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

  • Abel, Martin

    ()

    (Public Policy at Harvard University)

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    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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    File URL: http://www.opensaldru.uct.ac.za/bitstream/handle/11090/672/2013_114_Saldruwp.pdf?sequence=3
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    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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    1. Servaas van der Berg, 1997. "South African social security under apartheid and beyond," Development Southern Africa, Taylor & Francis Journals, vol. 14(4), pages 481-503.
    2. Stephan Klasen & Ingrid Woolard, 2009. "Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 18(1), pages 1-51, January.
    3. Camerer, Colin & Babcock, Linda & Loewenstein, George & Thaler, Richard, 1996. "Labor Supply of New York City Cab Drivers: One Day At A time," Working Papers 960, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Cally Ardington & Anne Case & Victoria Hosegood, 2007. "Labor Supply Responses To Large Social Transfers: Longitudinal Evidence From South Africa," Working Papers 1003, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
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    6. Joshua D. Angrist & Guido W. Imbens, 1995. "Identification and Estimation of Local Average Treatment Effects," NBER Technical Working Papers 0118, National Bureau of Economic Research, Inc.
    7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    8. 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.
    9. Vimal Ranchhod, 2009. "Household responses to adverse income shocks: Pensioner out-migration and mortality in South Africa," Working Papers 133, Economic Research Southern Africa.
    10. Anne Case & Angus Deaton, 1996. "Large Cash Transfers to the Elderly in South Africa," NBER Working Papers 5572, National Bureau of Economic Research, Inc.
    11. Esther Duflo, 2000. "Grandmothers and Granddaughters: Old Age Pension and Intra-household Allocation in South Africa," NBER Working Papers 8061, National Bureau of Economic Research, Inc.
    12. Marianne Bertrand & Douglas Miller & Sendhil Mullainathan, 2000. "Public Policy and Extended Families: Evidence from South Africa," NBER Working Papers 7594, National Bureau of Economic Research, Inc.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. Parker, Susan W. & Rubalcava, Luis & Teruel, Graciela, 2008. "Evaluating Conditional Schooling and Health Programs," Handbook of Development Economics, Elsevier.
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