Is Workfare Cost-Effective against Poverty in a Poor Labor-Surplus Economy?

Workfare schemes impose work requirements on beneficiaries. This has seemed an attractive idea for self-targeting transfers to poor people. This incentive argument does not imply, however, that workfare is more cost-effective against poverty than even poorly-targeted options, given hidden costs of participation. In particular, even poor workfare participants in a labor-surplus economy can be expected to have some forgone income when they take up such a scheme. A survey-based method is used to assess the cost-effectiveness of India's Employment Guarantee Scheme in Bihar. Participants are found to have forgone earnings, although these fall well short of market wages on average. Factoring in these hidden costs, the paper finds that for the same budget, workfare has less impact on poverty than either a basic-income scheme (providing the same transfer to all) or uniform transfers based on the government's below-poverty-line ration cards. For workfare to dominate other options, it would have to work better in practice. Reforms would need to reduce the substantial unmet demand for work, close the gap between stipulated wages and wages received, and ensure that workfare is productive -- that the assets created are of value to poor people. Cost-effectiveness would need to be reassessed at the implied higher levels of funding.

Bibliographic Details

Main Authors:	Murgai, Rinku, Ravallion, Martin, van de Walle, Dominique
Language:	English en_US
Published:	World Bank, Washington, DC 2013-10
Subjects:	ACCOUNTING, ADJUSTMENT PROCESS, AGRICULTURAL WAGE, AGRICULTURAL WAGES, ANTI-POVERTY, ATTRITION, AVERAGE UNEMPLOYMENT, AVERAGE WAGE, BARGAINING POWER, CASH TRANSFERS, CASUAL WORKERS, CATCHMENT AREA, CONSUMER PRICE INDEX, COST EFFECTIVENESS, COST-EFFECTIVENESS, COUNTERFACTUAL, DEMOCRACY, DEVELOPMENT ECONOMICS, DIVIDEND, DROUGHT, EARNING, ECONOMETRICS, ECONOMIC GROWTH, ECONOMICS, EGS, EMPLOYMENT EFFECTS, EMPLOYMENT GUARANTEE, EMPLOYMENT GUARANTEE SCHEME, EMPLOYMENT GUARANTEE SCHEMES, EMPLOYMENT OPPORTUNITIES, EMPLOYMENT PROGRAMS, FACTORING, FAMINE, FARM WORK, FARMERS, FINDING WORK, FOOD SECURITY, FOOD SUBSIDIES, GENERAL EQUILIBRIUM, GROSS WAGES, HIGH UNEMPLOYMENT, HUMAN CAPITAL, HUMAN DEVELOPMENT, HUMAN RESOURCES, IMPACT ON POVERTY, INCOME, INCOME COUNTRIES, INCOMES, INFLATION, JOBS, LABORERS, LABOUR, LACK OF INFORMATION, LAWS, LOCAL LABOR MARKETS, LOW INCOME, MALE WORKERS, MANPOWER, MANPOWER POLICY, MANUAL LABOR, MARKET WAGE, MARKET WAGES, MINIMUM WAGE, MONOPSONY, MONOPSONY POWER, NATIONAL INCOME, NET INCOME, NON-WAGE COSTS, OLD AGE, OPPORTUNITY COSTS, OUTPUTS, PER CAPITA CONSUMPTION, POLITICAL ECONOMY, POLITICAL PARTICIPATION, POOR, POOR FAMILIES, POOR HOUSEHOLDS, POOR PEOPLE, POOR RURAL HOUSEHOLDS, POST-REFORM, POVERTY ALLEVIATION, POVERTY IMPACT, POVERTY LINE, POVERTY LINES, POVERTY MEASURES, POVERTY RATES, POVERTY REDUCTION, POVERTY STATUS, PRESENT EVIDENCE, PRIVATE EMPLOYMENT, PRIVATE SECTOR, PRIVATE SECTOR WAGES, PRODUCTIVITY, PUBLIC EMPLOYMENT, PUBLIC EXPENDITURES, PUBLIC SERVICES, PUBLIC SPENDING, PUBLIC WORKS, PUBLIC WORKS PROGRAM, PUBLIC WORKS SCHEMES, RATION SHOPS, RESOURCE ALLOCATION, RIGHT TO WORK, RURAL, RURAL AREAS, RURAL DEVELOPMENT, RURAL ECONOMY, RURAL EMPLOYMENT, RURAL FARM, RURAL HOUSEHOLD, RURAL LABOR, RURAL LABOR MARKET, RURAL POOR, RURAL POPULATION, RURAL POVERTY, RURAL PUBLIC, RURAL UNEMPLOYMENT, RURAL WATER, RURAL WORKERS, SOCIAL SECURITY, TARGETING, TAXATION, TOTAL WAGE, TOTAL WAGES, TOTAL WORKERS, TRANSFER BENEFITS, UNEMPLOYED, UNEMPLOYMENT, UNEMPLOYMENT RATE, UNEMPLOYMENT RATES, UNINTENDED BENEFICIARIES, VILLAGE LEADERS, WAGE BARGAINING, WAGE DATA, WAGE DISTRIBUTION, WAGE FLOOR, WAGE GAINS, WAGE INCREASE, WAGE RATE, WAGE RATES, WELFARE RECIPIENTS, WOMEN WORKERS, WORK ACTIVITY, WORKER, WORKFARE PARTICIPANTS, NREGA, forgone income,
Online Access:	http://documents.worldbank.org/curated/en/2013/10/18425307/workfare-cost-effective-against-poverty-poor-labor-surplus-economy https://hdl.handle.net/10986/16888
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