Working Paper

2015-05-28

University of Cape Town

An Apartheid-driven spatial mismatch between workers and jobs leads to high job search costs for people living in rural areas of South Africa—costs that many young people cannot pay. In this paper, we examine whether the arrival of a social grant – specifically a generous state old age pension given to men and women above prime age – enhances the ability of young men in rural areas to seek better work opportunities elsewhere. Using 8 waves of socioeconomic data on household living arrangements and members’ characteristics and employment status, collected between 2001 and 2011 at a demographic surveillance site in KwaZulu-Natal, we find that young men are significantly more likely to become labor migrants when someone in their household becomes age-eligible for the old-age pension. More specifically, we find that pension gain is a significant force, encouraging migration for work, but only among those who have successfully completed high school (matric). On average, relative to other potential labour migrants, young men with a matric are 8 percentage points more likely to migrate for work when their households become pension eligible. Among young men who were observed as labour migrants, we find that, upon pension loss, it is the youngest men who are the most likely to return to their sending households, perhaps because they are the least likely to be self-sufficient at the point the pension is lost. We present evidence consistent with binding credit constraints limiting young men from poorer households from seeking more lucrative work elsewhere.