Do Financial Concerns Make Workers Less Productive?
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.
We gratefully acknowledge generous funding and support from the Weiss Family Program for Research in Development Economics, the Eric M. Mindich Research Fund for the Foundations of Human Behavior, the Accountability Group, and the National Science Foundation. Arnesh Chowdhury, Sneha Subramanian, Medha Aurora, Manvi Govil, Piyush Tank, and Pedro Bessone provided excellent research assistance. We thank numerous seminar audiences for helpful feedback, and JPAL and the Institute for Financial Management and Research in India for operational support. This research was approved by MIT IRB (COUHES Protocol 1607623454), Columbia University IRB (IRB-AAAR0033), and by the IFMR Human Subjects Committee (IRB00007107). The study was registered on the AEA RCT registry, RCT ID AEARCTR-0002181. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.