Download this Paper Open PDF in Browser

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

Sumit Agarwal

Georgetown University - Department of Finance

Shashwat Alok

Indian School of Business (ISB), Hyderabad

Yakshup Chopra

Indian School of Business (ISB), Hyderabad

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 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

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). Georgetown McDonough School of Business Research Paper No. 2880629; 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

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-8207 (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

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

Hyderabad, Gachibowli 500 019
India

Prasanna Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Paper statistics

Downloads
270
Rank
96,830
Abstract Views
1,368