Workfare as an Effective Way to Fight Poverty: The Case of India's NREGS

Abstract

This paper analyzes the impact of India's National Rural Employment Guarantee Scheme (NREGS) on households. In particular, we study the impact of the program on food security, savings and health outcomes of households. We follow 1064 households from 198 villages of Medak, Andhra Pradesh, over two years. In the early stage of the program, several households that applied for work, were denied employment due to shortage of work. We exploit this exogenous variation to calculate triple difference estimates of the impact of the program. Our results indicate that the NREGS significantly increased the monthly per capita expenditure on food by 9.6 percent and on non-food consumables by 23 percent. The program also improved food security by a significant reduction in the number of meals foregone by households per week. The program raised the probability of holding savings by 21 percent and reduced the incidence of depression by 12 percent. There were no significant impacts on physical health outcomes that we measured. We also analyzed data on alternative time use of households if NREGS did not exist. The results show that in the initial years, the program predominantly attracted non-agricultural labor (78 percent), this was because NREGS participation was concentrated in the dry summer months when agricultural labor work is scarce. Over time, however, we note that the program is predominantly attracting households that would have participated in agriculture labor (55.3 percent) if the NREGS did not exist. This suggests broader labor market distortions where NREGS is not just viewed as an employment assurance during slack agriculture season but as an alternative to agriculture labor work.

Keywords: Employment guarantee, Food security, Consumption Expenditure, Rural Households, India

JEL Classification: I38, E24, E21, H31, H53, O12, O21, Q18