We use these estimates to compute the welfare impact of NREGA for households depending on their monthly per capita consumption. We first consider gains from participation in the program and find that the poorest quintiles are more likely to benefit from public employment provision. We also consider the impact of a rise in private sector wages, which may affect all households, and show that it generates substantial welfare gains to the poor (30 to 60% of total welfare gains) and implies a welfare loss for the rich, who are net buyers of labor.
The first conclusion of this study is that equilibrium effects are important, and should be taken into account to evaluate the impact of social programs on beneficiaries and non-beneficiaries. The second conclusion is that through changes in market prices social programs make some people lose: large landholders are unlikely to participate to NREGA but will see their labor costs rise. Governments may want to use these effects to trigger redistribution, but they may also provoke political resistance.