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Welfare Implications of India's Employment Guarantee Programme with a Wage Payment Delay

Author

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  • Basu, Parantap

    () (University of Durham)

  • Sen, Kunal

    () (University of Manchester)

Abstract

We examine the efficacy of a popular anti-poverty programme, namely the National Rural Employment Guarantee Act (NREGA) of the Government of India. We argue that a chronic friction of wage payment delay in this flagship programme could adversely affect the welfare of the poor through two channels. First, it causes deferred consumption. Second, it turns labour into a credit good which makes an indebted household work harder to clear off his existing debt. The loss of welfare persists even when the worker has an outside employment option. If a programme of financial inclusion increases the indebtedness of the poor, a wage payment delay in the NREGA programme could escalate this welfare loss although the official indicator of success (i.e., participation) may not reveal this friction.

Suggested Citation

  • Basu, Parantap & Sen, Kunal, 2015. "Welfare Implications of India's Employment Guarantee Programme with a Wage Payment Delay," IZA Discussion Papers 9454, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9454
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    References listed on IDEAS

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    1. Basu, Arnab K. & Chau, Nancy H. & Kanbur, Ravi, 2009. "A theory of employment guarantees: Contestability, credibility and distributional concerns," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 482-497, April.
    2. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
    3. Development Services, ACCESS & Nair, Tara S, 2014. "Inclusive Finance India Report 2014," OUP Catalogue, Oxford University Press, number 9780199458295.
    4. Kalanidhi Subbarao & Carlo del Ninno & Colin Andrews & Claudia Rodríguez-Alas, 2013. "Public Works as a Safety Net : Design, Evidence, and Implementation," World Bank Publications, The World Bank, number 11882, November.
    5. Clément Imbert & John Papp, 2015. "Labor Market Effects of Social Programs: Evidence from India's Employment Guarantee," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 233-263, April.
    6. Ravallion, Martin, 1991. "Reaching the Rural Poor through Public Employment: Arguments, Evidence, and Lessons from South Asia," World Bank Research Observer, World Bank Group, vol. 6(2), pages 153-175, July.
    7. Radhika Lal & Steve Miller & Maikel Lieuw-Kie-Song & Daniel Kostzer, 2010. "Public Works and Employment Programmes: Towards a Long-Term Development Approach," Working Papers 66, International Policy Centre for Inclusive Growth.
    8. Dreze, Jean & Sen, Amartya, 1991. "Hunger and Public Action," OUP Catalogue, Oxford University Press, number 9780198283652.
    9. Kollmann, Robert, 2002. "Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 989-1015, July.
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    Cited by:

    1. Narayanan, Sudha & Das, Upasak & Liu, Yanyan & Barrett, Christopher B., 2017. "The “Discouraged Worker Effect†in public works programs: Evidence from the MGNREGA in India," IFPRI discussion papers 1633, International Food Policy Research Institute (IFPRI).

    More about this item

    Keywords

    NREGA; employment guarantee; credit good; financial inclusion;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets

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