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Unintended labour supply effects of cash transfer programmes: Evidence from South Africa's old age pension

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  • Abel, Martin

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    (Public Policy at Harvard University)

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    Abstract

    Employing South Africa's first nationally representative panel data set, I find that having old age pension recipients in the household adversely affects employment outcomes of prime-aged adults both by reducing the probability that the unemployed find work and by increasing the likelihood that the previously employed lose their job. These effects seems to operate through the income mechanism: an increase in pension resources increases the reservation wage and lowers labour force participation of prime-aged household members. By contrast I find evidence against the hypothesis that pensioners provide childcare which allows parents to work. Instead gaining a pensioner lowers the probability that mothers are employed. Adverse employment effects are found for salaried work and self-employment while the pension does not affect casual work. Impact estimates are larger in metropolitan areas which questions previous studies that find that pension resources finance labour migration. Results are robust to a series of novel robustness tests that exploit institutional features of the old age pension and disability grant.

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    Bibliographic Info

    Paper provided by Southern Africa Labour and Development Research Unit, University of Cape Town in its series SALDRU Working Papers with number 114.

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    Date of creation: 2013
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    Handle: RePEc:ldr:wpaper:114

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    Keywords: labour; cash transfers; South Africa; National Income Dynamics Study; NIDS;

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    1. Baird, Sarah & Mcintosh, Craig & Ozler, Berk, 2010. "Cash or condition ? evidence from a cash transfer experiment," Policy Research Working Paper Series 5259, The World Bank.
    2. Marianne Bertrand & Douglas Miller & Sendhil Mullainathan, 1999. "Public Policy and Extended Families: Evidence from South Africa," Working Papers 801, Princeton University, Department of Economics, Industrial Relations Section..
    3. Anne Case & Angus Deaton, 1996. "Large Cash Transfers to the Elderly in South Africa," NBER Working Papers 5572, National Bureau of Economic Research, Inc.
    4. Cally Ardington & Anne Case & Victoria Hosegood, 2007. "Labor Supply Responses To Large Social Transfers: Longitudinal Evidence From South Africa," Working Papers 1021, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
    5. Vimal Ranchhod, 2009. "Household responses to adverse income shocks: Pensioner out-migration and mortality in South Africa," SALDRU Working Papers 35, Southern Africa Labour and Development Research Unit, University of Cape Town.
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    11. Posel, Dorrit & Fairburn, James A. & Lund, Frances, 2006. "Labour migration and households: A reconsideration of the effects of the social pension on labour supply in South Africa," Economic Modelling, Elsevier, vol. 23(5), pages 836-853, September.
    12. Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
    13. Caldes, Natalia & Coady, David & Maluccio, John A., 2006. "The cost of poverty alleviation transfer programs: A comparative analysis of three programs in Latin America," World Development, Elsevier, vol. 34(5), pages 818-837, May.
    14. Esther Duflo, 2003. "Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 1-25, June.
    15. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    16. Parker, Susan W. & Rubalcava, Luis & Teruel, Graciela, 2008. "Evaluating Conditional Schooling and Health Programs," Handbook of Development Economics, Elsevier.
    17. Ingrid Woolard & Murray Leibbrandt, 2010. "The Evolution and Impact of Unconditional Cash Transfers in South Africa," SALDRU Working Papers 51, Southern Africa Labour and Development Research Unit, University of Cape Town.
    18. Marianne Bertrand & Sendhil Mullainathan & Douglas Miller, 2003. "Public Policy and Extended Families: Evidence from Pensions in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 27-50, June.
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