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

Agarwal, S and Alok, S and Chopra, Y and Tantri, P L (2021) Government Employment Guarantee, Labor Supply, and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World. Journal of Financial and Quantitative Analysis, 56 (2). pp. 409-442. ISSN 0022-1090

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Abstract

Using establishment-level 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 the permanent workforce in firms. Firms responded to the adverse labor-supply shock by resorting to increased mechanization. This significantly increased the firms’ cost of production, leading to a decline in net profits and productivity. These effects manifested primarily in firms paying low wages, firms having low labor productivity and greater sales volatility, and firms located in states with pro-employer labor regulations.

Item Type: Article
Subjects: Finance
Date Deposited: 01 Apr 2021 04:31
Last Modified: 01 Apr 2021 04:31
URI: https://eprints.exchange.isb.edu/id/eprint/1427

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