Do Financial Concerns Make Workers Less Productive?

Supreet Kaur, Sendhil Mullainathan, Suanna Oh and Frank Schilbach

No 28338, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Workers who are worried about their personal finances may find it hard to focus at work. If so, reducing financial concerns could by itself increase productivity. We test this hypothesis in a sample of low-income Indian piece-rate manufacturing workers. We stagger when wages are paid out: some workers are paid earlier and receive a cash infusion while others remain liquidity constrained. The cash infusion leads workers to reduce their financial concerns by immediately paying off debts and buying household essentials. Subsequently, they become more productive at work: their output increases by 7% (0.11 SD), and they make fewer costly, unintentional mistakes. Workers with more cash-on-hand thus not only work faster but also more attentively, suggesting improved cognition. These effects are concentrated among more financially constrained workers. We argue that mechanisms such as gift exchange or nutrition cannot account for our results. Instead, our findings suggest that financial strain, at least partly through psychological channels, has the potential to reduce earnings exactly when money is most needed.

JEL-codes: D03 D14 D31 J24 O1 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-cwa, nep-exp and nep-hrm
Note: DEV LS PR
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