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

  • Murgai, Rinku
  • Ravallion, Martin

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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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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  1. Coady, David P. & Grosh, Margaret & Hoddinott, John, 2002. "Targeting outcomes redux," FCND discussion papers 144, International Food Policy Research Institute (IFPRI).
  2. David Coady, 2004. "Targeting Outcomes Redux," World Bank Research Observer, World Bank Group, vol. 19(1), pages 61-85.
  3. David Neumark, 2004. "Living Wages: Protection for or Protection from Low-Wage Workers?," ILR Review, Cornell University, ILR School, vol. 58(1), pages 27-51, October.
  4. 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.
  5. Jyotsna Jalan & Martin Ravallion, 2000. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity Score Matching," Econometric Society World Congress 2000 Contributed Papers 0873, Econometric Society.
  6. 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.
  7. Lipton, Michael & Ravallion, Martin, 1993. "Poverty and policy," Policy Research Working Paper Series 1130, The World Bank.
  8. Michael Michael Keen, 1991. "Needs and Targeting," Working Papers 822, Queen's University, Department of Economics.
  9. 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).
  10. 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.
  11. 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.
  12. 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.
  13. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  14. Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Monash Economics Working Papers archive-41, Monash University, Department of Economics.
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