Higher wages for relief work can make many of the poor worse off : recent evidence from Maharashtra's"Employment Guarantee Scheme"

Among developing countries, the"Employment Guarantee Scheme"(EGS) in the state of Maharashtra in India is probably the most famous and most successful direct governmental effort at reducing absolute poverty in rural areas. Since the mid-1970s, EGS has aimed to offer unskilled rural employment on demand. The work creates or maintains rural infrastructure, through small scale irrigation and soil conservation projects, re-forestation, and rural road building. EGS projects are designed to be highly intensive in their use of unskilled labor, which typically accounts for over two-thirds of variable costs. Wages are set in the form of piece rates, stipulating rates of pay for a large number of specific tasks, such asdigging, breaking rocks, shifting earth, and transplanting. This paper investigates the effects on the scheme of the dramatic change in the EGS wage schedule in mid-1988. Three issues are addressed: (a) EGS employment, wage rates, and the cost of the scheme to the government after the increase in the statutory minimum wage rate; (b) the determinants of EGS employment and changes incurred by the wage increase; and (c) the availability of local employment at the going EGS wages.