The Impact of India's Rural Employment Guarantee on Demand for Labor-Saving Technology

• Development Workshop

Date and Location

Monday, October 7, 2013, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

While India's GDP has grown at substantial rates for most of the past decade, leading to the emergence of a strong middle class, around 645 million Indians remain poor and over half of these severely poor, according to a 2010 multidimensional poverty index. Many of these make up the over 700 million Indians who remain dependent on rural wage work. The Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) addresses this by offering paid public works employment to the poorest rural laborers, boosting rural incomes and infrastructure. In this research, I show that the program also can lead to the unintended consequence of premature labor-saving technology adoption. I develop a theoretical model showing that NREGA's provision of public works employment to unskilled rural labor could raise rural wages to the point where farm owners substitute technology for labor in the short run. The progressive rollout of the program allows me to use panel and regression discontinuity methods that yield an estimated 10 percentage point increase in labor-saving technology due to the program. These results show a decrease in the threshold cutoff farm size for technology adoption that occurs within the smallest farm groups, where animal-powered implements are the first to replace labor previously done by hand. Though NREGA benefits poor laborers and hampers farm owners in the short run, the long-run impacts may reverse this scenario. I argue that whether owners and workers benefit from the program in the long run will depend on productivity increases due to adoption, the quality of NREGA's public works, and the degree of permanence of adopted technologies.