Spillover effects of public works on labor markets: Evidence from national rural employment guarantee scheme, India

Public works guaranteeing work at pre-determined wages are intended to provide security to the seasonally unemployed. These programs, also referred to as "cash-for-work" or workfare, are an increasingly used feature of labor market policy for developing countries. Long durations of guaranteed employment at close to, or above the prevailing market wage are likely to put upward pressure on the local market wage rate through two channels---higher competition for casual labor and increased enforcement of minimum wages (Berg et al. 2012, Subbarao 2003). When implemented non-uniformly across proximate and interlinked labor markets, these programs are also likely to generate spillovers from assigned to unassigned areas. Accounting for these spillovers is necessary and indeed, critical for a comprehensive cost-benefit analysis of large-scale public works programs, increasingly being viewed as anti-poverty schemes.;Impact evaluations of the world's largest public works program, India's National Rural Employment Guarantee Scheme (NREGS), have estimated a variety of labor market effects (Azam 2012, Berg et al. 2012, Imbert and Papp 2015), but this literature is agnostic about general equilibrium spillovers generated by the program, potentially biasing these estimates downwards. This dissertation first tests for the presence of general equilibrium spillovers generated by NREGS in neighboring but unassigned labor markets, exploiting the plausibly exogenous spatial and temporal variation in exposure induced by the program's staggered rollout. Next, it presents evidence for the theory that changes in short-distance, seasonal migration to contiguous program areas is the mechanism generating cross-district spillovers in exposed areas. Lastly, this study presents treatment effect estimates of the program's rural, urban and overall impact, after accounting for cross-district spillovers.;This analysis demonstrates that accounting for the downward bias introduced by general equilibrium spillovers results in substantially larger treatment effect estimates. In fact this study's spillover-robust point estimate of the program's effect on rural unskilled wages is nearly three times previous estimates (Imbert and Papp 2015, Berg et al. 2012). Further, the hypothesis of wage spillovers across districts being as large as direct treatment effects cannot be rejected, thereby implying that nearby exposed but unassigned districts experience the same magnitude of effects as assigned districts. Since public works programs are often started by sub-national governments which do not completely accrue the gains from them, these wage spillovers show the existence of a strong incentive to free-ride on a neighboring jurisdictions. Another important takeaway from these findings is that given finite resources, a strategic selection of highly connected labor markets could widen the geographic scope of spillovers from public works programs, thus implying cost-saving for the implementing government. While post-facto accounting for general equilibrium spillovers is necessary for choosing among a menu of policy alternatives to public works, the parameters discussed in this study are critical inputs that also enable: i) policymakers to know how their jurisdiction is likely to be affected by introduction and discontinuation of public works programs in neighboring jurisdictions, and ii) a more cost-effective design of public works by strategic selection of eligible areas.