Working Paper

2015-05-28

Southern Africa Labour and Development Research Unit

University of Cape Town

This paper surveys the South African and international literature surrounding the impact of cash transfers on labour supply. We find that although social transfers are condemned for creating state-dependency, the reality is that their effect on labour force participation is both ambiguous and dependent on a number of factors. At the most basic level, transfers either decrease participation by transferring time from work towards leisure activities, or increase participation by covering the fixed costs and credit constraints associated with working, particularly for women, those with low levels of education and other vulnerable groups. Child-support grants may cover childcare or education costs, thus allowing mother’s to enter the labour force. Grants can also have an effect on the labour supply of non-recipient household members, particularly when the recipient is a female, as women tend to allocate funds more freely throughout the household. The State Old Age Pension has been seen to induce both in and out-migration of household members. Programme design may also play a role, as means-testing can induce potential beneficiaries to reduce labour participation in order to become eligible for benefits. The education and health-care conditions attached to many transfers can also increase human capital formation and therefore create a long-term positive impact on labour market participation.

Murray Leibbrandt, DST/NRF Research Chair in Poverty and Inequality Research, SALDRU, School of Economics, UCT

Kezia Lilenstein, Graduate Researcher, SALDRU, School of Economics, UCT, ezia.lilenstein@gmail.com

Callie Shenker, Graduate Researcher, SALDRU, School of Economics, UCT, callie.shenker@gmail.com

Ingrid Woolard, Research Associate, SALDRU and Associate Professor, School of Economics, UCT,

This paper was produced for the project “Social Protection and Labour Market Outcomes of Youth in South Africa” that was funded by the IDRC. We gratefully acknowledge this funding. Murray Leibbrandt acknowledges the Research Chairs Initiative of the Department of Science and Technology and National Research Foundation for funding his work as the Research Chair in Poverty and Inequality.