Government Employment Guarantee, Labor Supply and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World
57 Pages Posted: 6 Dec 2016 Last revised: 26 Oct 2017
Date Written: January 1, 2017
Using establishment-level employment and operating data, we examine the impact of Indian government’s employment guarantee program on labor and firm behavior. Using the staggered implementation of the program for identification, we find that the program leads to 10% reduction in permanent workforce in factories. Factories respond to the adverse labor supply shock by resorting to increased mechanization. As a result, firms’ cost of production increases significantly leading to a reduction in net profits and productivity. These effects manifest primarily in firms paying low wages, having low labor productivity, greater sales volatility and firms located in states with pro-employer labor regulations.
Keywords: Workfare, Labor Markets, Labor Supply, Labor Scarcity, Capital Investments, Labor and Finance, Labor-Technology Substitution, MNREGA, NREGS, NREGA
JEL Classification: G21, G32, D24, J30, J65
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