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Wallet 246How poverty makes workers less productive 

From an article by NPR

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They report on a new study by Sendhil Mullainathan, a behavioral economist at the University of Chicago. Poverty, he proposes, is like a parasite, consuming mental energy that could be put to more beneficial use. "Put simply, being poor is like having just pulled an all-nighter, and that hurts their ability to escape poverty."

His latest study is a field experiment with 408 workers over a couple weeks at a factory in Odisha, India. The workers at the factory make disposable plates used at local eateries. In this part of India, workers split their time between agriculture during the planting and harvesting season, and doing odd jobs the other part of the year.

When the researchers conducted the study, it was the part of the year when they were the most cash-strapped and in debt. Their main experiment was pretty simple: they randomly gave a group of workers a large portion of their compensation earlier in their work period rather than at the very end. On average, they were given 1,400 rupees, or about 20 dollars. This was equivalent to about what they had earned in the previous month, and a large fraction of them used the money to pay off outstanding debts.

The researchers then monitored the workers' on-the-job performance, comparing them to a group of workers that didn't get paid upfront. The researchers find that the workers who were paid upfront were significantly more productive, making 6.2% more plates per hour. The biggest effect was seen with the poorest workers. Even more, the plates they made were less likely to be marred by mistakes, indicating they were more attentive on the job.

The authors conclude that giving workers cash upfront helped alleviate the mental burden of their financial problems and freed them to be more productive. It echoes findings from other studies on the psychological consequences of poverty, but it is novel because it looked at the effects of it at a real job rather than in a laboratory setting.

Given the emerging body of evidence that suggests the cognitive load of poverty hurts low-income folks' ability to escape their circumstances, the authors argue that policymakers should consider reshaping welfare programs with these psychological issues in mind.

Read the NPR article here.
Read the study here.

See also the blog on this site: How the rich differ from the poor - 2

The above evidence is not just for policy makers - employers should take note as well..

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From an article by NPR, 17/03/2021

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