Public employment programmes

Minimum wages and NREGS in India

India’s National Rural Employment Guarantee Scheme (NREGS), introduced in 200 districts in 2005–06, was extended to the entire country covering 619 districts in 2009–10. The programme seeks to provide a guarantee of up to 100 days of employment per household in the rural areas. All rural households willing to supply labour are required to register with their village council (gram panchayats) and are issued a job card.

The programme provides legal entitlement not only to work on demand but also to be paid minimum wages. Wages under NREGS were initially linked to statutory state-level minimum wages for agricultural labourers, and later to the national minimum wage floor. Men and women are paid similar wages – a significant policy change from earlier employment guarantee schemes. Data show that in 2009–10 about 52 million households in 619 districts were provided with employment, with an average of 65 days per household.1

As the employment guarantee scheme was introduced and expanded, the rate of compliance with minimum wages increased. In rural areas, estimated compliance almost doubled, from 26.4 per cent in 2004–05 to 49.8 per cent in 2009–10.2  The gap in rural wages between formal salaried workers and casual workers decreased, and the gender wage gaps in rural India also declined.

While there are competing explanations for these trends, it seems plausible that the employment guarantee scheme played an important role in them. One study of 249 districts across 19 Indian States over the period 2000-2011 found that on average NREG increased the real daily agricultural wage rate by 5.3 per cent.3 Another study also found that NREGA had a significant positive impact on the wage of female casual workers, which increased 8% more in NREGA districts compared to non-NREGA districts.4 Since then, several other studies have confirmed the direction of the results.5

2 See Rani, U. and P. Belser (2012). The effectiveness of minimum wages in developing countries: The case of India”, in International Journal of Labour Research, Vol. 4, Issue 1, pp. 45–66; and Rani et al., (2013). “Minimum wage coverage and compliance in developing countries”. International Labour Review, Vol.152, No.3-4, pp.381-410
3 Berg E., Bhattacharyya S., Durgam R., and M. Ramachandra, “Can Rural Public Works Affect Agricultural Wages? Evidence from India”, CSAE Working paper WPS/2012-05, University of Oxford
4 M. Azam, “The Impact of Indian Job Guarantee Scheme on labour Market Outcomes: Evidence from a natural experiment”, IZA Discussion Paper DP No.6548, IZA
5 See for example Rani, U. and R. Sen (forthcoming). “Economic growth and the role of labour market institutions in India” in Hayter, S. and Lee C H (eds.) Industrial Relations in Emerging Economies. ILO, Geneva.