Labor Supply Responses to Large Social Transfers: Longitudinal Evidence from South Africa

Cally Ardington, Anne Case, Victoria Hosegood

NBER Working Paper No. 13442
Issued in September 2007
NBER Program(s):Economics of Aging, Children, Public Economics, Labor Studies

The South African old-age social pension has been much studied by both researchers and policy makers, in part for the larger lessons that might be learned about behavioral responses to cash transfers in developing countries. In this paper, we quantify the labor supply responses of prime-aged individuals to changes in the presence of old-age pensioners in their households, using longitudinal data recently collected in northern KwaZulu-Natal. Our ability to compare households and individuals before and after pension receipt, and pension loss, allows us to control for a host of unobservable household and individual characteristics that may determine labor market behavior. We find that large cash transfers to elderly South Africans lead to increased employment among prime-aged members of their households. Perhaps more importantly, pension receipt influences where this employment takes place. We find large, significant effects on labor migration among prime-aged members upon pension arrival. The pension's impact is attributable both to the increase in household resources it represents, which can be used to stake migrants until they become self-sufficient, and to the presence of pensioners who can care for small children, which allows prime-aged adults to look for work elsewhere.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w13442

Published: Cally Ardington & Anne Case & Victoria Hosegood, 2009. "Labor Supply Responses to Large Social Transfers: Longitudinal Evidence from South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 22-48, January. citation courtesy of

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