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Understanding Nrega-- A Simple Theory And Some Facts

Author

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  • Diganta Mukherjee

    (Unitedworld School of Business Kolkata)

  • Uday Bhanu Sinha

    (Department of Economics, Delhi School of Economics, Delhi, India)

Abstract

A developing economy like India is often characterised by a labour market with demand and supply of labour and a wage that even if competitively determined may not be adequate for the poor household to reach their target income; what they consider as means of a decent living. Envisaging situations like these, the Indian government has implemented the National Rural Employment Guarantee Act (NREGA) in recent past, to complement the income of the poor by providing them employment for certain number of labour days in a year. In this paper, using a simple theoretical model, we have analysed the impact of NREGA scheme on (i) rural labour market, (ii) income of the poor households and (iii) overall agricultural production. It is seen that the income from NREGA alone can be a substantial part of the target income of the poor. We show that in such a situation, the poor may exhibit a backward bending supply curve of labour which may lead to an aggregate reduction in agricultural output. This adverse production effect can happen even when the NREGA activities lead to a moderate improvement in agricultural productivity. Data on food prices tend to support our finding to some extent.

Suggested Citation

  • Diganta Mukherjee & Uday Bhanu Sinha, 2011. "Understanding Nrega-- A Simple Theory And Some Facts," Working papers 196, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:196
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    References listed on IDEAS

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    1. Basu, Kaushik & Das, Sanghamitra & Dutta, Bhaskar, 2010. "Child labor and household wealth: Theory and empirical evidence of an inverted-U," Journal of Development Economics, Elsevier, vol. 91(1), pages 8-14, January.
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    6. Ravallion, Martin & Datt, Gaurav & Chaudhuri, Shubham, 1993. "Does Maharashtra's Employment Guarantee Scheme Guarantee Employment? Effects of the 1988 Wage Increase," Economic Development and Cultural Change, University of Chicago Press, vol. 41(2), pages 251-275, January.
    7. Arnab Basu, 2013. "Impact of rural employment guarantee schemes on seasonal labor markets: optimum compensation and workers’ welfare," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(1), pages 1-34, March.
    8. Ravallion, Martin, 1991. "Reaching the Rural Poor through Public Employment: Arguments, Evidence, and Lessons from South Asia," The World Bank Research Observer, World Bank, vol. 6(2), pages 153-175, July.
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    Cited by:

    1. Narayan Chandra Nayak & Bimal Kishore Sahoo & Mamata Jenamani & Alok Ranjan Mohanty & Runa Sen Chatterjee, 2021. "Does Convergence of Rural Development Schemes Improve Household Welfare? An Investigation of Mahatma Gandhi National Rural Employment Guarantee Act in Odisha, India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 64(4), pages 1023-1042, December.
    2. Narayanamoorthy, A. & Bhattarai, Madhusudan, 2013. "Rural Employment Scheme and Agricultural Wage Rate Nexus: An Analysis across States," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 26(Conferenc).
    3. Sudhir Kumar 2 & Shivani Verma, 2014. "MGNREGA - A Step towards Rural Development," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 9(2), pages 5-13, October.
    4. Sheahan, Megan & Liu, Yanyan & Narayanan, Sudha & Barrett, Christopher B., 2015. "Disaggregated labor supply implications of guaranteed employment in India," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 237345, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    NREGA; target income; labour supply; agricultural productivity; India; Asia;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets

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