to spend their benefit income for food items.

Table 6. SUR Results: Estimated Coefficients on Benefit Income Variable

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Note: 1) We estimate each spending equation separately through OLS, and then estimate equation by
a system of equation using SUR. OLS and SUR results have been very close to each other, so
we reported only SUR results because the SUR model considers the variance-covariance
structure of error terms in each equation. The model includes the full set of variables Benefit,
age, age_sq, married, bachelor, adults (or hhsize), agriculture, enterprise, income, asset, urban,
region2, region3, region4, and region5. Households are classified income groups based on the
household per consumption (Lowest 30%, Middle 40%, and Highest 30%).
2) Each cell corresponds the coefficient estimate of Benefit variable.
3) *, **, and *** indicate significance at 10%, 5% and 1% level, respectively.

HSES provides more detailed data on expenditures which related to education. Table 7 shows the
estimated coefficients of benefit income variable according to the education-related spending category.
In panel (A) of Table 7, there are significant positive relationship between benefit income and spending
of “Transport”, “Books and Supplies”, “Uniform”, and “Others”; significant negative relationship
between benefit income and spending of “Dormitory”, “Tuition”, and “Food bought in the canteen or
other places”. As discussed before, these negative relationships can be attributed to Education sector
reform and National School Lunch Program. When we considering education-related expenses by
child’s education level, there is a significant positive response to the spending of general education and
vocational education. For spending on College and University, there are significant negative effects. It
is not surprising because the total amount of child benefit depends on the number of children under age
18. That is the reason of the negative relationship between benefit income and spending on tertiary
education. The results are robust across different subgroups of the households.
Table 7. SUR Results: Estimated Coefficients on Benefit Income Variable, by Education-Related
Category

Note: 1) The model includes the full set of variables Benefit, age, age_sq, married, bachelor, adults
(or hhsize), agriculture, enterprise, income, asset, urban, region2, region3, region4, and region5.
Households are classified income groups based on the household per consumption (Lowest
30%, Middle 40%, and Highest 30%).
2) Each cell corresponds the coefficient estimate of Benefit variable.
3) *, **, and *** indicate significance at 10%, 5% and 1% level, respectively.
We exclude all households that did not receive child benefit from our sample, and then estimate the
SUR model again. Table 8 shows the estimated coefficient of benefit income variable that is statistically
significant (statistically insignificant results are not reported). Households receiving benefit income
tend to spend more their benefit income for non-durable and food items.
Table 9 corresponds the estimated benefit coefficients on household expenditure share. An additional
MNT 100,000 of benefit income increases household expenditure share of food by 0.237%. In
concluding these results, the households spend their benefit income for both child and adult-related
goods and services. We found that there is a significant positive relationship between benefit income

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and child-related expenses such as “Child clothing”, “Transport”, “Books and Supplies”, “Uniform”,
and “Others”. In addition, there is a significant positive relationship between benefit income and adult-
related some expenses such as “Women’s clothing”, and “tobacco and cigarettes”. On the other hand,
households spend their benefit income mostly for value-added productive items that are produced by
private producers. It means that public expenditures can be productive in the aggregate and have
positive effects on the economy.
Table 8. SUR Results: Estimated Coefficients on Benefit Income Variable, Benefit>0

Note: 1) The model includes the full set of variables Benefit, age, age_sq, married, bachelor, adults
(or hhsize), agriculture, enterprise, income, asset, urban, region2, region3, region4, and region5.
Households are classified income groups based on the household per consumption (Lowest
30%, Middle 40%, and Highest 30%).
2) Each cell corresponds the coefficient estimate of Benefit variable.
3) *, **, and *** indicate significance at 10%, 5% and 1% level, respectively.

Table 9. SUR Results: Estimated Benefit Coefficients on Household Expenditure Share, Benefit>0

CONCLUSION
In this study, we examined the effect of UCBP on female labor supply and household expenditure
using PSM with DDD approach. In addition, we focused on the how households spend their benefit
income. We use cross-sectional data from the Integrated Household Income and Expenditure Survey
with Living Standards Measurement Survey of 2002/2003 and Household Socio-Economic Survey of
2007/2008 from the NSO of Mongolia. In order to examine the relationship between benefit income
and household expenditures, we have used SUR model. There is no comprehensive impact evaluation
of the UCBP of Mongolia yet. Therefore, this study will be an important alternative evidence that
examined the impact of universal child benefits on female labor supply and household expenditure
because Mongolia’s child benefit system is universal and not targeting the low-income households. In
addition, this study can contribute to improving the effectiveness of such welfare policy.
We find that after the UCBP, women with children decreased their relative labor force participation
by 12.27 percentage points. When we estimate the effects of UCBP on worked hours conditional on
hours exceeding zero, women with children decreased their relative working hours conditional on
working by 155.32 hours. Our findings are suggesting that the UCBP reduces the labor force

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participation and working hours of women with children.

Moreover, we find that the effects of UCBP on household expenditures depending on household
behavior. For households involved in agriculture, households receiving benefit income increased their
expenditures on non-durable goods than food and durable goods. Contrary, households not involved in
agriculture, they increased their expenditures on food items than durable and non-durable goods. For
the low and middle-income group, there are positive UCBP effects on the broad variety of food and
non-durable expenditure categories. However, there have been almost no significant effects of UCBP
on the expenditures for the high-income group. For expenditures on adult-related goods such as
“Alcoholic beverage,” and “Tobacco and cigarettes”; also expenditures on fancy goods and services
(not essential) such as “Jewelry and accessories,” “Leisure and cultural goods and services,” and “Food
away from home” we did not find any significant UCBP effects. For spending of benefit income, an
additional MNT of annual benefit income increases household spending on non-durable and food items.
For the low and high-income group, households spend their benefit income for some risky behavior
such as tobacco and cigarettes. Households involved in agriculture tend to spend more their benefit
income for non-durable items, while households not involved in agriculture tend to spend more their
benefit income for food items. Moreover, we find that there is a significant positive relationship between
benefit income and child-related expenses such as “Child clothing”, “Transport”, “Books and Supplies”,
“Uniform”, and “Others”. Households spend their child benefit income for both child and adult-related
items.
Overall, these empirical results imply that the child benefit decreases female labor supply and
increases household expenditure on food and non-durable goods for the low and middle-income
households. Household spending behavior depends on whether household involved in agriculture or
not. In addition, we find that the income transfers are divided between child and adult-related goods.
From another perspective, households spend their benefit income mostly for value-added productive
items that are produced by domestically. It means that public expenditures could be productive in the
aggregate and have positive effects on the economy. Since the UCBP does not affect the expenditure of
high-income households, our findings suggest that targeting the poor is a more efficient way of child
welfare policy in Mongolia. In other words, even though the program is universal, we suggest that to
target people who need more. The findings also suggest a more efficient way that is conditional on the
parental work requirements.

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