Can public works increase equilibrium wages? Evidence from India’s National Rural Employment Guarantee

We estimate the impact of the world’s largest public works program, India’s National Rural Employment Guarantee(NREG), on agricultural wages. NREG was rolled out across India in three distinct phases, and this phased introduction is used to identify difference-in-difference estimates of the program effect. Using monthly data on wage rates from the period 2000–2011 in 209 districts across 18 Indian states, we include district-specific fixed effects and trends to control for differences in wage rates in the absence of the program. We find that, on average, the program boosted the growth rate of real daily agricultural wages by 4.3% per year. The effect of the scheme is more consistent with an increase in the growth rate of wages than with a discontinuous jump in wages. The effect was concentrated in some states and in the agricultural peak season, appears to have been gender-neutral and was biased towards unskilled labor. Since many of the world’s poorest depend on casual agricultural labor for their livelihood, while at the same time minimum-wage legislation is unlikely to be effective in many developing countries, we argue that rural public employment programs constitute a potentially important anti-poverty policy tool.