Labor Supply Responses to Large Social Transfers: Longitudinal Evidence from South Africa

Abstract

We quantify the labor supply responses of prime-aged adults to the presence of pensioners in their households, using longitudinal data collected in South Africa. We compare households and individuals before and after pension receipt and pension loss, which allows us to control for a host of unobservable household and individual characteristics that may determine labor market behavior. We find large cash transfers to the elderly lead to increased employment among prime-aged adults, which occurs primarily through labor migration. The pension's impact is attributable 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. (JEL H23, H55, I38, J22, O15)