Does Financial Strain Lower Worker Productivity?
AbstractThis paper empirically tests for a direct causal impact of financial strain on worker productivity.
We randomize the timing of income receipt among Indian workers who earn piece rates for manufacturing tasks: some workers receive their wages on earlier dates, altering when cash constraints are eased while holding overall wealth constant. Workers increase productivity by 5.3% on average in the days after cash receipt. The impacts are concentrated among poorer workers in the sample, who increase output by over 10%. This effect of cash on hand on productivity is not explained by mechanisms such as gift exchange, trust in the employer, or nutrition. We present positive evidence that productivity increases are mediated through lower attentional errors in production, indicating a role for improved cognition after cash receipt. Finally, directing workers' attention to their finances via a salience intervention produced mixed results. Such primes do not appear to work effectively as a way to test the impact of worries as they also induce effort responses. Taken together, our results indicate a direct relationship between financial constraints and worker productivity and suggest that psychological channels mediated through attention play a role in this relationship.