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Public Works as a Safety Net
Box 7.3
Examples of Cost-Effectiveness Calculations The cost-effectiveness of public works programs in Ethiopia, India, Liberia, Niger, and Sierra Leone—countries for which databases are readily available—was calculated using the following four variables: the share of wage costs relative to program costs, targeting performance, net wage gain (the share of the gross wage received by the poor after taking into account any foregone income), and indirect benefits that accrued to the poor from the assets created or services provided. These variables and the analysis are detailed below and summarized in the table. The average share of wage costs for some successful public works programs in low-income countries ranges from around 60 percent in India’s National Rural Employment Guarantee Scheme, 65 percent in Liberia, 60–80 percent in Bangladesh’s Food for Work Program, 70 percent in Niger, to 85 percent in Ethiopia’s Productive Safety Net Program (PSNP). In higher-income countries, the share of wage cost varies depending on the type of activity. In Argentina, for example, the share was about 40 percent in construction projects, and a much higher 80–90 percent in service industry projects. Targeting performance measures the proportion of wages that went to beneficiaries in the two poorest deciles of the population. PSNP represents good international practice in this regard, with 87 percent of beneficiaries in the target group. In Liberia’s Cash for Work Temporary Employment Program, it is estimated that between 74 and 86 percent of the program participants are poor. In Bangladesh’s Employment Guarantee Program, 80 percent of the beneficiaries are poor: approximately 67 percent of program benefits went to the poorest 40 percent of the population, and 37 percent went to the poorest 20 percent. Achieving high targeting efficiency is not easy; in Sierra Leone, only about 46 percent of program participants are likely to be poor. Net wage gain measures the share of the gross wages received by participants after taking into account any income that would have been expected in the absence of program participation. The gains are usually higher if the programs are run during the lean agricultural season. International experience varies greatly, ranging from 50 percent in the Jefes program in Argentina, where more work alternatives are available; to around 75 percent in India, 79 percent in Sierra Leone, and 93 percent in Liberia. Liberia’s high percentage reflects the fact that (continued next page)