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Waiting for the paycheck: individual and aggregate effects of wage payment

Inés Berniell

No MWP2016/05, Economics Working Papers from European University Institute

Abstract: This paper shows that the frequency at which workers are paid affects the within-month patterns of both household expenditure and aggregate economic activity. To identify causal effects, I exploit two novel sources of exogenous variation in pay frequency in the US. First, using a (as-good-as-random) variation in the pay frequency of retired couples, I show that those who are paid more frequently have smoother expenditure paths. Second, I take advantage of the cross-state variation in laws, and compare the patterns of economic activity in states with different legislation on pay frequency of wages. I document that low pay frequencies lead to within-month business cycles when many workers are paid on the same dates, which generates costly congestion in sectors with capacity constraints. These findings have important policy implications in a context where firms and workers do not internalize such congestion externalities, which generates market equilibria with suboptimally low pay frequencies.

Keywords: Pay frequency; Within-month business cycles; Congestion (search for similar items in EconPapers)
JEL-codes: E21 E32 J33 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-mac and nep-pke
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