Is A Guaranteed Living Wage A Good Anti-Poverty Policy?

Rinku Murgai · Martin Datt Ravallion

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Poverty, Education, and Child Welfare Labor market dynamics and wage inequality Income, Poverty, and Inequality

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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References

1970Migration unemployment and development: a two-sector analysis.1984A Class of Decomposable Poverty Measures 1992Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs 2003Estimating the Benefit Incidence of an Antipoverty Program by Propensity-Score Matching 2004Targeting Outcomes Redux 1991REACHING THE RURAL POOR THROUGH PUBLIC EMPLOYMENT: Arguments, Evidence, and Lessons from South Asia 1995Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India 2004The Role of Community Involvement in Implementing Living Wage Ordinances*

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2017General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India 2020Globalization, Labor Markets and Inequality in India 2007How Relevant Is Targeting To The Success Of An Antipoverty Program ?

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