Reform jobs scheme, but build on its gains

Fix implementation, but do not revoke the right to employment itself

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India’s rural employment programme, Mahatma Gandhi National Rural Employment Guarantee Scheme (or MGNREGS), has long attracted two criticisms.

First, that it is wasteful, and plagued by leakages and corruption; second, that it is distortionary — raising wages without boosting productivity, and hurting employment. Both critiques point to the same policy question: Should the answer be to fix implementation, or to redesign the programme itself?

Over the past decade, credible research has delivered a clear lesson. When implementation improves —by making work more readily available, reducing leakages, and ensuring timely wage payments — the gains are substantial. In a large-scale randomised evaluation of improving MGNREGS implementation, covering around 19 million people in Andhra Pradesh and Telangana, we found sharp income increases and meaningful poverty reduction. Crucially, these gains mostly came not from MGNREGS wages themselves, but from higher private labour market earnings.

These findings overturned our own prior beliefs. Like many economists, we were sceptical that MGNREGS could raise wages without reducing employment. The data, however, showed the opposite. Better implementation increased both market wages and private employment by strengthening workers’ outside options in rural labour markets with employer market power. Higher incomes then boosted local demand, leading to a significant expansion of non-farm enterprises and employment, as confirmed by Economic Census data. Thus, better MGNREGS implementation improved both equity and efficiency, which is rare for a welfare programme.