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Is a guaranteed living wage a good anti-poverty policy?, Volume 1
Author:Murgai, Rinku; Ravallion, Martin; Country:South Asia; India;
Date Stored:2005/06/16Document Date:2005/06/01
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Rural Poverty Reduction; Services & Transfers to Poor; Health Economics & Finance; Safety Nets and Transfers
Language:EnglishRegion:South Asia
Report Number:WPS3640Collection Title:Policy, Research working paper ; no. WPS 3640
Volume No:1  

Summary: 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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