Liberated bonded laborers: are they better off? Welfare and efficiency implications of an agricultural reform in Western Terai, Nepal

What are the welfare effects of a ban on permanent labour contracts for bonded labourers (kamaiyas) in Western Terai, Nepal? This paper evaluates whether the living conditions of the kamaiyas have improved after kamaiya contracts were forbidden in 2000. The ban was credibly enforced and within a short time the number of bonded labourers was reduced significantly.

The paper is based on qualitative and quantitative data from a field survey in Western Terai in 2005 and examines in particular questions such as:

• what characterises the kamaiya labour contract and why is it chosen by the kamaiyas?
• has the number of kamaiya labourers been reduced since 2000?
• if the number of kamaiyas has been reduced, what contracts have replaced the kamaiya contract?
• how do former kamaiyas see their new life compared to their former life as kamaiya labourers?
  

The author explains that the former kamaiyas may be divided into two groups, those who have become sharecroppers and those who work as casual labourers. The bonded labour contracts have mainly been replaced by sharecropping. Both groups have in common that their annual income has become more volatile since 2000. However, the author argues that both groups have become better off and explains that the ban on bonded labour has increased the wage level for casual workers in villages with a high presence of kamaiyas, which implies that the outside option of former kamaiyas has increased. The author argues that sharecropping is a more efficient institution than the kamaiya labour system.