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Does Financial Stress Weigh on Worker Productivity?

  • Study tests whether having more cash on hand helps boost the productivity of low-income workers
  • Field experiment in India finds that easing financial worries is associated with better performance
  • Funds were often put towards reducing debt when they became available

Workers are more likely to be productive if they are not preoccupied with financial worries, according to a recent study.

The National Bureau of Economic Research recently published the results of research that sought to determine whether worker performance improved if they had more cash on hand. Researchers suggested that concerns about money create a psychological burden that can weigh on workers’ ability to perform effectively.

The study focused on 408 piece-rate workers at a factory in India producing paper plates. These workers split their time between agricultural work and odd jobs performed in the off-season, and the research was conducted at the time of year when they were most likely to be financially stressed.

Researchers randomized the timing of workers’ income receipts, meaning their overall income remained the same but that they occasionally received a larger share of money earlier in the pay period. Workers primarily used the influx of cash to pay off debts.

When they had more cash on hand, worker productivity increased by 6.2 percent and they made fewer mistakes on the job. These effects were also more pronounced among poorer workers.

Researchers suggest that the benefits were a result of the psychological effect of better financial security, and argue that they cannot be attributed to other factors such as nutrition or trust.

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