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

  • Basu, Arnab K.

    ()

    (Cornell University)

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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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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  1. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Two-Tier Labor Markets in Agrarian Economies," American Economic Review, American Economic Association, vol. 75(1), pages 162-77, March.
  2. Dasgupta, Indraneel, 2008. "‘Living’ Wage, Class Conflict and Ethnic Strife," IZA Discussion Papers 3631, Institute for the Study of Labor (IZA).
  3. Basu, Arnab K. & Chau, Nancy H. & Kanbur, Ravi, 2009. "A theory of employment guarantees: Contestability, credibility and distributional concerns," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 482-497, April.
  4. Raghbendra Jha & Sambit Bhattacharyya & Raghav Gaiha & Shylashri Shankar, 2008. "Capture of Anti-Poverty Programs: An Analysis of the National Rural Employment Guarantee Program in India," ASARC Working Papers 2008-07, The Australian National University, Australia South Asia Research Centre.
  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. Pal, Sarmistha, 2002. "Segmentation of Rural Labour Contracts: Some Further Evidence," Bulletin of Economic Research, Wiley Blackwell, vol. 54(2), pages 151-80, April.
  7. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
  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. 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.
  10. Gary Fields & Ravi Kanbur, 2007. "Minimum wages and poverty with income-sharing," Journal of Economic Inequality, Springer, vol. 5(2), pages 135-147, August.
  11. Bardhan, Pranab K, 1979. "Wages and Unemployment in a Poor Agrarian Economy: A Theoretical and Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 479-500, June.
  12. Bardhan, Pranab K, 1983. "Labor-Tying in a Poor Agrarian Economy: A Theoretical and Empirical Analysis," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 501-14, August.
  13. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, vol. 57(225), pages 119-29, February.
  14. Braverman, Avishay & Stiglitz, Joseph E., 1986. "Landlords, tenants and technological innovations," Journal of Development Economics, Elsevier, vol. 23(2), pages 313-332, October.
  15. 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.
  16. 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.
  17. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  18. 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.
  19. 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.
  20. Binswanger, Hans P. & Khandker, Shahidur R & Rosenzweig, Mark R., 1989. "How infrastructure and financial institutions affect agricultural output and investment in India," Policy Research Working Paper Series 163, The World Bank.
  21. 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.
  22. 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.
  23. Narayana, N. S. S. & Parikh, Kirit S. & Srinivasan, T. N., 1988. "Rural works programs in India: Costs and benefits," Journal of Development Economics, Elsevier, vol. 29(2), pages 131-156, September.
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