Working Paper

2015-05-28

Southern Africa Labour and Development Research Unit

University of Cape Town

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 that exploit institutional features of the old age pension and disability grant.

This paper greatly benefited from discussions with and comments from Cally Ardington, Willa Brown, Rulof Burger, Shawn Cole, Arden Finn, Rema Hanna, Clare Hofmeyr, Michael Kremer, Jose Pacas, Patrizio Piraino, Vimal Ranchod, Martha Rogers, Martin Rotemberg and participants of the Harvard University Development Seminar. All errors and omissions remain fully my responsibility.