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Citation Information

Type Report
Title The impact of unconditional cash transfers on informality: Evidence from South Africa’s child support grant
Author(s)
Publication (Day/Month/Year) 2017
Country/State France
URL http://www.parisschoolofeconomics.eu/docs/tondini-alessandro/tondini_csg-and-informality.pdf
Abstract
The debate over the nature of informal employment and its implications for policy is still open and controversial. One of the main
questions remains whether informality is a necessity or a choice. This paper looks at the Child Support Grant (CSG) in South Africa as a case study to test the importance of the “necessity channel” in a segmented labour market. I use cohort discontinuities in access to the grant to evaluate the impact of the CSG on workers’ allocation across the formal and informal sectors. I show that mothers whose youngest child has been exposed to the grant are more likely to be formally employed than those who were not, with no impact on overall employment. Consistently with a fixed/search cost framework, these results are strongly non-linear in the number of children exposed. Lastly, I compare these results with the overall country level trend, where the informal sector has indeed been shrinking, but without a proportional increase in the size of the formal sector. I conclude that social assistance can prevent people from joining informal employment, however, this does not seem per se sufficient to increase the overall stock of formal jobs in the economy.

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