Can public employment schemes significantly affect the nature of the violence process? Can the state, by providing employment in times of need “win the hearts and minds” of its citizens and thus, expand its monopoly of power? This paper answers these two questions by studying the impact of the world’s largest public employment scheme on the labour market for insurgents.
India serves as a unique environment to study this question, as it has suffered from many low-intensity intra-state conflicts mostly throughout its history. The National Rural Employment Guarantee (NREGA) was introduced in 2006 and effectively functions as a social insurance system by providing public employment to individuals, when they are in need for such employment.
I make three contributions. This is the first paper to study the relationship between insurgency violence and social insurance. In particular, the focus of this paper is not on the levels of violence, but rather on the elasticity of violence with respect to income.
The second contribution lies studying the dynamics of rural labour markets in India and how these are affected by social security systems.
The third contribution is a methodological one. This is the first paper to use a novel violence dataset that covers the whole of South Asia and has been constructed using a combination of manual coding and scalable Natural Language Processing Tools (presented in Fetzer (2013)). This paper highlights the possibility to use semi-automated machine-learning routines for data cleaning and preparation in economics research, where data availability is always a severe constraint.
The key findings of this paper are as follows. First, violence in India is indeed strongly income dependent. A 1% shortfall of rainfall increases conflict by 0.86%. This is not a new finding, as it has been observed previously by Vanden Eynde (2011) or Kapur et al. (2012). However, I am able to show that this result holds up using novel remote-sensed rainfall data and a broader conflict dataset covering the whole of India.
Secondly, I show that the introduction of the workfare program has almost completely removed the income dependency of violence. This does not necessarily mean that India has become a more peaceful place, but it provides strong evidence that one of the key drivers of violence has lost its bite. This finding is very robust to different ways of studying the data and thus represents the core finding.
In the third step, I reconcile the stark finding on the impact of NREGA with possible mechanisms that suggest why violence is income dependent. In particular, I assess to what extent an opportunity cost story may be helpful in explaining this finding. I first show that NREGA take-up is highly rainfall dependent, suggesting that public employment serves indeed as a form of insurance. Secondly, I show that agricultural wages have become less dependent on agricultural productivity once NREGA is introduced.