Unintended Labour Supply Effects of Cash Transfer Programmes: Evidence from South Africa’s Old Age Pension

Employing South Africa’s first nationally representative panel data set, I find that having old age pension recipients in the household adversely affects employment outcomes of prime-aged adults both by reducing the probability that the unemployed find work and by increasing the likelihood that the previously employed lose their job. These effects seems to operate through the income mechanism: an increase in pension resources increases the reservation wage and lowers labour force participation of prime-aged household members. By contrast I find evidence against the hypothesis that pensioners provide childcare which allows parents to work. Instead, gaining a pensioner lowers the probability that mothers are employed. Adverse employment effects are found for salaried work and self-employment while the pension does not affect casual work. Impact estimates are larger in metropolitan areas which questions previous studies that find that pension resources finance labour migration. Results are robust to a series of novel robustness tests to isolate the income effect of the pension exploiting institutional features of the disability grant.