Flexible Work Arrangements and Firm Outcomes

Policy Context

As countries develop, they undergo structural changes in the organization of labor, particularly, a shift from self-employment to employment in firms (Breza and Kaur, 2025; Bandiera et al, 2022). This makes understanding frictions to wage-employment an important topic for both research and policymaking in low income countries. Recent work attributes the prevalence of high self-employment rates in low-income countries to workers’ preferences for flexibility (Cefala et al, 2025), this can be a consequence of under development itself, where the prevalence of health shocks, lack of formal care infrastructure, or dependence on social ties may contribute to such preferences (Breza and Kaur, 2025). However, providing flexibility may be costly for firms, especially when production occurs in teams, such as assembly line manufacturing. This project studies the trade-off between firm and worker preferences, with the aim to shed light on a new type of labor market friction that may affect firm productivity. The project studies small-medium factories in India, where workers are hired on piece rates, giving them the flexibility to choose their own work schedules. In the status quo, there is significant dispersion in worker arrival times at the firm, and firm owners agree that such flexibility affects their total output.

The project conducts an RCT with 97 small-medium factories and their workers in India to test whether flexibility affects firm output.

Study Design

The project collects detailed, daily attendance and production data from sample firms for a period of 6-weeks. At the beginning of the study, firms are randomized into a treatment and control group, workers in treatment firms are incentivized to follow fixed-work schedules for a 4 out the 6-weeks. Treatment incentives are designed as a daily bonus of Rs. 100 (20% of average daily earnings), paid conditional on arriving at the firm by the owners’ pre-specified work start time. Workers in control firms receive unconditional incentives for the same period, matched to a randomly chosen treatment firm each week to address concerns about income effects on worker productivity.

Results and Policy Lessons

1. Treatment incentives encouraged workers to arrive early.
Workers in treatment firms are 44% more likely to arrive on or before time. This result is largely driven by female workers, and those who were consistently late at baseline.

2. Workers in treatment firms produce more and earn more because of the incentives. Total weekly worker output and earnings (excluding the incentive amount) increase by 500 pieces (17%) and Rs. 200 (7%) respectively in treatment firms. Increases in worker output are realized by all workers in the firm, and not just workers who changed their arrival times because of the incentives. This suggests that having some workers arrive early benefited all workers in the firm.

3. Overall firm production increases: firm output and revenues increase by 14% relative to control firms, resulting in weekly firm revenues of INR 9,300. Total labor cost, including the treatment incentives increase by INR 8,000. Accounting for non-labor costs incurred by firms during the incentive weeks, weekly firm profits increase by INR 2,600 (30% of weekly baseline profits). Increases in overall firm output are explained by a better allocation of tasks among workers and owners. Owners’ report spending less time on production, quality checks, and calling workers up. The increased certainty in worker arrival times also enabled owners to increase the quantity of orders received by the firm.