Is a Guaranteed Living Wage a Good Anti-Poverty Policy?
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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| Language: | English |
| Published: |
World Bank, Washington, DC
2005-06
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| Subjects: | ADMINISTRATIVE COSTS, AUDITS, CASH TRANSFERS, CONSUMPTION EXPENDITURES, COST EFFECTIVENESS, COUNTERFACTUAL, DEMOGRAPHICS, DISCLOSURE, EGS, ELASTICITIES, EMPLOYMENT, HOUSEHOLD CONSUMPTION, HOUSEHOLD INCOME, INCOME, INEQUALITY, INFLATION, LABOR FORCE, LABOR INPUTS, LABOR MARKETS, LABOR SUPPLY, MINIMUM WAGES, PER CAPITA CONSUMPTION, POLICY DISCUSSIONS, POLICY MAKERS, POLICY RESEARCH, POOR, POVERTY GAP INDEX, POVERTY LINE, POVERTY LINES, POVERTY MEASURES, PRIVATE SECTOR, PRODUCTIVITY, PUBLIC WORKS, RURAL POVERTY, SELECTION BIAS, SOCIAL SERVICES, SQUARED POVERTY GAP INDEX, TARGETED TRANSFERS, TARGETING, TRANSFER PROGRAMS, UNEMPLOYMENT, WAGE RATES, |
| Online Access: | http://documents.worldbank.org/curated/en/2005/06/5866369/guaranteed-living-wage-good-anti-poverty-policy https://hdl.handle.net/10986/8188 |
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| 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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