LABOUR SUPPLY EFFECTS OF SOCIAL PROTECTION IN SUB- SAHARAN AFRICA

Abstract

Many countries in Sub-Saharan Africa (SSA) are building up more targeted social protection systems to cover the poor and vulnerable segments of the population. However, their impacts on the labour market have been questioned on several fronts, and one of the main debates is concerned with their possible distortionary effects on labour supply. Thus, this paper explores the labour supply effects of social protection based on a unique cross-country dynamic panel data for 17 Sub-Saharan African countries. The paper estimates the social protection elasticity of labour supply using the Generalized Method of Moments (GMM) econometric technique. The panel data utilized is characterized largely by the existence of fixed effects, indicating the persistence of substantial heterogeneity across countries. Estimates from the system GMM model suggest essentially that at any given time, a 1 percent increase in social protection investment would lead to a 2.9 percentage increase in aggregate labour supply. This suggests that public investments on social protection induce a substitution effect in favour of greater labour supply. The dominance of the substitution effects over possible income effects is also robust to heteroscedasticity and autocorrelation. The overall implication of this result is that expanding public investments on social protection at a much higher scale could induce greater labour force participation and lower voluntary unemployment as a result. This can lead to higher incomes, poverty reduction, and lower levels of inequality over time. The results also imply the need to continue to scale up social protection programmes because of their positive labour market and employment benefits.