Is a Guaranteed Living Wage a Good Anti-Poverty Policy?

40 Pages Posted: 23 Jul 2005

See all articles by Rinku Murgai

Rinku Murgai

World Bank - Development Research Group (DECRG)

Martin Ravallion

Georgetown University

Date Written: June 2005

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.

Suggested Citation

Murgai, Rinku and Ravallion, Martin, Is a Guaranteed Living Wage a Good Anti-Poverty Policy? (June 2005). World Bank Policy Research Working Paper No. 3640, Available at SSRN: https://ssrn.com/abstract=757304

Rinku Murgai (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Martin Ravallion

Georgetown University ( email )

Washington, DC 20057
United States

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