Ardington

American Economic Journal: Applied Economics 2009, 1:1, 22–48 http://www.aeaweb.org/articles.php?doi=10.1257/app.1.1.22

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

By Cally Ardington, Anne Case, and Victoria Hosegood* 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)

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n many parts of the developing world rural areas exhibit high rates of unemployment and underemployment. Understanding what prevents people living in rural areas from migrating to find better jobs is central to the development process. This issue is especially salient in South Africa, where differences in earnings and employment rates between rural and urban areas are large and persistent (Doubell Chamberlain and Servaas van der Berg 2002; Phillippe G. Leite, Terry McKinley, and Rafael Guerreiro Osório 2006; Abhijit Banerjee et al. 2007). In this paper, we examine whether binding credit and childcare constraints limit the ability of households to send labor migrants, and whether the arrival of a large, stable source of

* Ardington: Senior Research Officer, Southern Africa Labour Development Research Unit, 10 University Avenue, University of Cape Town,...