Effects of Affirmative Action on Educational and Labour Market Outcomes: Evidence from Nepal's Reservation Policy

We evaluate the impact of an affirmative action policy, which reserves quotas in public jobs for disadvantaged groups, on educational and labour market outcomes through ‘incentive effects’ in future employment prospects. Unlike the affirmative action policies based only on caste (in India) or race (in the United States), Nepal offers a novel context because its policy provides multiple channels of affirmation in public jobs to highly discriminated groups, depending on their caste/ethnicity, gender, geographic origin, and impairment status. Our difference-in-differences estimates using the Nepal Labour Force Survey III (2017/18) suggest that the policy significantly improved the educational and labour market outcomes of younger reservation eligible in the schoolaged cohort at the time of policy change. On average, the younger cohort improved their years of schooling by 1.53 years and monthly earnings by NPR 1,812 (approximately USD 17.76; about 11% of the national average). Our findings also indicate a higher policy impact on education for those who obtain treatment through multiple channels. However, the higher educational attainments of these multiple treatment groups are yet to transmit fully into their labour market outcomes. Our findings offer some important policy implications for not only Nepal but also societies fighting to reduce inequalities across caste, geographic, ethnic and racial groups