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Is workfare cost-effective against poverty in a poor labor-surplus economy?

  • Murgai, Rinku
  • Ravallion, Martin
  • van de Walle, Dominique

Workfare schemes impose work requirements on beneficiaries. This has seemed an attractive idea for self-targeting transfers to poor people. This incentive argument does not imply, however, that workfare is more cost-effective against poverty than even poorly-targeted options, given hidden costs of participation. In particular, even poor workfare participants in a labor-surplus economy can be expected to have some forgone income when they take up such a scheme. A survey-based method is used to assess the cost-effectiveness of India's Employment Guarantee Scheme in Bihar. Participants are found to have forgone earnings, although these fall well short of market wages on average. Factoring in these hidden costs, the paper finds that for the same budget, workfare has less impact on poverty than either a basic-income scheme (providing the same transfer to all) or uniform transfers based on the government's below-poverty-line ration cards. For workfare to dominate other options, it would have to work better in practice. Reforms would need to reduce the substantial unmet demand for work, close the gap between stipulated wages and wages received, and ensure that workfare is productive -- that the assets created are of value to poor people. Cost-effectiveness would need to be reassessed at the implied higher levels of funding.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6673.

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Date of creation: 01 Oct 2013
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Handle: RePEc:wbk:wbrwps:6673
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  1. Liu, Yanyan & Deininger, Klaus W., 2010. "Poverty Impacts of India's National Rural Employment Guarantee Scheme: Evidence from Andhra Pradesh," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 62185, Agricultural and Applied Economics Association.
  2. Erlend Berg & Sambit Bhattacharyya & Rajasekhar Durgam & Manjula Ramachandra, 2012. "Can Rural Public Works Affect Agricultural Wages? Evidence from India," Economics Series Working Papers WPS/2012-05, University of Oxford, Department of Economics.
  3. Ravallion, Martin & Datt, Gaurav & Chaudhuri, Shubham, 1993. "Does Maharashtra's Employment Guarantee Scheme Guarantee Employment? Effects of the 1988 Wage Increase," Economic Development and Cultural Change, University of Chicago Press, vol. 41(2), pages 251-75, January.
  4. Heckman, James J. & Robb, Richard Jr., 1985. "Alternative methods for evaluating the impact of interventions : An overview," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 239-267.
  5. James J. Heckman & Sergio Urzua & Edward Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 389-432, August.
  6. Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Monash Economics Working Papers archive-41, Monash University, Department of Economics.
  7. 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 153-75, July.
  8. Jyotsna Jalan & Martin Ravallion, 2000. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity Score Matching," Econometric Society World Congress 2000 Contributed Papers 0873, Econometric Society.
  9. Martin Ravallion & Emanuela Galasso & Teodoro Lazo & Ernesto Philipp, 2005. "What Can Ex-Participants Reveal about a Program’s Impact?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  10. Jha, Raghbendra & Gaiha, Raghav & Pandey, Manoj K., 2012. "Net transfer benefits under India's rural employment guarantee scheme," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 296-311.
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