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 well-investigated in the empirical literature. Using nationally representative data from India, this article tests the relationship between social identity and perceptions of income adequacy, and examines whether institutional change, such as the introduction of MNREGA, can alter the relationship.
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 India, and investigate whether institutional change, such as the introduction of an employment guarantee scheme, can alter it (Goel and Deshpande 2016).
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 in turn led to welfare gains among the poor that extended beyond those received by programme participants (Imbert and Papp 2015). Given this, it is plausible that MNREGA raised earnings expectations and norms about appropriate earnings among the poor, and especially among lower-caste households. We therefore expect it to have had a greater effect on the perceptions of lower-castes, such that their notion of what constitutes a remunerative income increased, vis-à-vis the UCs.
Third, we examine the relationship between caste identity and actual earnings, and whether MNREGA affects actual earnings of caste groups differentially.
Relationship between social identity and perceptions of income adequacy
Our main results are as follows. Based on two cross-sections of EUS data , we find that in 2004-05, relative to UC perceptions, STs perceived 7-19% lower amounts as remunerative, SCs 5-16% lower, and OBCs 3-10% lower. The corresponding figures for 2009-10 were 9-17% lower for both STs and SCs, and 5-10% lower for OBCs.
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 large share of missing data on actual incomes for 2009-10, we use consumption expenditure as a proxy for actual earnings for studying the impact of MNREGA. We find that MNREGA did not change the consumption expenditure of OBCs vis-à-vis that of UCs. There is weak evidence that it worsened the consumption expenditure of STs vis-à-vis UCs, and improved consumption expenditure of SCs vis-à-vis UCs.
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 actual provision of employment. Dutta et al. (2012) and Liu and Barrett (2013) use EUS, 2009-10 to rank states according to participation rates, and the severity of rationing of MNREGA work. Based on these rankings we classify 27 Indian states into two groups: 14 states called ‘star’ states that are characterised by high participation and low rationing (treatment states), versus the rest (control states). The second exploits the variation in time exposure of districts to the scheme, as MNREGA was rolled out in a phased manner and was first implemented in poorer districts within each state. We expect the scheme to have had a greater impact on individuals residing in Phase I and II districts (earlier roll-out treatment districts) than those residing in Phase III (later roll-out control districts).
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 perception of income from self-employment as being remunerative, as one of the interpretations of income adequacy, a question that arises is what exactly does the word ‘remunerative’ convey to the respondent? Although we accessed the NSS question in English, the actual survey was administered in a different language in each state. We looked up the Hindi survey instrument (which we understand well) since Hindi is the most widely spoken language in India. The exact question in Hindi2 connotes the notion of appropriate earnings, given effort (and ‘remunerative’ is not used as sufficient or desirable). We believe this interpretation of remunerative fits in perfectly with our interpretation of this question as a valid way to measure the notion of income adequacy.
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 small-scale business. If lower-caste groups are aware of this discrimination, their notions of amounts that constitute remunerative earnings are likely to be shaped by the ground realities. This channel of the relationship between actual earnings and perceptions appears highly likely, though it is not possible to verify it based on this data.
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 abolition of quotas question the extent to which caste identity is salient in contemporary India and wonder whether the existence of quotas solidifies caste identities, which, if left untouched, might be losing their hold. Our research shows the pervasive and pernicious association between caste identity and perceptions about remunerative earnings in the sphere of self-employment, which is completely outside the purview of quotas. Thus, we provide evidence for one more dimension of the salience of caste in contemporary India.
- 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, XLVIII (10): 46-53.
- 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.