Research

Publications

Labor Rationing,” (with Emily Breza and Yogita Shamdasani), Forthcoming, American Economic Review.

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.

Nominal Wage Rigidity in Village Labor Markets,American Economic Review, 2019. 109(10): 3585-3616.

Recipient of the Distinguished CESifo Affiliate Award in Behavioural Economics.

[Slides] [Online Appendix] [Coverage: Marginal Revolution]

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.

The Morale Effects of Pay Inequality” (with Emily Breza and Yogita Shamdasani). Quarterly Journal of Economics, 2018. 133(2): 611-663.

[Slides] [Replication Files] [Coverage: VoxDev video, Wall Street Journal]

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.

Self-Control at Work” (with Michael Kremer and Sendhil Mullainathan). Journal of Political Economy, 2015. 123(6): 1227-1277 [lead article].

[Online Appendix] [Coverage: New York Times]

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.

Self-Control and the Development of Work Arrangements” (with Michael Kremer and Sendhil Mullainathan). American Economic Review Papers and Proceedings, 2010. 100(2): pp. 624-628.

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.

Working Papers

Do Financial Concerns Make Workers Less Productive?” (with Sendhil Mullainathan, Suanna Oh, and Frank Schilbach), Revise and Resumbit, Quarterly Journal of Economics.

[Slides] [Coverage: VoxDev podcast, NPR Planet Money]

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.

The Social Tax: Redistributive Pressure and Labor Supply” (with Eliana Carranza, Aletheia Donald, and Florian Grosset)

[Slides] [Coverage: World Bank policy brief]

Abstract: In developing countries, financial transfers within kin and social networks are frequent. We test whether redistributive arrangements dampen the incentive to work— distorting labor supply and earnings—among full-time piece-rate factory workers in Côte d’Ivoire. We offer workers blocked savings accounts, into which they can deposit incremental earnings increases over 3-9 months. The accounts vary in whether their existence is private or known to other network members, altering the likelihood of transfer requests against increased earnings. This changes the effective “social tax” on income gains—enabling us to isolate substitution effects on effort. When the accounts are private, account demand is substantively higher: 60% vs. 14%. In addition, workers increase labor supply and effort, resulting in 9% higher attendance and 14.5% higher output and earnings. Because our design leaves liquid cash-on-hand unchanged, we find no decline in transfers to others, indicating that income gains did not come at the expense of lower redistribution. Our estimates imply a 26% social tax rate on earned income. Our findings suggest that the potential welfare benefits of redistributive arrangements may come at an efficiency cost of lower output and earnings.

Propping Up the Wage Floor: Collective Labor Supply without Unions” (with Emily Breza and Nandita Krishnaswamy)

Abstract: Social norms have the potential to alter the functioning of economic markets. We test whether norms shape the aggregate labor supply curve by leading decentralized individuals to maintain wage floors in their local labor markets. We partner with existing employers who create new jobs for workers in informal spot labor markets. Unemployed workers would like to find work, and prefer to do so even at wages below the prevailing wage rather than remain unemployed. However, they rarely do so when this choice is observable to other workers. In contrast, social observability does not affect labor supply at the prevailing wage. Consistent with the idea that norms could have aggregate implications, measures of social cohesion correlate with downward wage rigidity and business cycle volatility across India.

The Limits of Neighborly Exchange” (with Ryan Bubb and Sendhil Mullainathan)

[Slides]

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.

“Cognitive Endurance as Human Capital” (with Christina Brown, Geeta Kingdon, and Heather Schofield)

[Email for draft, click to expand to view abstract]

Abstract: We examine the possibility that schooling may build human capital not only by teaching academic content, but by expanding the mind's capacity for cognition itself. We hypothesize that one feature of formal schooling---engaging in effortful thinking for sustained periods---could increase cognitive endurance: the ability to maintain focus over time. To motivate this idea, we document that globally and in the US, the poor exhibit worse cognitive endurance than the rich across a variety of field behaviors; they also attend schools that are less likely to require them to engage in concentration. We test our hypothesis using a field experiment with 1,650 low-income Indian primary school students. We assign students to engage in cognitive activity for sustained periods during the school day, using either math content (mimicking good schooling) or non-academic content (providing a pure test of our mechanism). Each approach markedly improves cognitive endurance across disparate domains: academics, listening, IQ tests, and traditional psychology measures. Moreover, the treatments increase students' regular school performance in Hindi, English, and math. This indicates that simply spending time in effortful thinking---without learning any subject content---substantively improves traditional measures of human capital. Our findings support a broader view of how schooling shapes general human capital, and suggest that worse environments may disadvantage poor children by hampering the development of core cognitive capacity.

Selected Work in Progress

“Budget Neglect in Consumption Smoothing: A Field Experiment on Seasonal Hunger” (with Ned Augenblick, Kelsey Jack, Felix Masiye, and Nicholas Swanson)


“Separation Failures: Market-Level Evidence for Labor Misallocation” (with Claire Duquennois, Jeremey Magruder, and Aprajit Mahajan)


"Biased Beliefs and Substance Abuse" (with Aprajit Mahajan and Nick Otis)