Abstract
The recent enactment of the National Rural Employment Guarantee Act in India has been widely hailed as 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.
Similar content being viewed by others
References
Ahmad, Q.K., Hossain, M.: An evaluation of selected policies and programmes for the alleviation of rural poverty in Bangladesh. In: Islam, R. (ed.) Strategies for Alleviating Poverty in Rural Asia. ILO, Bangkok (1985)
Alamgir, M.: A review of the public rural works programme of Bangladesh 1960–78. Bangladesh Dev. Stud. 11, 13–40 (1983)
Bardhan, P.K.: Wages and unemployment in a poor agrarian economy: a theoretical and empirical analysis. J. Polit. Econ. 87, 479–500 (1979)
Bardhan, P.K.: Labor-tying in a poor agrarian economy: a theoretical and empirical analysis. Q. J. Econ. 98, 501– 514 (1983)
Bardhan, P.K., Rudra, A.: Terms and conditions of labor contracts in agriculture: results of a survey in West Bengal, 1979. Oxf. Bull. Econ. Stat. 43, 89–111 (1981)
Basu, A.K.: Oligopsonistic landlords, segmented labor markets and the persistence of tied-labor contracts. Am. J. Agric. Econ. 84, 438–453 (2002)
Basu, K.: Food for work programmes: beyond roads that get washed away. Econ. Polit. Wkly. 16, 37–40 (1981)
Basu, K.: Food for work. Some economic and political consequences. Rev. Agric. Econ. Polit. Wkly. 17, A9–A14 (1982)
Basu, K.: The elimination of endemic hunger in South Asia: some policy options. In: Drèze, J., Sen, A. (eds.) The Political Economy of Hunger. Clarendon, Oxford (1990)
Basu, A.K. Chau, N.H.: Targeting child labor in debt bondage: evidence theory and policy prescriptions. World Bank Econ. Rev. 17, 255–281 (2003)
Basu, A.K., Chau, N.H.: Exploitation of child labor and the dynamics of debt bondage. J. Econ. Growth 9, 209–238 (2004)
Basu, A.K., Chau, N.H., Kanbur, R.: A theory of employment guarantees: contestability, credibility and distributional concerns. J. Public Econ. 93, 482–497 (2009)
Besley, T.: Means testing versus universal provision in poverty alleviation programmes. Economica 57, 119–129 (1990)
Besley, T., Coate, S.: Workfare versus welfare: incentive arguments for work requirements in poverty alleviation programs. Am. Econ. Rev. 82, 249–261 (1992)
Bhasin, V.: Economic pursuits and strategies of survival among Damor of Rajasthan. J. Hum. Ecol. 16, 1–16 (2004)
Binswanger, H.P., Khandker, S.R., Rosenzweig, M.R.: How infrastructure and financial institutions affect agricultural output and investment in India. J. Dev. Econ. 41, 337–366 (1993)
Braverman, A., Stiglitz, J.: Landlords, tenants and technological innovations. J. Dev. Econ. 23, 313–332 (1986)
Chakraborty, P.: Implementation of the National Rural Employment Guarantee Act in India: Spatial Dimensions and Fiscal Implications. Working paper No. 505, The Levy Institute of Bard College, Annandale-on-Hudson, NY (2007)
Dandekar, K., Sathe, M.: Employment guarantee scheme and food for work programme. Econ. Polit. Wkly. 15, 707–713 (1980)
Dandekar, V.M.: Agriculture, employment and poverty. Rev. Agric. Econ. Polit. Wkly. 21, A90–A100 (1986)
Datt, G., Ravallion, M.: Transfer benefits from public works employment: evidence for rural India. Econ. J. 104, 1346–1369 (1994)
Drèze, J.: Famine prevention in India. In: Drèze, J., Sen, A. (eds.) The Political Economy of Hunger. Clarendon, Oxford (1990)
Dasgupta, I.: ‘Living’ wage, class conflict and ethnic strife. J. Econ. Behav. Organ. 72, 750–765 (2009)
Deshingkar, P., Farrington, J.: Rural Labour Markets and Migration in South Asia: Evidence from India and Bangladesh. Background Paper for the World Development Report 2008. http://siteresources.worldbank.org/INTWDR2008/Resources/2795087-1191427986785/DeshingkarP&Farrington.pdf (2006)
Dev, M.: India’s (Maharashtra) employment guarantee scheme: lessons from long experience. In: von Braun, J. (ed.) Employment for Poverty Reduction and Food Security, pp. 108–143. International Food Policy Research Institute (IFPRI), Washington, DC (1995)
Eswaran, M., Kotwal, A.: A theory of two-tier labor markets in agrarian economies. Am. Econ. Rev. 75, 162–177 (1985)
Fan, S., Hazell, P., Thorat, S.: Government spending, growth and poverty in rural India. Am. J. Agric. Econ. 82, 1038–1051 (2000)
Fields, G., Kanbur, R.: Minimum wages and poverty with income sharing. J. Econ. Ineq. 5, 135–147 (2007)
Foster, J., Greer, J., Thorbecke, E.: A class of decomposable poverty measures. Econometrica 52, 761–776 (1984)
Genicot, G.: Bonded labor and serfdom: a paradox of voluntary choice. J. Dev. Econ. 67, 101–127 (2002)
Harris, J.R., Todaro, M.P.: Migration, unemployment and development: a two-sector analysis. Am. Econ. Rev. 60, 126–142 (1970)
India Rural Development Report (1999). National Institute for Rural Development, Hyderabad, India
Jha, R., Bhattacharyya, S., Gaiha, R., Shankar, S.: ‘Capture’ of anti-poverty programs: an analysis of the national rural employment guarantee program in India. J. Asian Econ. 20, 456–464 (2009)
Khan, M.A.: Trade and development in the presence of an informal sector: a four-factor model. In: Basu, K., Majumdar, M., Mitra, T. (eds.) Capital, Investment and Development. Blackwell, Cambridge (1993)
Lipton, M.: Success in Anti-Poverty. Issues in Development, Discussion Paper 8. International Labour Organization, Geneva (1996)
Mearns, R. Access to Land in Rural India. World Bank Policy Research Working Paper, No. 2123. The World Bank, Washington, DC (2000)
Motiram, S.: Attached labour contracts in agriculture: results and analysis from a survey in South India. Can. J. Dev. Res. 28, 99–117 (2007)
Mukherjee, A., Ray, D.: Wages and involuntary unemployment in the slack season of a village economy. J. Dev. Econ. 37, 227–264 (1992)
Mukherjee, A., Ray, D.: Labor tying. J. Dev. Econ. 47, 207–239 (1995)
The National Rural Employment Guarantee Act of 2005. The Gazette of India, Ministry of Law and Justice, No. 48
Narayana, N., Parikh, K., Srinivasan, T.: Rural works programs in India: costs and benefits. J. Dev. Econ. 29, 131–156 (1988)
Osmani, S.R.: Wage determination in rural labor markets: the theory of implicit co-operation. J. Dev. Econ. 34, 3–23 (1991)
Osmani, S.R., Chowdhury, O.H.: Short run impacts of food for work programme in Bangladesh. Bangladesh Dev. Stud. 11, 135–190 (1983)
Pal, S.: Segmentation of rural labour contracts: some further evidence. Bull. Econ. Res. 54(2), 151–180 (2002)
Ravallion, M.: On the coverage of public employment schemes for poverty alleviation. J. Dev. Econ. 34, 57–79 (1991)
Ravallion, M.: Market responses to anti-hunger policies: effects on wages, prices and employment. In: Drèze, J., Sen, A. (eds.) The Political Economy of Hunger. Clarendon, Oxford (1990)
Ravallion, M., Datt, G., Chaudhuri, S.: Does Maharashtra’s “employment guarantee scheme” guarantee employment? Econ. Dev. Cult. Change 41, 251–276 (1993)
Rawal, V.: The labour process in rural Haryana (India): a field-report from two villages. Journal of Agrarian Change 6, 538–583 (2006)
Sathe, M.D.: Rural Employment and Employment Guarantee Scheme in Maharashtra. Vijayanagar, Pune and Mahrashtra Development Group (1991)
Shanmugam, T.R., Vijayalakshmy, K.: Determinants of agricultural labour participation in organisation in India. Agric. Trop. Subtrop. 38, 51–55 (2005)
Singh, L., Singh, I., Ghuman, R.S.: Changing Character of Rural Economy and Migrant Labour in Punjab. Munich Personal RePEc Archive, Paper No. 6420. http://mpra.ub.uni-muenchen.de/6420/ (2007)
Srivastava, R.: Bonded labour in India: its incidence and pattern. In: InFocus Programme on Promoting the Declaration on Fundamental Principles and Rights at Work. International Labour Office, Geneva (2005)
Subbarao, K.: Public works as an anti-poverty program: an overview of cross-country experience. Am. J. Agric. Econ. 84(2), 678–683 (1999)
Thomas, J.W.: The rural public works programme and rural development in East Pakistan. In: Falcon, W.P., Papanek, G.F. (eds.) Development Policy II: The Pakistan Experience. Harvard University Press, Cambridge (1971)
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Basu, A.K. Impact of rural employment guarantee schemes on seasonal labor markets: optimum compensation and workers’ welfare. J Econ Inequal 11, 1–34 (2013). https://doi.org/10.1007/s10888-011-9179-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10888-011-9179-y