Aging in Sub-Saharan Africa Recommendations for Furthering Research (2006) / Chapter Skim
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7. Labor Force Withdrawal of the Elderly in South Africa
7. Labor Force Withdrawal of the Elderly in South Africa
Pages 214-249
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From page 214... ...
The old age pension helps lift many older South Africans out of the most extreme forms of poverty, putting many of them in a position to support their children and grandchildren. Decisions of the elderly about work and retirement are made in this complex set of circumstances.
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From page 215... ...
show that many older black households are poor. However, access to state old age pensions strongly decreases the probability that such households fall into the lowest expenditure quintile.
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From page 216... ...
Aside from work on the old age pension, the magnitude of South Africa's unemployment problem has spawned a growing body of work on labor force participation in the country. This work shows that South African participation rates are low by international standards, especially for women (Winter, 1998)
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From page 217... ...
. Take-up rates, particularly among elderly black South Africans, increased markedly during this time.
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From page 218... ...
Household Structure As noted above, another dimension of South African society that is important in analyzing the economic activity of the elderly is the complex extended household structure that is common among black South African households. As noted by Case and Deaton (1998)
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From page 219... ...
For example, the number of individuals in the 70-74 age group in the census sample is over 12,800 black South African men, 25,000 black South African women, 4,500 white men, and 6,000 white women. The census provides standard information on employment status, along with information on schooling, household structure, and marital status.
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From page 220... ...
Work is defined broadly, including any work for pay, profit, or family gain.2 One of the stark features of Figure 7-1 is the large gap between the "in labor force" and "working" series, confirming the high rates of unemployment for both men and women in South Africa. The unemployment rate at age 50 in 2001, for example, is 34 percent for men and 40 percent for women.3 Figure 7-1 shows a relatively rapid rate of withdrawal from the labor force for both men and women after age 50.
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From page 221... ...
In this paper we often interpret the age patterns in labor force activity as indicating changes over the life cycle. But it is important to remember that the age patterns we observe may be affected by differences in the behavior of different cohorts.
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From page 222... ...
. Participation rates of older men in South Africa are somewhat higher than those for most European countries, however.
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From page 223... ...
Four categories of activity are shown. The two components of labor force participation -- working and unemployed -- are shown separately.
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From page 224... ...
224 AGING IN SUB-SAHARAN AFRICA African Men 100 90 80 70 Percentage 60 50 40 30 20 10 0 45 50 55 60 65 70 Age African Women 100 90 80 70 Percentage 60 50 40 30 20 10 0 45 50 55 60 65 70 Age Working Pensions/retired Unemployed (and looking for work) Disabled FIGURE 7-3 Distribution of labor force activity by age, African and white men and women, South Africa, 2001 census.
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From page 225... ...
225 LABOR FORCE WITHDRAWAL OF THE ELDERLY White Men 100 90 80 70 60 Percentage 50 40 30 20 10 0 45 50 55 60 65 70 Age White Women 100 90 80 70 Percentage 60 50 40 30 20 10 0 45 50 55 60 65 70 Age Working Pensions/retired Unemployed (and looking for work) Disabled
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From page 226... ...
These high rates of unemployment are an important characteristic of the South African labor market that must be kept in mind throughout our analysis. The percentage of African men and women who are unemployed declines steadily with age, with many of these individuals presumably reclassifying themselves as retired as they get older.
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From page 227... ...
We suspect that the difference is the result of higher response to the specific question directed at work on a family plot in the LFS. Hazard Rates for Withdrawal from Labor Force A useful way of focusing on withdrawal from the labor force is to calculate hazard rates for exit from the labor force.
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From page 228... ...
For African women the hazard rate has a very sharp peak of about 40 percent at age 60, the age at which women become eligible for the old age pension. If we estimated this hazard rate for women between ages 59 and 61, the rate would be 57 percent.
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From page 229... ...
The South African hazard rates at the age of eligibility for the old age pension are not quite as high as those observed at key pension policy age thresholds in France, Spain, and the United Kingdom. The South African spikes in retirement at age 60 for women and 65 for men are very high, however, in spite
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From page 230... ...
associated with South Africa's old age pension is much lower than in the OECD countries. The sharp increases in retirement for both men and women around the age of pension eligibility suggest that South Africa's elderly do adjust their labor market behavior in response to the old age pension.
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From page 231... ...
focus of the NBER project is to document a strong positive relationship between this measure of unused capacity and a measure of the implicit tax on working built into each country's pension system. Above we document very high unemployment rates for South Africans in this age range.
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From page 232... ...
It is important to keep in mind that a number of these variables may be endogenous outcomes of joint decisions about living arrangements and residential location. The point of our analysis is not necessarily to identify causal determinants of the elderly labor supply, but to identify the important patterns that are associated with the economic activity of elderly South Africans.
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From page 233... ...
Public and Private Pensions As noted above, South Africa's state old age pension program plays an important role in the lives of elderly South Africans. Figure 7-6 shows the percentage of African and white men and women who report in the Septem
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From page 234... ...
234 AGING IN SUB-SAHARAN AFRICA TABLE 7-2 Household Living Arrangements and Marital Status, 2001 Census Number Living in Household Age Group Number (N) Total Under 18 Age 18-59 African Women 30-34 111,649 5.22 2.40 2.57 35-39 104,057 5.20 2.49 2.49 40-44 85,041 5.24 2.31 2.73 45-49 69,747 5.23 2.13 2.92 50-54 51,689 5.33 2.10 2.99 55-59 37,598 5.40 2.13 2.94 60-64 38,096 5.51 2.29 1.88 65-69 30,209 5.52 2.33 1.89 70-74 25,055 5.50 2.36 1.89 African Men 30-34 94,925 4.40 1.45 2.70 35-39 84,697 4.38 1.67 2.48 40-44 70,770 4.51 1.80 2.52 45-49 56,565 4.68 1.80 2.73 50-54 43.290 4.86 1.77 2.95 55-59 29,538 5.03 1.80 3.08 60-64 24,179 5.28 1.95 20.6 65-69 16,413 5.46 2.06 1.94 70-74 12,759 5.57 2.14 1.88 White Women 30-34 13,063 3.76 1.43 2.18 35-39 12,946 3.98 1.62 2.19 40-44 13,068 3.90 1.26 2.47 45-49 12,144 3.47 0.66 2.65 50-54 11,373 3.04 0.33 2.49 55-59 9,884 2.68 0.22 1.99 60-64 8,442 2.57 0.25 0.64 65-69 6,714 2.42 0.23 0.56 70-74 5,815 2.30 0.20 0.58 White Men 30-34 12,218 3.50 1.11 2.25 35-39 11,767 3.84 1.49 2.18 40-44 12,061 3.94 1.42 2.36 45-49 10,948 3.77 0.95 2.67 50-54 10,558 3.33 0.50 2.69 55-59 9,156 2.96 0.29 2.51 60-64 7,602 2.71 0.22 1.07 65-69 5,726 2.58 0.20 0.66 70-74 4,521 2.46 0.16 0.49
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From page 235... ...
235 LABOR FORCE WITHDRAWAL OF THE ELDERLY Marital Status Percentage Percentage Pension Living Living Only Percentage Percentage Percentage Eligible Alone with Spouse Married Widowed Divorced 0.23 5.9 7.3 52.0 1.9 2.5 0.20 5.9 6.9 58.5 3.8 4.5 0.18 5.9 6.8 59.1 6.9 6.4 0.15 6.4 6.9 58.5 11.1 7.4 0.16 6.7 6.3 55.5 17.4 7.3 0.20 6.6 5.9 51.2 24.8 6.3 1.26 5.9 4.9 44.8 35.5 4.7 1.27 5.8 4.1 38.6 46.1 3.5 1.23 5.9 3.5 32.7 55.2 2.4 0.22 15.6 9.7 47.7 0.4 1.2 0.20 15.2 9.9 63.6 0.8 2.4 0.18 15.0 9.8 71.1 1.3 3.7 0.14 14.5 10.1 75.7 1.9 4.5 0.13 13.8 10.0 77.7 3.1 4.6 0.14 13.0 9.8 78.7 4.6 4.4 0.26 11.4 9.5 78.5 7.2 3.8 1.45 9.3 9.0 77.8 10.2 3.6 1.54 8.6 8.4 75.7 13.7 3.0 0.11 4.4 11.7 79.2 0.9 7.3 0.14 3.9 7.7 80.9 1.5 9.5 0.15 3.8 8.7 80.4 2.6 11.2 0.14 5.1 17.3 79.4 4.3 11.5 0.14 7.3 30.4 77.6 7.4 11.2 0.19 11.1 43.3 74.8 11.7 9.8 1.41 16.2 44.8 67.0 20.2 9.2 1.58 22.7 43.8 59.4 31.0 6.4 1.50 30.9 36.5 47.1 45.1 4.8 0.11 6.5 16.6 76.8 0.2 4.5 0.14 5.7 9.7 82.7 0.4 6.0 0.15 5.1 8.6 85.7 0.6 6.9 0.14 4.6 12.8 86.2 0.8 7.9 0.13 5.5 25.4 87.0 1.6 7.0 0.15 5.9 40.6 87.9 2.2 6.2 0.41 6.3 52.9 87.8 3.6 5.2 1.72 8.2 58.9 85.9 6.7 4.6 1.80 9.7 62.5 84.3 9.4 3.6
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From page 236... ...
The percentage of African women receiving the pension Africans 100 90 Women 80 Men 70 Percentage 60 Percentage 50 40 30 20 10 0 50 55 60 65 70 75 Age Whites 100 90 Women 80 Men 70 Percentage Percentage 60 50 40 30 20 10 0 50 55 60 65 70 75 Age FIGURE 7-6 Percentage receiving old age pension, September 2000, South Africa LFS.
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From page 237... ...
There is a sharp increase for women beginning at age 60, the age at which they 0.8 0.7 African Women Proportion of Pension Income African Men 0.6 0.5 0.4 0.3 0.2 0.1 0.0 75 50 55 60 65 70 Age Age FIGURE 7-7 Mean proportion of household income derived from old age pension, South Africa LFS/IES, September 2000.
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From page 238... ...
An important feature of the South African old age pension system is that receiving the pension is not necessarily incompatible with working. This is true both because the means test does not preclude work and because the rules of the system may be somewhat flexibly applied.
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From page 239... ...
. There is a strong effect of schooling on both wages and the probability of employment for prime age workers in South Africa (Anderson, Case, and Lam, 2001; Mwabu and Schultz, 1996)
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From page 240... ...
240 TABLE 7-3 Percentage Working by Pension Status, African Men and Women, September 2000, South Africa LFS Not Receiving Pension Receiving Pension Percentage Percentage Working Percentage Working Receiving Age Group Number Pension Number Broad Narrow Number Broad Narrow Men 50-54 1,253 1.6 1,233 67.2 62.3 20 13.6 7.1 55-59 884 2.4 857 66.7 61.0 27 20.8 9.1 60-64 776 14.6 653 53.8 47.1 123 13.0 6.8 65-69 548 63.8 201 46.6 41.0 347 21.9 6.6 70-74 415 84.4 66 26.3 17.0 349 18.7 7.9 75-79 228 86.9 31 20.2 20.2 197 17.6 3.3 Total 4,104 24.9 3,041 61.9 56.4 1,063 18.9 6.5 Women 50-54 1,520 1.8 1,487 55.3 49.5 33 28.2 13.1 55-59 1,136 6.8 1,064 46.4 40.7 72 14.0 4.3 60-64 1,253 62.9 459 43.1 33.7 794 20.7 7.5 65-69 859 85.2 127 27.4 22.5 732 16.7 5.5 70-74 768 90.4 75 11.3 7.7 693 11.8 3.0 75-79 380 93.1 25 21.3 2.0 355 9.1 1.4 Total 5,916 43.6 3,237 48.5 42.2 2,679 15.5 4.9 NOTE: Broad measure of work includes work on family plot; narrow measure does not.
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From page 241... ...
The combination of large improvements in schooling over time and the strong positive relationship between schooling and employment should create a tendency for increasing employment rates for older South Africans over time. This may be especially true for women, for whom the impact of schooling on employment is particularly large.
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From page 242... ...
As noted above, living arrangements are likely to be endogenous, determined jointly with decisions about labor supply, so these variables are included simply to indicate the association between living arrangements and the elderly labor supply and not as indicators of causation. Table 7-5 presents the estimates of these probit regressions.
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From page 243... ...
For women we estimate a decline of 3.4 percentage points in employment probabilities at age 60, the age at which women become eligible for the state old age pension. We also estimate a positive effect of the age 65 dummy for women, with a decline in the probability of employment of 2.9 percentage points.
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From page 244... ...
As with the locational variables, we caution again that household living arrangements are likely to be endogenous with respect to the labor supply decisions of potential household members. Unobserved variables, such as the health of elderly household members, are likely to affect both living
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From page 245... ...
For black South Africans, the noncontributory old age pension system is triggered almost entirely by simple age eligibility rules, with women becoming eligible at age 60 and men becoming eligible at age 65. The fraction of women receiving the pension jumps from under 10 percent at age 59 to almost 70 percent at age 61, with the pension becoming almost 50 percent of household income for women age 61.
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From page 246... ...
Men also retire at a faster rate when they reach the pension-eligibility age of 65, with the hazard rate rising to over 30 percent at ages 65 and 66. While this is a sharp jump in retirement, it is not as large as observed in many European countries, where hazard rates can be as high as 60 percent at key program eligibility ages.
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From page 247... ...
While some factors, such as the age eligibility for the old age pension, appear to play an important role, many questions remain. For example, even if the pension helps explain sharp drops in labor force participation immediately around the pension age, it presumably cannot explain the steady declines in participation that begin around age 45.
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From page 248... ...
. Modeling vulnerability in the South African labor market.
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From page 249... ...
. Trends in the living conditions and satisfaction among poorer older South Africans: Objective and subjective indicators of quality of life in the October Household Survey.
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