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Rural Labour Market, Are wages downwardly rigid in Indian rural labour…
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DATASET:
- 256 rural districts across India
-World Bank and National Sample Survey
- Matched with rainfall data
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Empirical Strategy:
- Use rainfall as an exogenous shock to agricultural productivity
- 20% rainfall is negative shock
- 80% rainfall is positive shock
Regression:
Regress log wage on pos, neg and interaction shocks dummy variables Key coefficients:
Beta1 > 0 suggests upward wage flexibility
Beta 2 = 0, wages do not fall after negative shock (downward wage rigidity)Beta 3 > 0 and Beta 4 > 0, wages remain high even after bad year racheting affect
- Beta 2 is statisticlally insignficant so = 0. Suggests no downward adjustment after negative shock
- Beta 1 is statistically significant upwards
This supports asymmetric adjustment
- Beta 3 and 4 are statistically significant which suggests racheting effect.
Positive shock persists into none or negative periods
EMPLOYMENT:When the employment results reported in table 4 the negative shock decreases employment statistically signficant.
So the rigid wages are causing these changes in employment.When demand for labour falls, rather than wage falling, employment falls. SEPARATION FAILURE:In table 5 the 0 land holding class did not experience an increase in demand which suggests that there is an absence of a market. Market forces will respond to increase in demand. Above median land holding - both interactions
Below median land holdingOnly happens in the median and non
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