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Supply variabilities in public workfares

Girish Bahal () and Anand Shrivastava

Journal of Development Economics, 2021, vol. 150, issue C

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.

Keywords: Labor market; Wage rigidity; Market power; Public workfare; Wage compression; India (search for similar items in EconPapers)
JEL-codes: I38 J31 J68 O12 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jdeveco.2020.102608

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