General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India

Abstract

Public employment programs may affect poverty through both the income they provide and their effects on private labor markets. We estimate both effects, exploiting a large-scale experiment randomized across 157 sub-districts (with an average population of 62,500 each) that improved the implementation of India's national rural employment guarantee scheme. The reform raised low-income households' earnings by 13%, with 90% of this gain coming from non-program earnings, driven by increases in both market wages and private-sector employment. Workers' reservation wages increased and their employment gains were higher in treated areas with more concentrated landholdings, consistent with monopsonistic labor markets. We also find increases in credit, private assets, and longer-term enterprise counts and non-agricultural employment, underscoring the far-reaching market impacts of the initial reform. Overall the results suggest that public employment programs can effectively reduce poverty in developing countries, and may also improve economic efficiency.