Impact of Rural Employment Guarantee Schemes on Seasonal Labor Markets: Optimum Compensation and Workers' Welfare

The recent enactment of the National Rural Employment Guarantee Act in India has been widely hailed a policy that provides a safety net for the rural poor with the potential to boost rural income, stabilize agricultural production and reduce rural-urban migration. This paper, models the impact of such employment guarantee schemes in the context of an agrarian economy characterized by lean season involuntary unemployment as a consequence of tied-labor contracts. Specifically, we examine labor and output market responses to a productive rural Employment Guarantee Scheme (EGS) and determine the optimal compensation to public work employees consistent with the objectives of (i) productive efficiency in agriculture and (ii) welfare maximization of the laborers. Our framework provides a theoretical framework for the evaluation of a number of (sometimes) conflicting observations and empirical results on the impact of an EGS on agricultural wages, employment and output, and underscores the importance of the relative productivity of workers in the EGS program vis-à-vis their counterparts engaged in agricultural production in determining the success of these programs.labor contracts, rural unemployment, employment guarantee schemes, public input, optimal wage

Contractual Dualism, Market Power and Informality

Two stylized representations are often found in the academic and policy literature on informality and formality in developing countries. The first is that the informal (or unregulated) sector is more competitive than the formal (or regulated) sector. The second is that contract enforcement is easier in the formal sector than in the informal sector, precisely because the formal sector comes under the purview of state regulation. The basic contention of this paper is that these two representations are not compatible with each other. We develop a search-theoretic model of contractual dualism in the labor market where the inability to commit to contracts in the informal sector leads to employer market power in equilibrium, while an enforced minimum wage in the formal sector provides employers with a commitment technology but which reduces their market power in equilibrium. The contributions of this paper are three-fold. It (i) provides the micro-underpinnings for endogenous determination of employer market power in the formal and informal sectors due to contractual dualism in the two sectors, (ii) offers a unified and coherent setup whereby a host of salient features of developing country labor markets can be explained together, and (iii) places the original Stiglerian prescription of the optimal (unemployment minimizing) minimum wage in the broader context of labor markets where formal job creation is costly, and where formal employment, informal employment, and unemployment co-exist.contractual dualism, wage dualism, employer market power, informality

Tax Evasion, Minimum Wage Non-Compliance and Informality

We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage non-compliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.poverty, flat tax reform, minimum wage reform, tax evasion, informality

Economic Reform, Informal-Formal Sector Linkages and Intervention in the Informal Sector in Developing Countries: A Paradox

Within a general equilibrium framework of a developing economy with a foreign owned factor of production, this paper questions whether the informal-formal sector relationship is pro-cyclical/ complementary – expansion or contraction in one necessarily implies an expansion or contraction in the other – when the informal sector is subject to a technological shock. We derive a necessary and sufficient condition under which a positive shock to the informal sector results in a contraction in both the size of the urban formal sector and the informal sector. Thus, although our result shows that the informal-formal sector relationship is pro-cyclical, it nevertheless calls into question the conventional wisdom on the benefits of intervention in the informal sector of developing economies, particularly where multinational corporations sub-contract certain labor intensive stages of production to the informal sector.Within a general equilibrium framework of a developing economy with a foreign owned factor of production, this paper questions whether the informal-formal sector relationship is pro-cyclical/ complementary – expansion or contraction in one necessarily implies an expansion or contraction in the other – when the informal sector is subject to a technological sho, although our result shows that the informal-formal sector relationship is pro-cyclical, it nevertheless calls into question the conventional wisdom on the benefits of intervention in the informal sector of developing economies, particularly where multinational corporations sub-contract certain labor intensive stages of production to the informal sector.

Ethnic Fragmentation, Conflict, Displaced Persons and Human Trafficking: An Empirical Analysis

Ethnic conflicts and their links to international human trafficking have recently received a surge in international attention. It appears that ethnic conflicts exacerbate the internal displacement of individuals from networks of family and community, and their access to economic and social safety nets. These same individuals are then vulnerable to being trafficked by the hopes of better economic prospects elsewhere. In this paper, we empirically examine this link between ethnic fragmentation, conflicts, internally displaced persons (IDPs), refugees and international trafficking, making use of a novel dataset of international trafficking. We conduct a direct estimation, which highlights the ultimate impact of ethnic fragmentation and conflict on international trafficking through internal and international displacements.ethnic fragmentation, conflict, displaced persons, human trafficking

Transnational Trafficking, Law Enforcement and Victim Protection: A Middleman Trafficker's Perspective

We explore three hitherto poorly understood characteristics of the human trafficking market – the cross-border ease of mobility of traffickers, the relative bargaining strength of traffickers and final buyers, and the elasticity of buyers' demand. In a model of two-way bargaining, the exact configuration of these characteristics is shown to determine whether domestic and foreign crackdowns on illicit employment mutually reinforce or counteract one another in efforts to stem the tide of trafficking. Estimation results from a gravity model of trafficking present evidence consistent with the mutual reinforcement view, indicating considerable ease of mobility, partial bargaining power, and inelastic demand.human trafficking, two-way Nash bargaining, victim protection, law enforcement