Public Policy and Extended Families: Evidence from South Africa

Abstract

Tightly knit extended families, in which people often give money to and get money from relatives, characterize many developing countries. These intra-family flows may mean that public policies may affect a very different group of people than the one they targeted. To assess the empirical importance of these effects, we study a cash pension program in South Africa that targeted the elderly. We use the variation in pension receipt in three-generation households that comes from differences in the age of the elder(s) in the households. We find sharp drops in the labor force participation of prime-age men in these households when the elder women reach 60 or elder men reach 65, the respective ages for pension eligibility. We also find that the drop in labor supply diminishes with family size, as the pension money is split over more people, and with educational attainment, as the pension money becomes less significant relative to outside earnings. Other findings suggest that power within the family might play an important role: (1) labor supply drops less when the pension is received by a man rather than by a woman; (2) middle aged men (those more likely to have control in the family) reduce labor supply more than younger men in the family; and (3) female labor supply is unaffected. These last two findings also respectively suggest that the results are unlikely to be driven by increased human capital investment or by a need to stay home to care for the elderly. As a whole, the program seems to have had large effects on a group—prime age men living with the old—quite different from the ones it targeted—elderly men and women.