Publication: Is a Guaranteed Living Wage a Good Anti-Poverty Policy?
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Date
2005-06
ISSN
Published
2005-06
Author(s)
Murgai, Rinku
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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Citation
“Murgai, Rinku; Ravallion, Martin. 2005. Is a Guaranteed Living Wage a Good Anti-Poverty Policy?. Policy Research Working Paper; No. 3640. © World Bank, Washington, DC. http://hdl.handle.net/10986/8188 License: CC BY 3.0 IGO.”
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