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Is a guaranteed living wage a good anti-poverty policy?

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  • Murgai, Rinku
  • Ravallion, Martin

Abstract

Minimum wages are generally thought to be unenforceable in developing rural economies. But there is one solution - a workfare scheme in which the government acts as the employer of last resort. Is this a cost-effective policy against poverty? Using a microeconometric model of the casual labor market in rural India, the authors find that a guaranteed wage rate sufficient for a typical poor family to reach the poverty line would bring the annual poverty rate down from 34 percent to 25 percent at a fiscal cost representing 3-4 percent of GDP when run for the whole year. Confining the scheme to the lean season (three months) would bring the annual poverty rate down to 31 percent at a cost of 1.3 percent of GDP. While the gains from a guaranteed wage rate would be better targeted than a uniform (untargeted) cash transfer, the extra costs of the wage policy imply that it would have less impact on poverty.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3640.

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Date of creation: 01 Jun 2005
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Handle: RePEc:wbk:wbrwps:3640

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Related research

Keywords: Environmental Economics&Policies; Safety Nets and Transfers; Rural Poverty Reduction; Services&Transfers to Poor; Health Economics&Finance;

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References

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  1. Jalan, Jyotsna & Ravallion, Martin, 2003. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity-Score Matching," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 19-30, January.
  2. Lipton, Michael & Ravallion, Martin, 1993. "Poverty and policy," Policy Research Working Paper Series 1130, The World Bank.
  3. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  4. Besley, T., 1988. "Workfare Vs. Welfare: Incentive Arguments For Work Requirements In Poverty Alleviation Programs," Papers 142, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  6. Michael Michael Keen, 1991. "Needs and Targeting," Working Papers 822, Queen's University, Department of Economics.
  7. Datt, Gaurav & Ravallion, Martin, 1994. "Transfer Benefits from Public-Works Employment: Evidence for Rural India," Economic Journal, Royal Economic Society, vol. 104(427), pages 1346-69, November.
  8. David Neumark, 2001. "Living Wages: Protection For or Protection From Low-Wage Workers?," NBER Working Papers 8393, National Bureau of Economic Research, Inc.
  9. Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Development Research Unit Working Paper Series archive-41, Monash University, Department of Economics.
  10. Timothy Besley & Rohini Pande & Vijayendra Rao, 2005. "Participatory Democracy in Action: Survey Evidence from South India," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 648-657, 04/05.
  11. David Coady, 2004. "Targeting Outcomes Redux," World Bank Research Observer, World Bank Group, vol. 19(1), pages 61-85.
  12. Coady, David P. & Grosh, Margaret & Hoddinott, John, 2002. "Targeting outcomes redux," FCND discussion papers 144, International Food Policy Research Institute (IFPRI).
  13. Sunil Kanwar, 2004. "Seasonality and Wage Responsiveness in a Developing Agrarian Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(2), pages 189-204, 05.
  14. Martin Ravallion & Emanuela Galasso & Teodoro Lazo & Ernesto Philipp, 2005. "What Can Ex-Participants Reveal about a Program’s Impact?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
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Cited by:
  1. Padmini Desikachar & Brinda Viswanathan, 2012. "Patterns of Labour Market Insecurity in Rural India: A Multidimensional and Multivariate Analysis," Working Papers id:4901, eSocialSciences.
  2. Gentilini, Ugo & Omamo, Steven Were, 2011. "Social protection 2.0: Exploring issues, evidence and debates in a globalizing world," Food Policy, Elsevier, vol. 36(3), pages 329-340, June.
  3. Padmini Desikachar & Brinda Viswanathan, 2011. "Patterns of Labour Market Insecurity in Rural India: A Multidimensional and Multivariate Analysis," Working Papers 2011-062, Madras School of Economics,Chennai,India.

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