New research by the University of Oxford has found that the National Rural Employment Guarantee (NREG) programme has increased real agricultural wages rates by 5.3% across India since its introduction in 2006.
The study, led by Oxford, also involved researchers from the Institute for Social and Economic Change, Bangalore, India.
The Mahatma Gandhi National Rural Employment Guarantee Act aims to protect the livelihood security of people in rural areas by guaranteeing a hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work.
Using monthly wage data from the Ministry of Agriculture from the period 2000-2011 for 249 districts across 19 Indian states, the researchers found that NREG boosted the real daily agricultural wage rates by 5.3% on average. This suggests the NREG public works programme benefits not only those directly employed by the scheme but all wage earners in the agricultural sector.
Dr Erlend Berg, from the Department of Economics at the University of Oxford, said: 'The higher wage rates make the very poorest better off, while landowners and other rural employers face higher labour costs. However, this objection does not stop governments around the world from trying to impose minimum wages rates, another market intervention that aims to favour workers while increasing costs for employers.
'The Oxford study shows that public works programmes provide governments with an additional mechanism that can influence wage rates in the rural unskilled labour market.'
In the period 2008-2010, NREG generated 3.3 days of employment per year for each rural inhabitant in the average district. The analysis shows that each extra day of employment per capita per year raises wages by 1.6%, implying that the programme boosted real daily wage rates by 5.3% in the average district in the period.
The researchers argue that there are two possible ways in which a large-scale public employment programme like NREG can influence market wages. The first is that the extra competition for workers drives up the price of their services. The second is that the roads, dams and other infrastructure built under the scheme may increase rural productivity and therefore wages more generally.
The study does not present direct evidence in favour of either mechanism; however, anecdotal evidence suggests that increasing competition for labour is likely to be the more important factor. Farmers have complained of rising wage costs and difficulties in finding qualified labour, while the roads built have often been criticised for poor quality, notes the study.
In the past, NREG has been criticised for causing price rises and pushing up the cost of living. However, the research is focused on real, that is to say inflation-corrected, wage rates. It says taking inflation into account, wages have risen 5.3% more than the cost of living, leaving wage-earners better off. The study also finds that the effect of the programme on wages is strongest in areas where initial wage rates are the lowest.
NREG was implemented across India's districts in three phases, starting in 2006. The programme was rolled out in the poorest districts first, and followed later in the better-off districts. This gradual process allowed the researchers to separate the effect of the scheme from those changes in wage rates which would have happened in any case. They deduce that the increased wages are therefore to be interpreted as the effect of the scheme, rather than being due to other factors.