Can cash transfers aid labour market recovery? Evidence from South Africa’s special COVID-19 grant

As part of the South African government’s response to the adverse economic effects of the COVID-19 pandemic, the country’s system of social assistance was temporarily expanded. On the extensive margin, a special COVID-19 grant was introduced to provide support to a large, previously unreached group – unemployed adults – and therefore address a notable hole in the social safety net. Given the grant’s distinct target group, it is plausible that its labour market effects may vary from those of preexisting grants. In this paper, we provide a quantitative, descriptive analysis on COVID-19 grant receipt as well as causal estimates of the receipt of the grant on labour market participation by adopting a quasi-experimental econometric approach. First, we find that not only did the grant bring millions of previously unreached adults into the system, but application for and receipt of the grant was relatively pro-poor, and it was relatively well-targeted to the unemployed. We estimate that in the grant’s absence poverty would have been over 5% higher among the poorest households, and household income inequality 1.3% to 6.3% higher. Second, contrary to the common concern that grant programs may discourage work, our preferred causal estimate suggests that COVID-19 grant receipt increased the probability of job search by more than 25 percentage points. This highlights the grant’s important role in reducing inactivity, enabling participation, and ultimately aiding labour market recovery.