Does the employment guarantee scheme stabilize household incomes in rural India?

Abstract

Our analysis, based on the ICRISAT panel survey of villages in the semi-arid region of south India, confirms the income stabilizing effect of the Employment Guarantee Scheme in India. Variability of household income is measured by an unconditional variance of residuals of an income equation. A (variant) of Heckman's sample selection model is employed to allow for the endogeneity of EGS participation and to assess its income stabilizing role. The (instrumented) EGS participation reduces the residual variance of household income, implying consequent income stabilization.

Acknowledgement

Raghav Gaiha acknowledges the support given by Harvard's Centre for Population and Development Studies.

Notes

¹ See Gaiha (2000), Gaiha and Imai (2006), Gaiha (2007) and for reviews of the EGS, and Datt and Ravallion (1994) for an important contribution. Note that Walker and Ryan (1990) assess the income stabilizing role of the EGS in terms of differences in the coefficient of variation of household income with and without the EGS.

² This is an extension of the methodology to construct a measure of profit risk, proposed by Ghosal and Loungani (2000). The unconditional uncertainty measure, based on GARCH (1,1) applied to monthly income of each households, gives similar results. Details will be furnished on request.

³ The coefficient of correlation between household income variability and illness measures (i.e. total number of monthly dummy variables (summed over an entire crop year) as to whether a particular member of the household is ill for at least one day) is 0.30.