Abstract:
How effective are cash transfers at improving labour market outcomes in settings characterized by severe job scarcity and constraints to self-employment? This paper provides evidence of the labour market effects of South Africa's Social Relief of Distress (SRD) grant, a low-value, unconditional cash transfer targeting unemployed working-age adults that was first introduced during the COVID-19 pandemic and extended annually thereafter. Using panel data and exploiting variation in eligibility over time, we estimate average and dynamic effects of both grant receipt and loss on recipients and their co-resident household members during a period when most pandemic-related restrictions had been lifted. We show that receipt generates modest increases in recipients' job search, attempts to start a business, and employment in the short-run, while loss produces larger and persistently negative effects. These effects appear to be explained by the easing of liquidity and insurance constraints on labour market participation, rather than alternative channels such as childcare constraints. We also document spillover effects, which point to the role of intra-household resource reallocation in shaping labour market behaviour. Importantly, the positive effects of receipt are short-lived and do not translate into sustained employment gains, underscoring the limits of cash transfers as a stand-alone intervention in highly constrained labour markets such as South Africa's, where unemployment is extreme and structural in nature. These findings hold relevance for ongoing domestic policy debates about the future of the grant and offer broader lessons for other high-unemployment contexts.