Wednesday, November 7, 2012

Is the impact of NREGS on farm wages more nuanced?

Livemint points to an interesting finding from a study of farm wages and farm productivity that questions the conventional wisdom that the National Rural Employment Guarantee Scheme (NREGS) has increased rural wages and affected agriculture production. Kanika Mahajan writes,
The annual wage growth rate for men working in agriculture being 3.1% in the most recent period (2004-09) compared with just 1.8% in the previous period (1999-2004). The difference is even starker for women at 5% annual growth for 2004-2009 and a meagre 1.2% for 1999-2004... But these figures cannot be analysed in isolation. They must be looked at under the light of changing agricultural conditions across the two periods... the increase in foodgrain yield in 2004-2009 of 2.5% per year, while it was at a record low level of 0.1% per year during 1999-2004... The net increase in men’s agricultural wages (subtracting the foodgrain yield growth rate from real agricultural wage growth rate) stands at 1.7% for the period of 1999-2004 and 0.6% for 2004-2009. Thus, 2004-2009 effectually experienced a lower rate of increase in agricultural wages once the growth rate in yield is netted out... at the all India level, growth in net female agricultural wages is a modest 2.4% in 2004-2009 in comparison with the 1.1% in the 1999-2004.

So what is the story? Why has agriculture productivity increased during the latest period? What's the contribution of NREGS to this, if any? Is the increase in farm wages concealed somewhere? A satisfactory assessment of these trends will require more data and their analysis.

But as the author herself indicates, one plausible mechanism would be through the assets created under the NREGS. A large share of NREGS works were irrigation related ones like water harvesting structures and field channels. These works, even if semi-permanent and of poor quality, are certain to have increased the water availability for significant acreage. Is this showing up in the productivity figures?

In any case, if this is true, it only means that farm productivity has increased due to better inputs and not increased labour productivity. In fact, the lower increase in wages in the latest period could even point to a slowdown or even reduction in labour productivity. Is there a causal role for NREGS in this trend? Is it the case that the more productive workers have preferred the more remunerative NREGS work to farm labour?  Further, the figures also does not say anything about the non-farm rural wages, leave alone wages in other areas.

Update 1 (1/12/2013)

Livemint has this nice graphic on rise of rural wages across India.

While it is difficult to draw causal relationship with NREGS, its impact is undoubted. Will be interesting to examine the correlation between the penetration of NREGS (say, in terms of average mandays of rural jobs created per person) and the rise in wages. 


Shilp Verma said...

Interesting, I read that Livemint article and was not too convinced.

Our fieldwork suggests that the most productive labor is actually NOT going into MGNREGA. The interaction between MGNREGA and the local labor market differs from place to place depending on the prevailing market conditions and the sincerity with which MGNREGA is implemented. But in several places, we founf the impact of MGNREGA to be additive rather than substitutive. MGNREGA has attracted a large number of women and older men. The most productive workers are able to earn higher-than-MGNREGA wages in the residual market where MGNREGA wages have acted as a new wage floor.

More here.

gulzar said...

Shilp, Thanks much for the comments and link.

I think that whether the productive labour goes into NREGS or other activities would depend on the prevailing non-farm wages in the area. As you say, there are multiple stories associated with NREGS, depending on the local conditions.

Anonymous said...

Attributing the growth in real wages entirely to productivity growth appears naive and simplistic. Why preclude a simultaneous effect of labor shortages and productivity growth. I would place my bets on labor shortage given how noisy productivity data can be when aggregating across regions and crops.

And the presumption that somehow the shoddy NREGA works related to irrigation channels and water conservation positively influenced yields is more a wishful thinking.

Anonymous said...

Assets created under NREGA is like my love life. Non existent.