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A theory of employment guarantees: Contestability, credibility and distributional concerns

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  • Basu, Arnab K.
  • Chau, Nancy H.
  • Kanbur, Ravi

Abstract

Both raw intuition and past experience suggest that the success of an employment guarantee scheme (EGS) in safeguarding the welfare of the poor depends both on the wage it promises, and the ease with which any worker can gain access. An EGS is thus at once a wage guarantee and a rationing device. We chart the positive and normative limits of such an EGS as an efficiency improving and poverty alleviating policy reform in a canonical labor market setting. At its core, an EGS provides an aggregate, not just EGS, employment target. Given the target, the EGS wage and access can be fine-tuned to deliver outcomes ranging from a contestable labor market to a simple universal unemployment benefit. The credibility of any such target, however, is shown to be triggered endogenously by a host of factors: the distributional concerns of the planner, private sector productivity, the prevalence of market power and the need for public works. Paradoxically, the outcome with a planner who cares only about efficiency can be less efficient than the outcome with a planner whose social welfare function also gives weight to poverty!

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 3-4 (April)
Pages: 482-497

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Handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:482-497

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Employment guarantees Employment targeting Credibility Distributional concern;

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References

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  1. Besley, T. & Coate, S., 1991. "Workfare vs. Welfare: Incentive Arguments For Work Requirements In Poverty Allevation Programs," Papers 73, Princeton, Woodrow Wilson School - John M. Olin Program.
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  3. Raghav Gaiha & Katsushi Imai, 2002. "Rural Public Works and Poverty Alleviation--the case of the employment guarantee scheme in Maharashtra," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(2), pages 131-151.
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  7. Assaad, Ragui, 1997. "The Effects of Public Sector Hiring and Compensation Policies on the Egyptian Labor Market," World Bank Economic Review, World Bank Group, vol. 11(1), pages 85-118, January.
  8. Basu, Arnab K. & Chau, Nancy & Kanbur, Ravi, 2007. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," IZA Discussion Papers 2998, Institute for the Study of Labor (IZA).
  9. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
  10. Basu, Arnab K. & Chau, Nancy H. & Kanbur, Ravi, 2006. "A Theory of Employment Guarantees: Contestability, Credibility and Distributional Concerns," Working Papers 127048, Cornell University, Department of Applied Economics and Management.
  11. Baumol, William J & Lee, Kyu Sik, 1991. "Contestable Markets, Trade, and Development," World Bank Research Observer, World Bank Group, vol. 6(1), pages 1-17, January.
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  16. Teklu, Tesfaye & Asefa, Sisay, 1999. "Who Participates in Labor-Intensive Public Works in Sub-Saharan Africa? Evidence from Rural Botswana and Kenya," World Development, Elsevier, vol. 27(2), pages 431-438, February.
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  18. Ravallion, Martin & Datt, Gaurav & Chaudhuri, Shubham, 1993. "Does Maharashtra's Employment Guarantee Scheme Guarantee Employment? Effects of the 1988 Wage Increase," Economic Development and Cultural Change, University of Chicago Press, vol. 41(2), pages 251-75, January.
  19. Basu, Arnab K., 2011. "Impact of Rural Employment Guarantee Schemes on Seasonal Labor Markets: Optimum Compensation and Workers' Welfare," IZA Discussion Papers 5701, Institute for the Study of Labor (IZA).
  20. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
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Citations

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Cited by:
  1. K.S. Kavi Kumar & Kamal Karunagoda & Enamul Haque & L. Venkatachelam & Girish Nath Bahal, 2012. "Addressing Long-term Challenges to Food Security and Rural Livelihoods in South Asia," Working Papers 2012-075, Madras School of Economics,Chennai,India.
  2. Imbert, Clément, 2013. "Travailler pour être aidé? L’emploi garanti en Inde," Opuscules du CEPREMAP, CEPREMAP, number 33, May.
  3. Basu, Arnab K. & Chau, Nancy & Kanbur, Ravi, 2007. "A Theory of Employment Guarantees: Contestability, Credibility and Distributional Concerns," IZA Discussion Papers 3002, Institute for the Study of Labor (IZA).
  4. ArnabK. Basu & NancyH. Chau & Ravi Kanbur, 2010. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," Economic Journal, Royal Economic Society, vol. 120(543), pages 244-269, 03.
  5. Clement Imbert & John Papp, 2013. "Labor Market Effects of Social Programs: Evidence from India's Employment Guarantee," Economics Series Working Papers WPS/2013-03, University of Oxford, Department of Economics.
  6. Clément Imbert & John Papp, 2012. "Equilibrium Distributional Impacts of Government. Employment Programs: Evidence from India's Employment Guarantee," PSE Working Papers halshs-00680451, HAL.
  7. Goto, Hideaki, 2008. "Labor Market Competitiveness and Poverty," Working Papers 51159, Cornell University, Department of Applied Economics and Management.
  8. Azam, Mehtabul, 2012. "The Impact of Indian Job Guarantee Scheme on Labor Market Outcomes: Evidence from a Natural Experiment," IZA Discussion Papers 6548, Institute for the Study of Labor (IZA).
  9. repec:hal:wpaper:halshs-00680451 is not listed on IDEAS
  10. Niehaus, Paul & Sukhtankar, Sandip, 2013. "The marginal rate of corruption in public programs: Evidence from India," Journal of Public Economics, Elsevier, vol. 104(C), pages 52-64.
  11. Basu, Arnab K., 2011. "Impact of Rural Employment Guarantee Schemes on Seasonal Labor Markets: Optimum Compensation and Workers' Welfare," IZA Discussion Papers 5701, Institute for the Study of Labor (IZA).
  12. Dutta, Puja & Murgai, Rinku & Ravallion., Martin & van de Walle, Dominique, 2012. "Does India's employment guarantee scheme guarantee employment ?," Policy Research Working Paper Series 6003, The World Bank.
  13. Ghani, Ejaz & Mani, Anandi & O'Connell, Stephen D., 2013. "Can political empowerment help economic empowerment ? women leaders and female labor force participation in India," Policy Research Working Paper Series 6675, The World Bank.
  14. Arnab Basu, 2013. "Impact of rural employment guarantee schemes on seasonal labor markets: optimum compensation and workers’ welfare," Journal of Economic Inequality, Springer, vol. 11(1), pages 1-34, March.
  15. Chau, Nancy H. & Kanbur, Ravi & Qin, Yu, 2012. "DO PUBLIC WORK SCHEMES DETER OR ENCOURAGE OUTMIGRATION? Empirical Evidence from China," Working Papers 128799, Cornell University, Department of Applied Economics and Management.

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