Public pensions and elderly informal employment: Evidence from a change in retirement age in South Africa

Abstract

We investigate the impact of a reform of the public, non-contributory pension system in South Africa, which lowered the age of retirement from 65 to 60 for men only. Despite no explicit requirement to stop working when the public pension is received, we provide clear evidence that this reform triggered a large drop in old-age male employment. We show that this drop comes entirely from informal employment, while formal jobs, even if not covered by private pension schemes, are not affected. These results are consistent with the view that a significant portion of informal employment occurs out of “necessity”, and that, in particular at an old-age, workers choose not to work informally when they receive other income support. Simple back-of-the-envelope calculations reveal that the public pension alone can explain up to 10% less informal employment at the national level.