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

Author

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

Abstract

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.

Suggested Citation

  • Murgai, Rinku & Ravallion, Martin & van de Walle, Dominique, 2013. "Is workfare cost-effective against poverty in a poor labor-surplus economy?," Policy Research Working Paper Series 6673, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6673
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Jalan, Jyotsna & Ravallion, Martin, 2003. "Estimating the Benefit Incidence of an Antipoverty Program by Propensity-Score Matching," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 19-30, January.
    4. Deininger, Klaus & Liu, Yanyan, 2013. "Welfare and poverty impacts of India's national rural employment guarantee scheme : evidence from Andhra Pradesh," Policy Research Working Paper Series 6543, The World Bank.
    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.
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    7. 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).
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    9. 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 251-275, January.
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    11. 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.
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    Cited by:

    1. Gehrke, Esther & Hartwig, Renate, 2018. "Productive effects of public works programs: What do we know? What should we know?," World Development, Elsevier, vol. 107(C), pages 111-124.
    2. Ravi Kanbur, 2019. "Inequality in a global perspective," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(3), pages 431-444.
    3. McKenzie, David, 2016. "Can Business Owners Form Accurate Counterfactuals? Eliciting Treatment and Control Beliefs about Their Outcomes in the Alternat," CEPR Discussion Papers 11280, C.E.P.R. Discussion Papers.
    4. Brown, Caitlin & Ravallion, Martin & van de Walle, Dominique, 2018. "A poor means test? Econometric targeting in Africa," Journal of Development Economics, Elsevier, vol. 134(C), pages 109-124.
    5. Abhijit Banerjee, 2016. "Policies for a better-fed world," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 3-17, February.
    6. Martin Ravallion, 2021. "On the Gains from Tradeable Benefits-in-Kind," Working Papers gueconwpa~21-21-13, Georgetown University, Department of Economics.
    7. Borga, Liyousew G. & D’Ambrosio, Conchita, 2021. "Social protection and multidimensional poverty: Lessons from Ethiopia, India and Peru," World Development, Elsevier, vol. 147(C).
    8. Michael Lokshin & Martin Ravallion, 2022. "A market for work permits," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(111), pages 471-499.
    9. Alik-Lagrange, Arthur & Buehren, Niklas & Goldstein, Markus & Hoogeveen, Johannes, 2023. "Welfare impacts of public works in fragile and conflict affected economies: The Londö public works in the Central African Republic," Labour Economics, Elsevier, vol. 81(C).
    10. Ravallion, Martin, 2019. "Guaranteed employment or guaranteed income?," World Development, Elsevier, vol. 115(C), pages 209-221.
    11. Do, Quy-Toan & Levchenko, Andrei A., 2017. "Trade policy and redistribution when preferences are non-homothetic," Economics Letters, Elsevier, vol. 155(C), pages 92-95.
    12. Alik-Lagrange, Arthur & Ravallion, Martin, 2018. "Workfare versus transfers in rural India," World Development, Elsevier, vol. 112(C), pages 244-258.
    13. Howie, Peter & Davletova, Indira & Makhazhan, Indira, 2023. "Evaluating the design and implementation of Kazakhstan’s workfare program," Evaluation and Program Planning, Elsevier, vol. 99(C).
    14. World Bank, 2014. "More Jobs, Better Jobs : A Priority for Egypt," World Bank Publications - Reports 20584, The World Bank Group.
    15. Martin Ravallion, 2019. "Is a Decentralized Right-to-Work Policy Feasible?," NBER Working Papers 25687, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Rural Poverty Reduction; Labor Markets; Labor Policies; Banks&Banking Reform; Income;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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