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Do Financial Concerns Make Workers Less Productive?

Supreet Kaur (), Sendhil Mullainathan, Suanna Oh and Frank Schilbach
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Supreet Kaur: University of California, Berkeley - Department of Economics; NBER

No 2021-07, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: We test whether increasing cash-on-hand raises the productivity of poor workers. Our motivation is psychological. Concerns about money can create mental burdens such as worry, stress, or sadness. These in turn could interfere with the ability to work effectively. We empirically test for this possibility using a field experiment with piece-rate manufacturing workers in India. We randomize the timing of income receipt, so that on a given day some workers have more cash-on-hand than others. This manipulation holds constant wages and piece rates, as well as human and physical capital. On cash-rich days, average productivity increases by 0.11 standard deviations (6.2%); this effect is concentrated among relatively poorer workers. Mistakes also decline on these days — an effect that is again concentrated among poorer workers. Having more cash-on-hand thus enables workers to work faster while making fewer errors, suggesting improved cognition. We argue that mechanisms such as gift exchange, trust, and nutrition cannot account for our findings. Instead, our results suggest a range of psychological mechanisms wherein alleviating financial concerns allows workers to be more attentive and productive at work.

JEL-codes: D03 D14 D31 J24 O1 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2021
New Economics Papers: this item is included in nep-cbe, nep-cwa, nep-dev, nep-exp and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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