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Labor supply responses to large social transfers: Longitudinal evidence from South Africa

Author

Listed:
  • Cally Ardington

    (University of Cape Town)

  • Anne Case

    (Princeton University)

  • Victoria Hosegood

    (London School of Hygiene and Tropical Medicine and Africa Centre for Health and Population Studies)

Abstract

In many parts of the developing world, rural areas exhibit high rates of unemployment and underemployment. Understanding what prevents people from migrating to find better jobs is central to the development process. In this paper, we examine whether binding credit constraints and childcare constraints limit the ability of households to send labor migrants, and whether the arrival of a large, stable source of income -- here, the South African old-age pension -- helps households to overcome these constraints. Specifically, we quantify the labor supply responses of prime-aged individuals to changes in the presence of pensioners, using longitudinal data collected in 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, a result that is masked in cross-sectional analysis by differences between pension and non-pension households. Pension receipt also influences where this employment takes place. We find large, significant effects on labor migration 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.

Suggested Citation

  • Cally Ardington & Anne Case & Victoria Hosegood, 2008. "Labor supply responses to large social transfers: Longitudinal evidence from South Africa," Working Papers 1010, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  • Handle: RePEc:pri:rpdevs:ardington_case_hosegood_final_labor_supply_jan2008.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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