Impact of Shocks on Labour and Schooling Outcomes and the Role of Public Work Programmes in Rural India

The effectiveness of the National Rural Employment Guarantee Scheme (NREGS) on rural labour market dynamics in India has been widely debated in the literature. However, the impact of the NREGS on non-agricultural labour market and children schooling outcomes in reference to exogenous rainfall shock is unclear from the existing literature. This paper exploits the Indian National Sample Survey and rainfall measures from the precipitation archive of the University of Delaware to investigate the role of the NREGS in the labour market and schooling outcomes of children during shocks. Using a difference-in-differences methodology, we focus on disaggregated shock specification and find a shock-cushioning pattern for the NREGS during negative shocks. However, there is an excess demand for labour during positive shock periods resulting from exposure to the NREGS. The implication is that the excess informal labour market opportunity translates to a reduction in school engagement for children. These findings summarily distinguish the role of the NREGS during positive and negative shocks respectively.