Can public works infrastructure affect employment outcomes? Evidence from the NREGS in India

In this paper, I look at the effects of the infrastructure created under India’s public works programme – the National Rural Employment Guarantee Scheme (NREGS) – on employment outcomes. In order to attribute observed outcomes to infrastructure creation, I address all potential causal mechanisms through which the NREGS could affect employment, namely increases in productive investments and the demand for labour among NREGS beneficiaries, an increase in wages in the implementing villages, as well as an increase in economic activity due to the infrastructure created with the NREGS. Lastly, I analyse which types of infrastructure are particularly beneficial for increasing long-term employment. The results of this paper are as follows. I find little evidence that village employment levels are affected by increased investments of the NREGS beneficiaries or by wage changes due to the NREGS. In contrast, I find that the creation of productive infrastructure through the NREGS can indeed positively affect employment outcomes in targeted villages. Which infrastructure projects are most promising depends on the sector in which employment is to be created and on the social group that is to benefit. Effects on total employment are largest when infrastructure is targeted towards land development.