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Document Abstract
Published: 2016

Large-scale social transfer and labor market outcomes: the case of the South African pension program

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Social transfer programs in low- and middle-income countries have been increasing. According to World Bank (2015), there are about 20 social safety net programs in an average developing country, and among various types of safety net programs, cash transfers are particularly becoming more prevalent. In Africa, for example, 40 countries, out of 48, offered unconditional cash transfers in 2014. While transfer programs have been proved to have positive e ects and to contribute to poverty reductions, it has often been said that these transfers may discourage work.

This paper evaluates the effects of the South African old age pension program, the largest cash transfer program in the country, on labour supply and employment of the elderly and prime-aged individuals. During 2008-2010 a policy change decreased the eligible ages for men from 65 to 60. Exploiting this change as a natural experiment,
the paper finds that the pension significantly discourages the elderly to work. The intention-treat-effects estimated based on three different, independent datasets imply that the labour force participation rate of men aged 60{64 significantly decreased by 5.81% points, 9.63% points, and 9.72% points, depending on the datasets used. Corre-
spondingly, the probability to be employed decreased by 4.15{9.89% points. Besides, the local average treatment e ects estimated suggest that once elderly people started receiving the benefit, the the probability to participate in the labour force and to be employed decreased by 29.2% points and 30.76% points, respectively, although these
estimates are not statistically signifcant. In contrast, the paper fails to provide clear evidence of the effects on prime-aged individuals.

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Authors

N. Matsuda

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