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Does Illiquidity Alter Child Labor and Schooling Decisions? Evidence from Household Responses to Anticipated Cash Transfers in South Africa

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  • Eric V. Edmonds

Abstract

This study considers the response of child labor supply and schooling attendance to anticipated social pension income in South Africa. For black households in South Africa, the social pension is large, highly anticipated, and shared across generations. Moreover, pension benefits are largely determined by age in South Africa's extremely poor black population, and this study uses the age discontinuity in the pension benefit formula for identification. The South African social pension thus presents an unusually clean test of the applicability of the Life-Cycle/Permanent Income model to child labor and schooling decisions in developing countries. In the present case, the data support the theory that liquidity constraints contribute to high levels of child labor. When households become eligible for the social pension in South Africa, the resulting increase in household non-labor income is associated with a sizeable decline in child labor and increases in schooling. Changes in child labor and schooling are largest among pensioners with little formal education. This finding suggests that the current emphasis in development policy of addressing child labor by attacking labor demand may be misdirected.

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  • Eric V. Edmonds, 2004. "Does Illiquidity Alter Child Labor and Schooling Decisions? Evidence from Household Responses to Anticipated Cash Transfers in South Africa," NBER Working Papers 10265, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10265
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    2. Marisa Coetzee, 2013. "Finding the Benefits: Estimating the Impact of The South African Child Support Grant," South African Journal of Economics, Economic Society of South Africa, vol. 81(3), pages 427-450, September.
    3. Björkman, Martina, 2006. "Income Shocks and Gender Gaps in Education: Evidence from Uganda," Seminar Papers 744, Stockholm University, Institute for International Economic Studies.
    4. Asli Demirgüç-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 287-318, November.
    5. Sonia Bhalotra, 2007. "Is Child Work Necessary?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(1), pages 29-55, February.
    6. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    7. de Janvry, Alain & Finan, Frederico & Sadoulet, Elisabeth, 2004. "Can Conditional Cash Transfers Serve as Safety Nets to Keep Children at School and Out of the Labor Market?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5fp0g5p2, Department of Agricultural & Resource Economics, UC Berkeley.
    8. Basab Dasgupta & Christian Zimmermann, 2012. "Loan regulation and child labor in rural India," Working Papers 2012-027, Federal Reserve Bank of St. Louis.
    9. Louise Grogan & Fraser Summerfield, 2019. "Government Transfers, Work, and Wellbeing: Evidence from the Russian Old-Age Pension," Journal of Population Economics, Springer;European Society for Population Economics, vol. 32(4), pages 1247-1292, October.
    10. Megan Louw & Servaas Van Der Berg & Derek Yu, 2007. "Convergence Of A Kind: Educational Attainment And Intergenerational Social Mobility In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 548-571, September.
    11. ESTEVAN, Fernanda & BALAND, Jean-Marie, 2005. "Mortality risks and child labor," LIDAM Discussion Papers CORE 2005049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Brendan Skip Mark & Huei-Jyun Ye & Andrew Foote & Tiffani Crippin, 2021. "It’s a Hard-Knock Life: Child Labor Practices and Compliance with IMF Agreements," Social Sciences, MDPI, Open Access Journal, vol. 10(5), pages 1-21, May.
    13. Eric V. Edmonds & Nina Pavcnik, 2005. "Child Labor in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 199-220, Winter.
    14. Sonia Bhalotra, 2004. "Parent Altruism, Cash Transfers and Child Poverty," Bristol Economics Discussion Papers 04/561, School of Economics, University of Bristol, UK.
    15. Dean Yang, 2004. "International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants’ Exchange Rate Shocks," Working Papers 531, Research Seminar in International Economics, University of Michigan.
    16. Geeta Kingdon & Nicolas Theopold, 2006. "Do returns to education matter to schooling participation?," Economics Series Working Papers GPRG-WPS-052, University of Oxford, Department of Economics.
    17. Yingying Dong, 2012. "Regression Discontinuity Applications with Rounding Errors in the Running Variable," Working Papers 111206, University of California-Irvine, Department of Economics.
    18. Megan Louw & Servaas van der Berg & Derek Yu, 2006. "Educational attainment and intergenerational social mobility in South Africa," Working Papers 09/2006, Stellenbosch University, Department of Economics.
    19. Sandra Freire, 2004. "Funeral Costs, Saving Behaviour and HIV/AIDS," Cahiers de la Maison des Sciences Economiques bla04092, Université Panthéon-Sorbonne (Paris 1).
    20. Beath, Andrew & Christia, Fotini & Enikolopov, Ruben, 2012. "Empowering women : evidence from a field experiment in Afghanistan," Policy Research Working Paper Series 6269, The World Bank.
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    22. Servaas van der Berg & Megan Louw, 2007. "Lessons learnt from SACMEQII: South African student performance in regional context," Working Papers 16/2007, Stellenbosch University, Department of Economics.

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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

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