Public employment programs play a major role in the anti-poverty strategy of many developing countries. Besides the direct wages provided to the poor, such programs are likely to affect their welfare by changing broader labor market outcomes including wages and private employment. These general equilibrium effects may accentuate or attenuate the direct benefits of the program, but have been difficult to estimate credibly. We estimate the general equilibrium effects of a technological reform that improved the implementation quality of India’s public employment scheme on the earnings of the rural poor, using a large-scale experiment which randomized treatment across sub-districts of 60,000 people. We find that this reform had a large impact on the earnings of low-income households, and that these gains were overwhelmingly driven by higher private-sector earnings (90%) as opposed to earnings directly from the program (10%). These earnings gains reflect a 5.7% increase in market wages for rural unskilled labor, and a similar increase in reservation wages. We do not find evidence of distortions in factor allocation, including labor supply, migration, and land use. Our results highlight the importance of accounting for general equilibrium effects in evaluating programs, and also illustrate the feasibility of using large-scale experiments to study such effects.
Karthik Muralidharan, Paul Niehaus, and Sandip Sukhtankar, General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India, 2017
the cool thing is it mattered – study helped convince gov’t not to scrap the program, putting $100Ms annually into hands of the poor
Added to diary 15 January 2018