Is a guaranteed living wage a good anti-poverty policy?, Vol. 1 of 1

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

Author:	Murgai, Rinku; Ravallion, Martin;	Collection Title:	Policy, Research working paper ; no. WPS 3640
Country:	South Asia; India;	Date Stored:	2005/06/16
Document Date:	2005/06/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	South Asia
Report Number:	WPS3640	SubTopics:	Environmental Economics & Policies; Rural Poverty Reduction; Services & Transfers to Poor; Health Economics & Finance; Safety Nets and Transfers
Volume No:	1 of 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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