Workers who are worried about their personal finances may find it hard to focus at work. If so, reducing financial concerns could 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% (0.11 std. dev.), 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.
How does identity influence economic behavior in the labor market? I investigate this question in rural India, focusing on the effect of caste identity on job-specific labor supply. In a field experiment, laborers choose whether to take up various job offers, which differ in associations with specific castes. Workers are less willing to accept offers that are linked to castes other than their own, especially when those castes rank lower in the social hierarchy. Workers forgo large payments to avoid job offers that conflict with their caste identity, even when these decisions are made in private.
