**Polic7, Research, and External Affalfs**

<!-- Start of picture text --> Agricultural Policies<br>WPS 568<br><!-- End of picture text --> This paper -a product of the Agricultural Policies Division, Agriculture and Rural Development Department -is part of a larger effort in PRE to research the pcrformance of poverty alleviation schemes and the implications for policy design. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Cicely Spooner, room N8-039, extension 30464 (36 pages). Relief work schemes provide well-targeted relief increase in wage rates. This partly reflected to poor people, and valuable insurance against good monsoons but, controlling for monsoons, poverty. But their success may depend on the tlhere are signs that falling employment reflected - scheme's design particularly the wage rate rationing; some poor people who wanted relief and coverage offered. work could not get it.

increase in wage rates. This partly reflected good monsoons but, controlling for monsoons, tlhere are signs that falling employment reflected rationing; some poor people who wanted relief work could not get it.

The most famous and one of the most successful of these programs is the Employment Guarantee Scheme (EGS) that has been in operation since the mid-1970s in the Indian state of Maharashtra. In a typical year it provides about 100 million person-days of unskilled employment on rural infrastructure projects, at an average cost of about one dollar a day in the late 1980s. The demand for EGS work fluctuates enormously from year to year (depen(iinig on the vagaries of the monsoon) and across seasons in a given year.

In mid-1988 the piece rates paid to workers on EGS doubled, in line with new statutory minimum wage rates for agricultural labor. Ravallion, Datt, and Chaudhuri investigated the effects of this sudden increase on the scheme's cost, the workers' wages, and their ability to find work when needed.

They found that the impact of tlhe wage increase on real cost was dampened by inflation, adjustments in the composition of work, and, most important, by falling employment. The aggregate real cost per month fell after the Ravallion, Datt, and Chaudhuri found that EGS met less than half of the demand for work after the wage increase and that almost all of the fall in EGS employment was from rationing. The effects of the initial wage increase on the poor are ambiguous: some could get higher wages but others went without desired relief work.

The concept ol assured employment, albeit at a low wage, can be attractive in terms of poverty alleviation: it generally allows scarce resources to go to the poorest first (at least those able to work), it maximizes the insurance benefits to the poor, and it helps undermine some of the possibilities for corruption on such schemes - and for exploitation in labor markets and tenancy contract.s.

But acaieving these beneflts with limited budgetary resources requires a low enough wage rate. The recent experience in Maharashtra suggcsLs that imposing a higher wage rate when you don't have the budget to pay for it is not in the interests of all of the poor.

Thc PRE Working Paper Scries disseminates the findings of work under way in Lhc Bank's Policy, Rcscarch, and Extemal Affairs Complex. An objective oflhc scrics is to getthesef indings out quickly, ecen if presentations arc less than fully polished. The findings, interpretations, and concltisions in these papcrs (do not necessarily represent official Bank policy.

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