An interesting paper on the general equilibrium effects of NREGA! Looks like by influencing the outside option for rural workers, the NREGA improved their earnings in the private sector.


Public employment programs play a major role in the anti-poverty strategy of many devel- oping countries. Besides the direct wages provided to the poor, such programs are likely to affect their welfare by changing broader labor market outcomes including wages and private employment. These general equilibrium effects may accentuate or attenuate the direct benefits of the program, but have been difficult to estimate credibly. We estimate the general equi- librium effects of a technological reform that improved the implementation quality of Indias public employment scheme on the earnings of the rural poor, using a large-scale experiment which randomized treatment across sub-districts of 60,000 people. We find that this reform had a large impact on the earnings of low-income households, and that these gains were over- whelmingly driven by higher private-sector earnings (90%) as opposed to earnings directly from the program (10%). These earnings gains reflect a 5.7% increase in market wages for rural unskilled labor, and a similar increase in reservation wages. We do not find evidence of distor- tions in factor allocation, including labor supply, migration, and land use. Our results highlight the importance of accounting for general equilibrium effects in evaluating programs, and also illustrate the feasibility of using large-scale experiments to study such effects.

You can find the paper here: http://econweb.ucsd.edu/~pniehaus/papers/GE.pdf