This research will use data from an NSF funded survey to estimate the labor market impacts of a large public works program in India. The National Rural Employment Guarantee Act (NREGA) is a massive public works program funded by the Indian central government. From April 2008 to March 2009, 45 million households participated in the program, working over two billion person days. The surge in employment opportunities created by the NREGA has the potential to create labor shortages that could drive up market wages and lead to a fall in private sector employment and output. On the other hand, many researchers have suggested in developing countries with imperfect markets, hiring additional workers might not raise wages and may even decrease them without affecting output. The implementation of the NREGA provides a rare opportunity to test these theories.

Using an equilibrium model of labor markets, this research will estimate the impact of the NREGA on labor market outcomes such as wages and employment both within and outside the village. Funding will be used to conduct a survey in the north west of India collecting information on NREGA participation, earnings, and migration.

Intellectual Merit: The intellectual merit lies first in the project's method for identifying the impact of the NREGA. Since the NREGA was introduced in three distinct phases, during the period from 2006 to 2009, some districts implemented the NREGA while others did not. A simple comparison of early phase districts with late phase districts, however, would lead to biased estimates of the program's effect since the government chose to implement the program in low wage districts first. The study will exploit the phase-in of the program combined with changes in the minimum wage, weather shocks, and village level controls to identify the impact of the NREGA. Apart from identifying the impact of this particular program, the model based approach will allow tests of existing models of rural labor markets. Specifically, it will provide convincing evidence of how an increased demand for labor from the government affects private sector employment and wages--a central question of the literature on rural markets in developing countries.

Broader Impacts: This research project will develop a framework for estimating the effect of one of the largest public works programs in the world. The estimates will permit policy simulations to assess the impact of proposed extensions to the NREGA. More broadly, the results will inform policy making in many developing countries where an understanding of rural labor markets is required. The study will also foster collaboration between researchers at the NCAER in India and Princeton and build a foundation for future joint work. Finally, the proposed activity will extend an existing frequently-used panel data set on rural India and make the anonymized data available for public use.

Project Report

Many developing countries hire rural workers to work on public works programs with the goal of increasing employment during the agricultural off-season. One of the largest such programs is India’s National Rural Employment Guarantee Act (NREGA). This research explores to what extent this public works program crowds out private sector work, and in particular, short-term migrant labor. Despite its seeming importance, there is little systematic data on temporary migration. During summer 2010, in partnership with a research organization in India, we conducted a survey in three states in India with the goal of first quantifying out-of-village work and second using cross-state variation in the implementation of India’s public works program to assess to what extent the public works program reduces off-season migration. The survey team interviewed approximately 2000 adults in 700 households in 70 villages. The data include detailed information about past migration trips, earnings from those trips, and work in the government public works program. The resulting survey data is currently being analyzed to assess to what extent the public works program led to a reduction in rural to urban migration. The results from the survey will also be useful more generally for assessing the types of rural policies that are likely to impact urban outcomes through migration.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Michael Reksulak
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Princeton University
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