Infrastructure Wage Shock Dampening
RCTClinical Trial
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.
Picture this
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.
What the evidence says
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).
- Who was studied
- N = 4,706 landless wage workers aged 20+ across 42 rural villages in Andhra Pradesh, Uttar Pradesh, and Tamil Nadu.
- How
- General equilibrium wage regression incorporating village-level infrastructure indicators (banks, paved roads, bus stops) and interaction terms with 2011 Kharif season rainfall deviations.
What to do
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.
From the source
"wages are substantially higher in villages with banks, paved roads and bus stops, and the presence of any of these three types of credit or migration infrastructure (all of which offer better income smoothing opportunities) reduces the sensitivity of wages to rainfall variation."
300_400 Wages General Equilibrium NBER Jan2014.pdf