Infrastructure Wage Shock Dampening

In Simple Words

Think of a small town hit by a drought. If the town has no paved roads or banks, workers are trapped and must accept tiny wages for whatever few farm jobs remain. But if the town has a bank for emergency credit and a bus stop with a paved road, workers can borrow money or take a bus to work in a neighboring town, preventing local wages from crashing.

Research question

In isolated agrarian villages lacking financial institutions and transport links, localized weather shocks trigger severe wage volatility because households cannot access credit or commute to alternative regional labor markets.

Participants

N = 4,706 landless wage workers aged 20+ across 42 rural villages in Andhra Pradesh, Uttar Pradesh, and Tamil Nadu.

Study Design

General equilibrium wage regression incorporating village-level infrastructure indicators (banks, paved roads, bus stops) and interaction terms with 2011 Kharif season rainfall deviations.

Results

Presence of a paved road increases baseline daily wages (coefficient = 0.909, t = 4.20) but reduces rainfall sensitivity of wages by 0.222 log points per mm/day (t = -7.58); bus stops reduce rainfall sensitivity of wages by 0.149 log points per mm/day (t = -3.76).

Takeaway

Construct paved access roads and bus transport stops in rural communities to provide wage workers with spatial mobility and dampening local wage sensitivity to weather shocks.

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