Government Employment Guarantee, Labor Supply, and Firms' Reaction: Evidence from the Largest Public Workfare Program in the World
By Sumit Agarwal, Shashwat Alok, yakshup Chopra, Prasanna Tantri
Journal of Financial and Quantitative Analysis | March 2021
DOI
www.cambridge.org/core/services/aop-cambridge-core/content/view/6837532BC297B036993DC87942D208C5/S0022109020000186a.pdf/government-employment-guarantee-labor-supply-and-firms-reaction-evidence-from-the-largest-public-workfare-program-in-the-world.pdf
Citation
Agarwal, Sumit., Alok, Shashwat., Chopra, yakshup., Tantri, Prasanna. Government Employment Guarantee, Labor Supply, and Firms' Reaction: Evidence from the Largest Public Workfare Program in the World Journal of Financial and Quantitative Analysis www.cambridge.org/core/services/aop-cambridge-core/content/view/6837532BC297B036993DC87942D208C5/S0022109020000186a.pdf/government-employment-guarantee-labor-supply-and-firms-reaction-evidence-from-the-largest-public-workfare-program-in-the-world.pdf.
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Journal of Financial and Quantitative Analysis, 2021
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Abstract
Using establishment-level employment and operating 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 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, thereby leading to a decline in net profits and productivity. These effects manifested primarily in firms paying low wages, having low labor productivity and greater output volatility, and firms located in states with pro-employer labor regulations.

Shashwat Alok is an Associate Professor of Finance at the Indian School of Business (ISB). He joined ISB in 2013 after receiving his PhD in Finance from the Olin Business School, Washington University in St. Louis. He is currently the Research Director at the Digital Identity Research Initiative.

His primary research interests are in the areas of corporate finance. In particular, his research focuses on understanding the impact of the law, government policy, and institutions on firms and individual behaviour, with a greater focus on emerging markets. His recent work seeks to examine the role of alternative data and fintech in expanding financial inclusion, and the impact of climate change on firms and capital allocation.

Professor Alok is the recipient of multiple prestigious grants, and his work has been accepted at leading international conferences such as those hosted by the American Finance Association, the Asian Bureau of Finance and Economic Research, the European Finance Association, and the Financial Intermediation Research Society. His research has been published or accepted in top academic journals such as the Review of Financial Studies, Management Science, and the Journal of Financial and Quantitative Analysis. Prof Alok's research has been cited by the Indian Economic Survey (2018-2019) and the Reserve Bank of India's Household Finance Committee Report (2017). His research has also featured in major Indian media outlets, including the Economic Times and the Times of India.

Before joining the PhD programme, he graduated among the top of his class in Computer Science and Engineering from the Manipal University. He was the recipient of the Hubert C. Moog Scholar for academic excellence while pursuing his PhD at the Washington University in St Louis.

Shashwat Alok
Shashwat Alok

Prasanna Tantri is an Associate Professor of Finance and the Executive Director of the Centre for Analytical Finance at the Indian School of Business (ISB). He also serves as an Independent Director and Chair of the Audit Committee at Power Finance Corporation. In 2o24, he was appointed as a Member of the Technical Advisory Committee for the Evaluation of Schemes for the Promotion of Digital Payments in India, under the Development Monitoring & Evaluation Office (DMEO), NITI Aayog.

Professor Tantri has previously been a part of the Expert Working Group at the National Stock Exchange and a Member of the Technical Group on the Social Stock Exchange, constituted by the Securities and Exchange Board of India. His research interests include banking, financial inclusion, financial contagion, regulation, and the relationship between politics and finance.

Prasanna Tantri (1)
Prasanna Tantri