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

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  • 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.

Suggested Citation

  • 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).
  • Handle: RePEc:iza:izadps:dp5701
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    1. Datt, Gaurav & Ravallion, Martin, 1994. "Transfer Benefits from Public-Works Employment: Evidence for Rural India," Economic Journal, Royal Economic Society, vol. 104(427), pages 1346-1369, November.
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    Cited by:

    1. Uday Bhanu Sinha & Diganta Mukherjee, 2010. "Understanding NREGA: A Simple Theory and Some Facts," Working Papers id:3099, eSocialSciences.
    2. 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.
    3. Bhargava, Anil K., 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.
    4. Zimmermann, Laura V, 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).
    5. Peter Knorringa & Khalid Nadvi, 2016. "Rising Power Clusters and the Challenges of Local and Global Standards," Journal of Business Ethics, Springer, vol. 133(1), pages 55-72, January.
    6. Bahal, G. & Shrivastava, A., 2016. "Labor Market Effects of Inconsistent Policy Interventions: Evidence from India’s Employment Guarantees," Cambridge Working Papers in Economics 1669, Faculty of Economics, University of Cambridge.
    7. Clément Imbert & John Papp, 2015. "Labor Market Effects of Social Programs: Evidence from India's Employment Guarantee," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 233-63, April.

    More about this item

    Keywords

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

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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