Perceptions about income adequacy, in addition to actual income adequacy, are a critical part of individual well-being. However, factors that determine these perceptions have not been
Perceptions about income adequacy, in addition to actual income adequacy, are a critical part of individual well-being. Factors that determine these perceptions, especially the role of social identity and institutional change, have not been investigated well in the empirical literature. Using data from the Employment-Unemployment Survey (EUS) of the National Sample Survey (NSS), we test the relationship between social identity and perceptions of income adequacy in
We use data on “amounts considered as remunerative from self-employment” among caste groups in India that have an implicit status hierarchy. It is worth reiterating that the contemporary caste system in India consists of thousands of ‘jatis’ or castes that do not necessarily follow a linear hierarchy. These jatis are clubbed into four administrative categories that define data collection for the purposes of affirmative action, which is mostly caste-based: Scheduled Castes (SCs) is a list of formerly untouchable and lowest ranked jatis several of whom prefer to use the term ‘Dalit’ (meaning oppressed) as a term of pride; Scheduled Tribes (STs) is a list of marginalised tribal communities referred to as ‘Adivasis’ or the original inhabitants; Other Backward Classes (OBCs) is a collection of low- to middle-ranking castes and communities that are also eligible for affirmative action; everyone else is clubbed into a residual category called ‘Others’, which is used as a proxy for upper-castes (UCs).
We focus on three major questions. First, we explore if the amounts considered as remunerative from self-employment vary in a way that lower-ranked caste groups find lower amounts to be remunerative. This might be the case if they internalise expectations of discrimination, or be influenced by lower earnings of other workers in their caste group, and place an internal ceiling on what they realistically expect to earn.
Second, we examine if the introduction of the world’s largest workfare programme, the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA)1 alters perceptions in such a way that lower-caste groups find higher amounts to be remunerative. We expect MNREGA to have a differential effect by caste because it specifically targets poorer households that are disproportionately SC or ST. Several studies (Berg et al. 2018, Imbert and Papp 2015) have found that the scheme pushed up rural wage rates for private casual work, and this
Third, we examine the relationship between caste identity and actual earnings, and whether MNREGA affects actual earnings of caste groups differentially.
Our main results are as follows. Based on two cross-sections of EUS
Contrary to our expectations, we do not find that MNREGA affected ST or SC perceptions any differently than UC perceptions. However, the scheme had a positive effect on OBC perceptions vis-à-vis those of UCs, and this improvement was mainly the result of a direct impact on OBC notions of what they considered as remunerative earnings rather than due to an improvement in their economic conditions. Thus, institutional shifts do have the power to shape perceptions, but the contours of the change are more complicated than our ex-ante beliefs.
The EUS does not have data on actual earnings for the self-employed. We use a unique method to ascertain actual earnings from the data. We find that in 2004-05, STs, SCs, and OBCs earned amounts that were 18-30%, 17-29%, and 8-17%, respectively, lower than that earned by UCs. Due to
Effect of MNREGA
MNREGA was first implemented in early 2006 in the poorest districts of India, and by 2008 it had been rolled out throughout the country. We use two methods to identify the causal effect of MNREGA. The first relies on the variability across states in the effective implementation of the scheme. Although MNREGA is stipulated to be demand-driven, studies have suggested that political factors and lack of administrative capacity at various levels have led to supply constraints in
We use what is called ‘triple differencing’, which basically attributes any difference in caste-specific changes in perceptions (or consumption expenditure) between treatment and control units over the period 2004 (pre-MNREGA) to 2009 (post-MNREGA), to the scheme.
MNREGA can affect caste-specific perceptions either by directly affecting notions of what is considered as appropriate earnings (and without any change in economic realities), or it may first improve employment conditions and/or raise incomes which in turn may raise notions of appropriate remuneration. Of course, both of these could also be happening simultaneously. Our results show that MNREGA had been operative by directly raising norms about remunerative earnings, rather than by improving actual employment conditions and/or income and then affecting perceptions.
Since we are using the specific question about
Estimating actual earnings, we find that caste gaps in perceptions are smaller than those in actual earnings. This begs another question: What might be the direction of the relationship between perceptions and actual earnings? Perceptions can have ‘real’ consequences. For example, social psychologists have documented the causal nature of the impact of perceived racial discrimination on African-American psychological well-being (Sellers and Shelton 2003). In our context, is it the case that lower-placed groups have lower expectations, which then becomes a self-fulfilling prophecy? Causality could run the other way around too: Lower-ranked groups internalise existing disparities in earnings as ‘normal’ and/or expect discriminatory treatment, and thus, have lower perceptions. Deshpande and Sharma (2016) show discriminatory gaps in actual earnings for
Our results have a bearing on the debate over caste-based affirmative action policies in India that are implemented through quotas in public employment. Arguments in favour of
- MNREGA guarantees 100 days of wage-employment in a year to a rural household whose adult members are willing to do unskilled manual work at state-level statutory minimum wages.
- “Kya aap swa-rozgar se aay ko upayukt parishramik maante hain?”
- Berg, Erlend, Sambit Bhattacharyya, D Rajasekhar, and R Manjula (2018), “Can Public Works Increase Equilibrium Wages? Evidence from India’s National Rural Employment Guarantee”, World Development, 103: 239-254. Available here.
- Deshpande, Ashwini, and Smriti Sharma (2016), “Disadvantage and Discrimination in Self-Employment: Caste Gaps in Earnings in Indian Small Businesses”, Small Business Economics: An Entrepreneurship Journal, 46(2): 325-346. Available here.
- Dutta, Puja, Rinku Murgai, Martin Ravallion, and Dominique van de Walle (2012), “Does India's Employment Guarantee Scheme Guarantee Employment?”, Economic and Political Weekly, 47(16): 55-64.
- Goel, Deepti, and Ashwini Deshpande (2016), ‘Identity, Perceptions and Institutions: Caste Differences in Earnings from Self-Employment in India’, IZA Discussion Papers, 10198.
- Imbert, Clement, and John Papp (2015), “Labor Market Effects of Social Programs: Evidence from India's Employment Guarantee”, American Economic Journal: Applied Economics, 7(2): 233-263.
- Liu, Yanyan, and Christopher B Barrett (2013), “Heterogeneous Pro-Poor Targeting in the National Rural Employment Guarantee Scheme”, Economic and Political Weekly,
- Sellers, Robert M, and J Nicole Shelton (2003), “The Role of Racial Identity in Perceived Racial Discrimination”, Journal of Personality and Social Psychology, 84(5): 1079-1092. Available here.