Do Financial Concerns Make Workers Less Productive?

62 Pages Posted: 19 Jan 2021

See all articles by Supreet Kaur

Supreet Kaur

University of California, Berkeley - Department of Economics

Sendhil Mullainathan

University of Chicago

Suanna Oh

Paris School of Economics (PSE)

Frank Schilbach

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

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Date Written: January 2021

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.

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Suggested Citation

Kaur, Supreet and Mullainathan, Sendhil and Oh, Suanna and Schilbach, Frank, Do Financial Concerns Make Workers Less Productive? (January 2021). NBER Working Paper No. w28338, Available at SSRN: https://ssrn.com/abstract=3768253

Supreet Kaur (Contact Author)

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Sendhil Mullainathan

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Suanna Oh

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Frank Schilbach

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

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