Choice of casual and regular labour contracts in Indian agriculture : a theoretical and empirical analysis

• Main Author: Pal, Sarmistha
• Published: London School of Economics and Political Science (University of London) 1994
• Subjects: 331.7
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.645421

The dissertation examines the choice between casual and regular labour contracts in Indian agriculture. In particular, it deals with two relevant decision problems: (i) how an employer chooses between casual and regular contracts and (ii) how a labourer chooses between casual and regular contracts. Several models of contractual choice are developed. In the implicit contract model, regular labour contracts are a means through which risk-neutral employers offer some insurance against the wage and employment fluctuations to labourers, in return for lower wages. In the shirking model, regular contracts are used to perform non-monitorable tasks for which casual contracts are not incentive compatible: regular contracts with wages above the reservation wage act as a device to induce the workers not to shirk in non-monitorable tasks. In the collateral model, regular contracts with advance wage payments provide labourers with a means of using their labour services as a collateral substitute. The time constraint model shows that landless labourers have a comparative advantage in regular labour contracts, because the opportunity cost of precommitting labour time tends to be lower for them. In each of these models, it is shown that casual and regular contracts may coexist in equilibrium. Empirical evidence bearing on these different theories is examined using data from three South Indian villages. The evidence is consistent with the implicit contract model, the collateral model and the time constraint model. However, we find no support for the shirking model. Other relevant aspects of labour contracts are also investigated, including labour force participation decisions, unemployment rates, the relative levels of casual-labour and regular-labour wages, the links between labour and credit contracts, and the determinants of labour demand. The thesis concludes with a discussion of recent trends in the incidence of casual and regular contracts in rural India. The incidence of regular contracts has steadily declined in recent years. We argue that this decline primarily reflects a decline in supply (due, inter alia, to an improvement of credit facilities and an expansion of alternative employment opportunities) rather than a decline of demand.