Do Financial Concerns Make Workers Less Productive?

62 Pages Posted: 19 Jan 2021 Last revised: 6 Dec 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

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 7.1% (0.12 SDs), 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.

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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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