Working Under Pressure : Improving Labor Productivity through Financial Innovation
In developing countries, financial transfers within social and kin networks are ubiquitous and frequent. Though these transfers have social benefits, pressure to redistribute income can introduce a disincentive to work by reducing the payoff of exe...
| Main Authors: | , , , |
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| Format: | Brief |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/119451545023411016/Working-Under-Pressure-Improving-Labor-Productivity-through-Financial-Innovation http://hdl.handle.net/10986/31029 |
| Summary: | In developing countries, financial
transfers within social and kin networks are ubiquitous and
frequent. Though these transfers have social benefits,
pressure to redistribute income can introduce a disincentive
to work by reducing the payoff of exerting effort. This
comes at a potential cost for the overall efficiency of the
economy. The authors developed a financial innovation to
study the impact of this redistributive pressure on workers’
labor supply and productivity. This innovation, a
direct-deposit commitment savings account, enabled workers
to convert productivity increases into private savings which
cannot be accessed by others. In the first phase of their
project, workers offered the direct-deposit commitment
savings account increased their labor productivity and
earnings by ten percent, which translates into an eighteen
percent increase for workers who opened an account. The
effect appears to be driven by workers increasing effort
while on the job. Preliminary results show that the
visibility of an account to one’s social network and the
degree of redistributive pressure a worker faces are strong
determinants of account take-up. This suggests that tackling
the underlying cause for redistributive norms, the lack of
consumption smoothing mechanisms, could improve output and
growth in developing countries by addressing the root cause
of the high demand for commitment savings products. |
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