Is a guaranteed living wage a good anti-poverty policy?
AbstractMinimum 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 InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3640.
Date of creation: 01 Jun 2005
Date of revision:
Environmental Economics&Policies; Safety Nets and Transfers; Rural Poverty Reduction; Services&Transfers to Poor; Health Economics&Finance;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-CWA-2005-12-14 (Central & Western Asia)
- NEP-DEV-2005-12-14 (Development)
- NEP-LAB-2005-12-14 (Labour Economics)
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