Supply variabilities in public workfares

Bahal, Girish and Shrivastava, Anand (2021) Supply variabilities in public workfares. Journal of Development Economics, 150. ISSN 0304-3878

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Abstract

This paper presents a model of the labor market where public workfares increase private wages by reducing labor supply. In a dynamic setting, we show that when wages are downwardly rigid, forward-looking employers optimally compress wage increases in response to intertemporal variability in the level of program implementation. The model generates two key predictions: greater variability in program provision results in a larger compression of wage increases, and compression of wage increases is more severe under low inflation. We empirically verify these predictions using data from two large workfares from India.

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Bahal, Girish and Shrivastava, Anand

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