General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence From India

Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar

Econometrica, 2023, vol. 91, issue 4, 1261-1295

Abstract: Public employment programs may affect poverty both directly through the income they provide and indirectly through general equilibrium effects. We estimate both effects, exploiting a reform that improved the implementation of India's National Rural Employment Guarantee Scheme (NREGS) and whose rollout was randomized at a large (sub‐district) scale. The reform raised beneficiary households' earnings by 14%, and reduced poverty by 26%. Importantly, 86% of income gains came from non‐program earnings, driven by higher private‐sector (real) wages and employment. This pattern appears to reflect imperfectly competitive labor markets more than productivity gains: worker's reservation wages increased, land returns fell, and employment gains were higher in villages with more concentrated landholdings. Non‐agricultural enterprise counts and employment grew rapidly despite higher wages, consistent with a role for local demand in structural transformation. These results suggest that public employment programs can effectively reduce poverty in developing countries, and may also improve economic efficiency.

Date: 2023
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https://doi.org/10.3982/ECTA18181

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Working Paper: General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India (2017)
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