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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

This paper develops a theory of employment guarantees when labor markets are imperfect and when the credibility of government policy announcements could be in doubt. The basic feature of an EGS is that any individual who satisfies a set of specified criteria is guaranteed public employment at a given wage if they want it. Thus, the two factors that define the guarantee are the wage and the ease of access. The problem for the planner is to choose these to maximize a social welfare function. If the labour market is perfectly competitive, then the introduction of an employment guarantee scheme is bound to have efficiency costs, and can only be justified through its positive distributional consequences – this has been the framework for most of the theoretical and empirical analysis of employment guarantee schemes. If the labor market is imperfect, however, the announcement of a credible employment guarantee scheme can improve efficiency through the introduction of contestability in the private labour market. The paper then considers the issue of credibility and solves for an incentive compatible employment guarantee scheme in a rational expectations equilibrium. It is shown that 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5784.

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Date of creation: Aug 2006
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Handle: RePEc:cpr:ceprdp:5784

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Keywords: credibility; employment guarantees; employment targeting; poverty aversion;

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References

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Citations

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Cited by:
  1. Basu, Arnab K & Chau, Nancy H & Kanbur, Ravi, 2006. "A Theory of Employment Guarantees: Contestability, Credibility and Distributional Concerns," CEPR Discussion Papers 5784, C.E.P.R. Discussion Papers.
  2. 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.
  3. 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).
  4. Imbert, Clément, 2013. "Travailler pour être aidé? L’emploi garanti en Inde," Opuscules du CEPREMAP, CEPREMAP, number 33.
  5. Goto, Hideaki, 2008. "Labor Market Competitiveness and Poverty," Working Papers 51159, Cornell University, Department of Applied Economics and Management.
  6. Basu, Arnab K. & Chau, Nancy H. & Kanbur, Ravi, 2005. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," Working Papers 127081, Cornell University, Department of Applied Economics and Management.
  7. Clément Imbert & John Papp, 2012. "Equilibrium Distributional Impacts of Government. Employment Programs: Evidence from India's Employment Guarantee," PSE Working Papers halshs-00680451, HAL.
  8. 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.
  9. 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.
  10. Clément Imbert & John Papp, 2012. "Equilibrium Distributional Impacts of Government. Employment Programs: Evidence from India's Employment Guarantee," Working Papers halshs-00680451, HAL.
  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. 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.
  13. 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.
  14. 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.

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