The key to greater productivity is a mind free of financial strain, suggests research. In a new study, Supreet Kaur and others explored the psychological impact of providing advance cash payments on the productivity of workers.

They conducted an experiment among 408 daily wage workers in rural Odisha by assigning them a small-scale manufacturing task during the agricultural off-season. The workers were employed for a two-week stint and helped produce plates made of leaves, a cognitive task which required attention and care to meet quality standards. To observe the effect of cash-in-hand on worker productivity, some of the workers were paid early before their contracts ended, while the rest were paid at the end of two weeks.

The results showed that early payment improved the productivity of workers by 5.3%, and the impact was greater for poorer workers (10% improvement). After receiving the payment, these workers were more efficient and made fewer errors in stitching the leaf plate.

According to the authors, the greater productivity and efficiency induced by the cash-in-hand can be explained by the psychological boost from less financial constraints. They observed that the liquidity from the early payment translated into meaningful spending, such as paying off debt and increased food purchases. The authors confirmed that the boost in productivity was a positive psychological effect and not a result of better physical capital (machines) or human capital (nutrition) as the work was manual and the impact of nutrition would take time to kick in. Thus, they concluded that easing financial constraints has significant policy implications for improving worker productivity and can work in tandem with other initiatives, such as investments in machines and the health of workers, to raise output.

Also read: Does Financial Strain Lower Productivity?

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