Public Policy and Extended Families: Evidence from South Africa


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.

Year of Publication
Date Published
Publication Language
Citation Key
Working Papers