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

Abstract

This paper assesses the effects of the South African old age pension program, the largest cash transfer program in the country, on labor force participation and employment of the elderly and prime-aged individuals. During 2008-2010, the minimum eligible age for males gradually decreased from 65 to 60. Exploiting this change as a natural experiment, the paper finds that the pension significantly discouraged the elderly to work. The intention-to-treat effects estimated using three different independent datasets imply that the labor force participation rate of men aged 60-64 significantly decreased by 5.8, 11.3 and 8.9 percentage points, depending on the datasets used. Correspondingly, the probability of being employed decreased by 4.1-11.8 percentage points. The local average treatment effects estimated suggest that once the elderly started to receive the benefit, the probability of participating in the labor force and being employed decreased by 29.4 and 31.6 percentage points respectively although these estimates are not statistically significant. The estimation of the effects for prime-aged individuals, on the other hand, is in progress.