MGNREGA works well for the poor

Evaluating the impact of MGNREGA on rural labour markets, and on urban labour
markets via seasonal migration

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Photo: Priyanka Parashar/Mint

Policymakers and academics are actively debating the efficacy of the Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA) and whether or not the new
government should retain it in its current form in recent research. We have evaluated
the impact of MGNREGA on rural labour markets, and on urban labour markets via
seasonal migration.

We used National Sample Survey (NSS) data to evaluate the impact of MGNREGA on
rural labour markets. Our evidence shows that from 2004-05 to 2007-08, in the 330
districts where MGNREGA was first introduced, private sector work decreased one for
one with public sector hiring, and wages for casual labour excluding MGNREGA work
increased by 5%. These effects were concentrated in the months from January to June,
when MGNREGA work sites are open, and in seven states (Andhra Pradesh,
Chhattisgarh, Madhya Pradesh, Himachal Pradesh, Rajasthan, Tamil Nadu and
Uttarakhand) which provided most of the MGNREGA work. The results suggest the
rural poor may benefit from MGNREGA in at least two ways: directly by earning
income through participating in the programme, and indirectly by earning higher
wages while doing non-MGNREGA casual labour for private employers. Quantifying
these two effects we found that the indirect gain from the increase in private sector
wages is significant, equivalent to 50% of the direct gains from participating in the
programme.

In a second study we tried to understand the impact of MGNREGA on rural to urban

migration and urban wages. Drawing from National Sample Survey Office (NSSO)
data, we consider two types of migration: short-term migration (adults who spent
one to six months away for work during the last year) and long-term migration
(adults who left the household to live elsewhere). To evaluate the impact of
MGNREGA, we compared changes in migration between 1999-00 and 2007-08 in
rural districts where MGNREGA was first introduced. These were in states which
actively implemented MGNREGA (Andhra Pradesh, Chhattisgarh, Himachal Pradesh,
Madhya Pradesh, Rajasthan, Tamil Nadu and Uttarkhand). We found that MGNREGA
decreased short-term migration by 10% and had no effect on long-term migration.
These results were confirmed using detailed survey data collected by the RICE
institute in 70 villages at the borders of Rajasthan, Madhya Pradesh and Gujarat. As
compared with workers living in similar villages just across the border, adults in
Rajasthan work nine more days on MGNREGA and are 18% less likely to leave the
village for work during the summer months (March-July).

In view of the relative size of the rural and urban labour force, even a small change in
short-term migration from rural areas may have large effects on urban wages. We
tested this empirically by using a model of migration flows to predict separately for
each city short-term migration rates from rural areas where MGNREGA work was
provided in 2007-08, and from rural areas where MGNREGA work was not provided.
We show that wages increased in cities that rely more on migrants from rural areas
with MGNREGA. According to our estimates, the drop in seasonal migration caused
by MGNREGA increased urban wages by 6%. This is not the end of the story, because
the rise in urban wages in turn attracted more short-term migrants from rural areas
without MGNREGA work, which mitigated the increase of urban wages. Across India
we estimate that increased migration from districts without MGNREGA work
decreased urban wages by 5%, so that the net effect is plus 1%. This mitigating factor
may have been short-lived, however, as MGNREGA was later rolled out across rural
India, which would have decreased seasonal migration and further increased urban
wages.

MGNREGA, like many other social programmes in developing countries, uses money
from a mostly urban tax base to provide income support to the rural poor. Our results
highlight another effect of MGNREGA: by raising wages in rural and urban areas, it
redistributes income from the rich, who are more likely to hire labour, to the poor,
who are more likely to be casual labourers.

Clement Imbert and John Papp are, respectively, post-doctoral research fellow at the
University of Oxford, and a board member at the Research Institute for Compassionate
Economics (r.i.c.e).

Published with permission from Ideas for India[2] , an economics and policy portal.

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