Can Workfare Programs Decrease Human Capital Investments? Evidence from NREGA in India

• Departmental Seminar
• Development Workshop

Date and Location

Monday, May 11, 2015, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Workfare programs have become an important anti-poverty tool, but if they raise local wages, they can increase the opportunity cost of schooling for children. In this paper, we examine the effect of the largest anti-poverty workfare program in world: NREGA in India. We exploit the staged rollout of the program across districts to causally identify its effects on human capital investment. Using a household survey of test scores and schooling outcomes for almost 3 million rural children in India, we show that the introduction of NREGA results in decreased school enrollment, test scores, and achievement particularly amongst children ages 13-16. In addition, we show that while the impacts of NREGA on human capital are similar for boys and girls, boys are primarily substituting into market work when they leave school while girls are substituting into unpaid domestic work. We conclude that anti-poverty programs which raise wages could have the perverse effect of lowering human capital investment in the developing world.