General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India
78 Pages Posted: 18 Sep 2017
Date Written: September 2017
A public employment program's effect on poverty depends on both program earnings and market impacts. We estimate this composite effect, exploiting a large-scale randomized experiment across 157 sub-districts and 19 million people that improved the implementation of India's employment guarantee. Without changing government expenditure, this reform raised low-income households' earnings by 13%, driven primarily by market earnings. Real wages rose 6% while days without paid work fell 7%. Effects spilled over across sub-district boundaries, and adjusting for these spillovers substantially raises point estimates. The results highlight the importance and feasibility of accounting for general equilibrium effects in program evaluation.
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