Government Employment Guarantee, Labor Supply and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World

59 Pages Posted: 6 Dec 2016 Last revised: 4 Feb 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Shashwat Alok

Indian School of Business (ISB), Hyderabad

Yakshup Chopra

Washington University in St. Louis

Prasanna L. Tantri

Indian School of Business

Date Written: January 1, 2017

Abstract

Using establishment-level employment and operating data, we examine the impact of the Indian government’s employment guarantee program on labor and firm behavior. We exploit the staggered implementation of the program for identification and find that the program led to a 10% reduction in permanent workforce in firms. Firms responded to the adverse labor supply shock by resorting to increased mechanization. This significantly increases the firms’ cost of production, thereby leading to a decline in net profits and productivity. These effects manifest primarily in firms paying low wages, having low labor productivity and 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

Suggested Citation

Agarwal, Sumit and Alok, Shashwat and Chopra, Yakshup and Tantri, Prasanna L., Government Employment Guarantee, Labor Supply and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World (January 1, 2017). Indian School of Business WP 2880629. Available at SSRN: https://ssrn.com/abstract=2880629 or http://dx.doi.org/10.2139/ssrn.2880629

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Shashwat Alok (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India
914023187188 (Phone)

Yakshup Chopra

Washington University in St. Louis ( email )

St. Louis, MO
United States

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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