Labor Supply and MGNREGS
Source: Flickr, UNDP
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India has the largest social and public work program in the world, employing around 50 million people every year. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) aims to enhance livelihood security in rural areas by providing at least 100 days of unskilled wage employment per year to every household.

A recent paper presented at the 2016 Meeting of the Agricultural & Applied Economics Association investigates various household level labor supply effects of participation in MGNREGS in 5 districts in Andhra Pradesh. This study is especially relevant due to the scale of MGNREGS, and the fact that MGNREGS participation may alter overall household labor supply; such as the allocation of time by households spent on paid and unpaid work, and the gender composition of non-MGNREGS work.

Regarding methodology, the study investigates the impact of MGNREGS on changes in overall household labor and time allocated to particular types of non-MGNREGS paid work (casual labor, farm servant labor, non-farm self-employment, migration, and salaried work) and unpaid work (own-farm labor and household chores) disaggregated by gender, and agricultural season (kharif, rabi, and summer slack) using a panel of households across five districts in Andhra Pradesh. The kharif and rabi seasons are the main agricultural seasons in India, while relatively little agricultural work is undertaken during the summer slack season. The data used in this study are taken from three rounds (2004, 2006, and 2008) of household surveys to more than 4,500 households administered under the World Bank’s Andhra Pradesh Rural Poverty Reduction Project and are further supported by MGNREGS project administrative records. Based on this data, the study performs a series of regression analyses estimating the various household labor supply effects resulting from any MGNREGS participation and also tests whether one day of MGNREGS participation by a household member influences the time spent on particular income generating activities or household tasks by any household member.

There are a number of interesting observations from this data. In the summer of 2008, about 25 percent of households participated in MGNREGS, the highest of any season. For 2008 overall, 31 percent of households worked on MGNREGS at some point. Generally, the percentage of households with a female MGNREGS participant is slightly higher than the households with a male participant. Across seasons and years, days spent on paid non-MGNREGS work dominate those devoted to unpaid non-MGNREGS work. However, the introduction of MGNREGS in 2008 does not result in a large increase in total days worked between 2006 and 2008. Private casual labor is clearly the type of paid work from which most households derive their income, followed by work on their own farm, and then by non-farm self-employment.

Using regression analysis, the study makes a number of significant findings. The study finds that due to MGNREGS participation, total household labor supply only increases significantly in the summer, where participation leads to an increase in about 12 days worked. The study attributes this effect almost entirely from increases in adult female work and highlights that female participation dominates in the summer months. A possible explanation for this is that female non-MGNREGS wage rates in the summer are much lower than men’s wage rates making MGNREGS participation particularly more attractive for women. The study also finds that female MGNREGS participation also increases female time spent working in the rabi season by about 7 days while overall changes in time worked in the kharif season is unchanged regardless of gender.

The study finds that a one day increase in the number of MGNREGS days worked by any household member “crowds out” 1.4 days of non-MGNREGS labor in the kharif season, 0.4 in the rabi season, and 0.6 in the slack summer season. Paid labor takes the largest hit, particularly private casual labor for both male and female adults. The study suggests that the MGNREGS labor option reduces the time spent on casual/temporary labor opportunities and in formal/permanent jobs. The study suggests that it may be the case that these individuals do not have full time contracts and can act as private casual laborers who move between MGNREGS and other work. The study highlights that there are fears in India that such crowding out could adversely affect agriculture in India as it remains a highly labor-intensive industry.

In conclusion, the findings show that MGNREGS participation expands total household labor supply in the summer season, mostly due to female participation, but reduces the total number of days spent on paid non-MGNREGS work across the two main agricultural seasons for both female and male adults. The paper suggests that employment guarantee schemes do affect the labor market, and also the complex decision-making process of individuals and households, and may also have an impact on women’s empowerment. The study also highlights that MGNREGS implementation in Andhra Pradesh has generally been highlighted as a success and that the demand levels for MGNREGS-related work is relatively high. Thus, the findings presented in this study may not be applicable to other states; however, the study suggests that the findings may provide insight for other Indian states and countries considering how to better tailor their cash-for-work programs.

The paper highlights that it was unable to address how MGNREGS contribute to labor spillovers across agricultural seasons which it identifies as an important topic for future research. Additionally, the apparent gender differences illuminate how MGNREGS participation by males and females can affect the time allocation decisions of males and females within the same household. Given these differences by gender, the study suggests that further research should analyze the impacts of MGNREGS participation on an individual and household level.

The full paper can be accessed here.

By: Bas Paris

Photo credit:Flickr, UNDP