Workfare and Human Capital Investment: Evidence from India
We examine the effect of India's National Rural Employment Guarantee Scheme (NREGS), one of the largest workfare programs in the world, on human capital investment. Since NREGS increases labor demand, it could increase the opportunity cost of schooling, lowering human capital investment even as incomes increase. We exploit the staged rollout of the program across districts for causal identification. Using a household survey of test scores and schooling outcomes for approximately 2.5 million rural children in India, we show that each year of exposure to NREGS decreases school enrollment by 2 percentage points and math scores by 2% of a standard deviation amongst children aged 13-16. In addition, while the impacts of NREGS on human capital are similar for boys and girls, adolescent boys are primarily substituting into market work when they leave school while adolescent girls are substituting into unpaid domestic work. We find mixed results for younger children. We conclude that anti-poverty programs which raise wages could have the unintended effect of lowering human capital investment.
We would like to thank Natalie Bau, Eric Edmonds, Ed Glaeser, Nathan Hendren, Simon Jaeger, Emily Oster, Sarah Reber, Martin Rotemberg, and Jesse Shapiro for helpful advice. We thank Wilima Wadhwa for generously sharing the ASER data. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- A large workfare program in India led to increased school dropout rates and lower test scores among poor youth. Dozens of...
Manisha Shah & Bryce Millett Steinberg, 2021. "Workfare and Human Capital Investment," Journal of Human Resources, vol 56(2), pages 380-405. citation courtesy of