Research

Abstract: In low-income communities in both rich and poor countries, redistributive transfers within kin and social networks are frequent. Such arrangements may distort labor supply---acting as a "social tax" that dampens the incentive to work. We document that across countries, from the United States to Côte d'Ivoire, low-income groups report strong pressure to share earned income with others; in addition, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, we enable piece-rate factory workers in Côte d'Ivoire to shield income using blocked savings accounts over 9 months. Workers may only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. Offering Private accounts raises work attendance by 6.5% and earnings by 9.4%. These treatment effects are concentrated among workers who report higher redistributive pressure at baseline. To obtain further suggestive evidence on mechanisms, in a supplementary experiment, we vary whether blocked accounts are private or known to the worker's network. When accounts are private, take-up is substantively higher (60% vs. 14%), with a resultant 8.8% higher earnings. Outgoing transfers do not decline, indicating no loss in redistribution. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.

Abstract: Schooling may build human capital not only by teaching academic skills, but by expanding the capacity for cognition itself. We focus specifically on cognitive endurance: the ability to sustain effortful mental activity over a continuous stretch of time. As motivation, we document that globally and in the US, the poor exhibit cognitive fatigue more quickly than the rich across a variety of field settings; they also attend schools that offer fewer opportunities to practice thinking for continuous stretches. Using a field experiment with 1,600 Indian primary school students, we randomly increase the amount of time students spend in sustained cognitive activity during the school day—using either math problems (mimicking good schooling) or non-academic games (providing a pure test of our mechanism). Each approach markedly improves cognitive endurance: students show 21% less decline in performance over time when engaged in intellectual activities—listening comprehension, academic problems, or IQ tests. They also exhibit increased attentiveness in the classroom and score higher on psychological measures of sustained attention. Moreover, each treatment improves students' school performance by 0.09 standard deviations. This indicates that the experience of effortful thinking itself—even when devoid of any subject content—increases the ability to accumulate traditional human capital. Finally, we complement these results with quasi-experimental variation indicating that an additional year of schooling improves cognitive endurance, but only in higher-quality schools. Our findings suggest that schooling disparities may further disadvantage poor children by hampering the development of a core mental capacity.

Abstract: Workers who are worried about their personal finances may find it hard to focus at work. If so, financial concerns by themselves could hinder 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. They use the cash to immediately pay off debts and buy household essentials, addressing their financial concerns. 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.

Abstract: This paper measures excess labor supply in equilibrium. We induce hiring shocks—which employ 24% of the labor force in external month-long jobs—in Indian local labor markets. In peak months, wages increase instantaneously and local aggregate employment declines. In lean months, consistent with severe labor rationing, wages and aggregate employment are unchanged, with positive employment spillovers on remaining workers—indicating that over a quarter of labor supply is rationed. At least 24% of lean self-employment among casual workers occurs because they cannot find jobs. Consequently, traditional survey approaches mismeasure labor market slack. Rationing has broad implications for labor market analysis.

Abstract: This paper develops a new approach to test for downward wage rigidity by examining transitory shocks to labor demand (i.e., rainfall) across 600 Indian districts. Nominal wages rise during positive shocks but do not fall during droughts. In addition, transitory positive shocks generate ratcheting: after they have dissipated, wages do not adjust back down. Ratcheting reduces employment by 9 percent, indicating that rigidities distort employment levels. Inflation, which is unaffected by local rainfall, enables downward real wage adjustments—offering causal evidence for its labor market effects. Surveys suggest that individuals believe nominal wage cuts are unfair and lead to effort reductions.

Abstract: Relative pay concerns have potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether coworkers within production units receive the same flat daily wage or differential wages according to their (baseline) productivity ranks. When co-workers’ productivity is difficult to observe, pay inequality reduces output by 0.45 standard deviations and attendance by 18 percentage points. It also lowers co-workers’ ability to cooperate in their own selfinterest. However, when workers can clearly perceive that their higher paid peers are more productive than themselves, pay disparity has no discernible effect on output, attendance, or group cohesion.

Abstract: Workers with self-control problems do not work as hard as they would like. This changes the logic of agency theory by partly aligning the interests of the firm and worker: both now value contracts that elicit more effort in the future. Three findings from a year-long field experiment with data entry workers suggest the quantitative importance of self control at work. First, workers choose dominated contracts—which penalize low output but provide no greater reward for high output—36% of the time to motivate their future selves; use of these contracts increases output by the same amount as an 18% increase in the piece-rate. Second, effort increases as the (randomly assigned) payday gets closer: output rises 8% over the pay week; calibrations show that justifying this would require a 4% daily exponential discount rate. Third, for both findings there is significant and correlated heterogeneity: workers with larger payday effects are both more likely to choose dominated contracts and show greater output increases under them. This correlation grows with experience, consistent with the hypothesis that workers learn about their self-control problems over time. Self-control problems among workers could potentially lead firms to either adopt high-powered incentives or impose work rules to allow monitoring of worker effort.

Abstract: A significant part of the development experience is the change in the way work is structured. We examine the role of self-control problems in effort--the idea that individuals may not be able to work as hard as they would like--in this transition. Some workplace arrangements may make self-control problems more severe, while others may ameliorate them. We describe evidence from a field experiment broadly supportive of the self-control perspective. We then argue that many work arrangements can be understood differently through this perspective. Specifically, we use self-control considerations to interpret the productivity increases and changes in work organization that accompany the shift from agrarian to industrialized production.

Abstract: The economic, social, and institutional features of poverty have the potential to alter how labor markets function. We lay out a set of stylized facts highlighting unique features of developing country labor markets---including the fact that wage employment levels are typically only 20-50\%. We review large bodies of evidence that provide support for possible interpretations of this fact. There is evidence that low wage employment reflects high levels of involuntary unemployment, along with frictions such as wage rigidity, market power, and search and matching frictions. At the same time, there is growing evidence that workers prefer self-employment or unemployment to many of the wage jobs that are available to them, especially low-skill work in the formal sector. We offer evidence on several ways in which poverty itself can dampen labor supply, so that ``low'' labor supply may itself be an outcome of under-development. This has relevance for understanding how labor markets change in response to, and help facilitate, the process of development.

Abstract: An emerging literature on “the psychology of poverty” suggests that the experience of poverty itself has psychological consequences, some of which may make escaping poverty more dicult. We synthesize the evidence base from both psychology and economics using an organizing framework comprising four sets of mechanisms: cognitive function, mental health, beliefs, and preferences. We discuss the strength of the evidence supporting both how poverty aects these four mechanisms, and how these four mechanisms in turn aect poverty. The existing evidence has established proof of concept that psychological factors exist in the experience of and response to poverty. However, there is still a lack of evidence on whether these eects are meaningful in magnitude and lead to the perpetuation of poverty. We conclude by summarizing promising future directions for research which could help close these evidence gaps, with implications for the design of poverty reduction policies.

Note: Current Directions in Psychological Science is a peer-reviewed psychology journal.

Abstract: We examine the possibility that labor supply is habit forming—so that past labor supply levels affect preferences for future supply. We undertake a field experiment with casual urban laborers in Chennai, India. We randomly provide some workers with small financial incentives for attendance over 7 weeks, leading to a 26% increase in labor supply. We test for habit formation by examining subsequent impacts after the incentives are removed. First, we see a persistent 18% increase in labor supply over the next 2 months, resulting in a 10% increase in employment. Second, treated workers exhibit a higher willingness to accept work contracts that are of longer duration and less flexible. They also self-report an increase in automaticity—suggesting a change in preferences. Third, shocks that temporarily pull workers out of the labor market lead subsequent treatment effects to collapse to zero; in the absence of these shocks, we cannot reject that there is no decay in effects over time. Fourth, in incentivized measures, employers accurately predict treatment effects, and prefer hiring workers who have been treated with a stronger habit stock in the past. Finally, in supplementary data from other settings, we replicate short-run persistent effects of transitory labor supply shocks—indicating the broader generalizability of state dependence in labor supply. Together, our results suggest that the intermittent nature of employment and frequent shocks experienced in low-income settings may inhibit workers from becoming habituated to regular work—with potential implications for the transition to formal regular work in poor countries.

Abstract: The consumption smoothing problem is complex, creating scope for errors. We posit that because potential expenses are typically more numerous, varied, and irregular than income, this can generate systematic bias—leading individuals to over-estimate their available resources and consequently under- save. We test this hypothesis among maize farmers in Zambia, who derive their annual income from one harvest and then spend it down over the year. We document that at baseline, individuals’ forecasts of their total expenditures for the upcoming year are 50% lower than their actual spending. Drawing on insights from the memory and planning fallacy literatures, we randomize an intervention that induces individuals to think through their budget set and formulate a spending plan. Treated individuals immediately increase their perceived future expenditures by 20-60%, and lower their willingness to pay for discretionary consumption by 34%. In the two months after the intervention, treated households decrease expenditures by 15%; they subsequently enter the hungry season—the final months of the year when consumption is at its lowest—with one additional month of savings, leading to a smoother spending profile over the year. They also self-finance additional investment in their farms, resulting in a 9% increase in annual crop revenue at the end of the year. We argue that budget neglect is a generalized phenomenon that may contribute to consumption smoothing failures in a variety of contexts.

Abstract: Individuals that participate in the same localized market often share social ties—creating scope for social norms to affect the functioning of markets. Using a field experiment with employers in 183 local labor markets in rural India, we test whether large groups of decentralized workers withhold labor supply at low wages due to norms against accepting wage cuts. Only 1.8% of agricultural workers are willing to accept jobs below the prevailing wage despite high unemployment, but this number jumps to 26% when this choice is not observable to other workers—indicating substantial distortion in the aggregate labor supply curve. In contrast, social observability does not affect labor supply at the prevailing wage. In addition, workers are willing to pay to sanction those who accept wage cuts. Consistent with aggregate implications, measures of social cohesion correlate with downward wage rigidity and its unemployment effects across India. In line with our experimental evidence, sellers in other decentralized spot market settings in India and Kenya state they would be unwilling to undercut prices, and would face strong social and economic repercussions from other sellers if they do so. In developing countries, norms have the potential to generate market power in a range of settings.

Abstract: Informal contracting among individuals underpins economic activity in developing countries. We design a simple test to detect failures in intertemporal trade among neighboring farmers in Indian villages. We offer to subsidize the cost of irrigation among buyer and seller pairs, and vary the seller’s expected ability to ensure future receipt of funds: the subsidy payment is delivered into the hands of either the seller (Seller-subsidy) or buyer (Buyer-subsidy). Relative to the Seller-subsidy, the Buyer-subsidy results in 58% less irrigation and a 0.34 standard deviation decrease in the buyer’s crop yields. These effects are not eliminated through experience or social or caste linkages. The surplus left on the table under the Buyer-subsidy corresponds to 16.1% of annual household income. These findings suggest that within the context of our experiment, barriers to interpersonal contracting have large consequences for investment, output, and earnings.