The Impact of NREGS on Urbanization in India∗

This paper tests the impact of the National Rural Employment Guarantee Scheme (NREGS) on (1) rural-urban migration; (2) urban unemployment and (3) Inequality in India. We use the simple Harris-Todaro framework to analyze the labor market outcomes of this policy intervention. We use district level data from two rounds of National Sample Survey (NSSO) to compare districts where the NREGS was launched with nearby districts, over time. Our main results show that the NREGS has signi cantly reduced rural to urban migration in India by 27.9 percent and has reduced urban unemployment by 38.7 percent. Our results on inequality are ambiguous. We have further disaggregated the data to study heterogeneity of results. Analyzing causes of migration shows that employment related migration reduced by 58.5 percent; marriage related migration fell by 33.6 percent and as expected, study related migration was una ected by the job scheme. Disaggregating by education level reveals that NREGS reduced rural-urban migration of illiterate households by 32 percent. Literate households were una ected by this labor market scheme which guarantees unskilled employment at a minimum rural wage. Further decomposition across di erent sectors of the economy reaveals that NREGS reduced rural to urban migration into services sector by 26 percent while migration into manufacturing sector was una ected. ∗Preliminary draft †Assistant Professor of Economics, Indian School of Business, corresponding author; [email protected] ‡Assistant Professor of Economics, Indian School of Business