Improving rural wages in India

The purpose of this paper is to identify public policy and program interventions that can increase real rural wage rates and hence reduce rural poverty. Rural wages can only increase if the demand for rural labor grows faster than its supply. The report states that whether public policies increase real agricultural wages depends on whether they promote rural non farm employment to absorb the growing labor force. For example, although educational infrastructure, public irrigation, and regulation of markets raise agricultural output, they depress real agricultural wages because they do not increase nonfarm employment. In contrast, rural electrification, roads and banks can increase real agricultural wages, because they increase nonfarm employment. Rural financial institutions and electrification reallocate labor from agriculture to rural nonfarm activities, however, while roads promote both farm and nonfarm employment.