Preferences for wage frequency and implications for behavior

Policy Context

Daily labor is ubiquitous in low- and middle-income (LMIC) countries and even when workers are hired for a prolonged period of time, wages are still paid on a daily basis and in cash. However, during a series of focus groups carried out in Lusaka, Zambia and Chennai, India during Summer 2018, researchers found a striking pattern: a substantial proportion of low-wage workers expressed a preference for receiving their wage payment weekly. A common motivation was that daily wages make it hard to save towards lumpy expenditures, and too infrequent payments become problematic, absent a credit market, in face of shocks that require an immediate cash payments (e.g. paying doctor fees for a sick family member or housing).

Study Design

In this project, researchers ask whether people show preferences over wage frequency in an incentivized setting. They then explore whether wage frequency payment has a causal effect on important economics behaviors — such as savings and composition of consumption.

To pursue these learning objectives, researchers conduct a randomized evaluation. First, they offer different wage payments options and elicit preferences by giving workers the choice to increase chances of having their preferred options implemented by forgoing some money. Then, they randomize the different contracts, along with cross-cutting interventions to understand the role played by different market frictions, such as absence of credit markets to smooth shocks, limited availability of saving technologies, monitoring costs and efforts, and by households and kinship.

Results and Policy Lessons

Contributions to policy are twofold: (1) On the one hand, it could show a way to incentivize economic outcomes (such as savings and/or purchase of durable goods) that are deemed to be important for helping people out of poverty. (2) On the other, this could be the stepping-stone for subsequent work aimed at understanding how market failures in low- and middle-income countries affect workers’ behavior as a way to design effective interventions.

Results forthcoming.