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Impact of Rural Employment Guarantee Schemes on Seasonal Labor Markets: Optimum Compensation and Workers' Welfare

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Author Info

  • Basu, Arnab K.

    ()
    (Cornell University)

Abstract

The recent enactment of the National Rural Employment Guarantee Act in India has been widely hailed a policy that provides a safety net for the rural poor with the potential to boost rural income, stabilize agricultural production and reduce rural-urban migration. This paper, models the impact of such employment guarantee schemes in the context of an agrarian economy characterized by lean season involuntary unemployment as a consequence of tied-labor contracts. Specifically, we examine labor and output market responses to a productive rural Employment Guarantee Scheme (EGS) and determine the optimal compensation to public work employees consistent with the objectives of (i) productive efficiency in agriculture and (ii) welfare maximization of the laborers. Our framework provides a theoretical framework for the evaluation of a number of (sometimes) conflicting observations and empirical results on the impact of an EGS on agricultural wages, employment and output, and underscores the importance of the relative productivity of workers in the EGS program vis-à-vis their counterparts engaged in agricultural production in determining the success of these programs.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5701.

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Length: 41 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5701

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Related research

Keywords: labor contracts; rural unemployment; employment guarantee schemes; public input; optimal wage;

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References

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  1. Shenggen Fan & Peter Hazell & Sukhadeo Thorat, 2000. "Government Spending, Growth and Poverty in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1038-1051.
  2. Jha, Raghbendra & Bhattacharyya, Sambit & Gaiha, Raghav & Shankar, Shylashri, 2009. ""Capture" of anti-poverty programs: An analysis of the National Rural Employment Guarantee Program in India," Journal of Asian Economics, Elsevier, vol. 20(4), pages 456-464, September.
  3. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
  4. Arnab K. Basu, 2002. "Oligopsonistic Landlords, Segmented Labor Markets, and the Persistence of Tied-Labor Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 438-453.
  5. Arnab K. Basu & Nancy H. Chau, 2004. "Exploitation of Child Labor and the Dynamics of Debt Bondage," Journal of Economic Growth, Springer, vol. 9(2), pages 209-238, 06.
  6. Indraneel Dasgupta, . "‘Living’ wage, class conflict and ethnic strife," Discussion Papers 08/08, University of Nottingham, CREDIT.
  7. 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.
  8. Arnab K. Basu & Nancy H. Chau, 2003. "Targeting Child Labor in Debt Bondage: Evidence, Theory, and Policy Implications," World Bank Economic Review, World Bank Group, vol. 17(2), pages 255-281, December.
  9. Gary Fields & Ravi Kanbur, 2007. "Minimum wages and poverty with income-sharing," Journal of Economic Inequality, Springer, vol. 5(2), pages 135-147, August.
  10. Singh, Lakhwinder & Singh, Inderjeet & Ghuman, Ranjit Singh, 2007. "Changing Character of Rural Economy and Migrant Labour in Punjab," MPRA Paper 6420, University Library of Munich, Germany.
  11. Pinaki Chakraborty, 2007. "Implementation of the National Rural Employment Guarantee Act in India: Spatial Dimensions and Fiscal Implications," Economics Working Paper Archive wp_505, Levy Economics Institute.
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Citations

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Cited by:
  1. Zimmermann, Laura, 2012. "Labor Market Impacts of a Large-Scale Public Works Program: Evidence from the Indian Employment Guarantee Scheme," IZA Discussion Papers 6858, Institute for the Study of Labor (IZA).
  2. 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.
  3. Diganta Mukherjee & Uday Bhanu Sinha, 2011. "Understanding Nrega-- A Simple Theory And Some Facts," Working papers 196, Centre for Development Economics, Delhi School of Economics.
  4. 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.
  5. 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.
  6. repec:hal:wpaper:halshs-00680451 is not listed on IDEAS
  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. Bhargava, Anil, 2013. "The Impact of India’s Rural Employment Guarantee on Demand for Agricultural Technology," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150163, Agricultural and Applied Economics Association.

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