Labor supply responses to large social transfers: Longitudinal evidence from South Africa

Abstract

In many parts of the developing world, rural areas exhibit high rates of unemployment and underemployment. Understanding what prevents people living in rural areas from migrating to find better jobs is central to the development process. This issue is especially salient in South Africa, where differences in earnings and employment rates between rural and urban areas are large and persistent (Chamberlain and van der Berg 2002; Leite et al. 2006; Banerjee et al. 2007). In this paper, we examine whether binding credit constraints and childcare constraints limit the ability of households to send labor migrants, and whether thearrival of a large, stable source of income-here, the South African old-age pension-helps households to overcome these constraints.