An experimental pilot indicates that Indian factory workers are more prepared for emergencies when they can access their earned wages on an as-needed basis
What if you could borrow money from the future version of yourself when you needed it most? For wage workers in India, the ability to do this could make the difference between being able to pay a medical bill on time and falling into costly debt.
This is the question that was examined in a new study led by Achyuta Adhvaryu, the Tata Chancellor’s Professor of Economics at UC San Diego’s School of Global Policy and Strategy (GPS) and the director of the school’s 21st Century India Center. Adhvaryu and his colleagues studied whether women workers in India saw their financial situations improve when they had the option to take out money from their paychecks early.
Adhvaryu landed on this topic after many conversations with garment workers (who are predominantly women) in South India and hearing about the ways they struggled to make ends meet. He later collected data that showed how unexpected expenses could derail the finances of families living paycheck to paycheck — corroborating the initial anecdotal evidence.
“Often women found themselves in a situation where they hadn’t quite made it to their next paycheck, but they had already run out of money,” Adhvaryu said. “Then a big unexpected expense arises, and so they end up having to borrow at high rates from co-workers or moneylenders.”
The stories he heard from workers, combined with the data to back it up, inspired Adhvaryu, along with colleagues from the Good Business Lab, to test out whether a more flexible pay system would be economically feasible. (Good Business Lab is a nonprofit, co-founded by Adhvaryu, that uses rigorous economic research to improve the well-being of Indian workers.)
To do this, the team worked with a large garment factory to implement a randomized controlled trial of a pilot program through which women workers would be able to tap into their accrued wages whenever they needed to. It wasn’t a loan, and workers were not paid any extra money: Whatever money they withdrew was deducted from their next regularly scheduled monthly paycheck.
Since few women in this context have reliable access to their own smartphone, the pilot program made tablets available on factory floors for workers so that they could electronically transfer their money.
Because workers felt more financially secure, they were more productive at work and were more likely to stick with their jobs.
Adhvaryu and his co-investigators found that the workers who were part of the flexible paycheck system — which the researchers termed “earned wage access” — were better able to cover unforeseen expenses, like medical bills, than workers in the control group, who were paid monthly as usual. And because they could tap into money they had earned on a flexible timeline, workers relied less on loans from friends and family — or, worse, from predatory money lenders who charge steep interest rates.
The experiment showed that the flexible withdrawal system benefited low-income workers. Additionally, because workers felt more financially secure, they were more productive at work and were more likely to stick with their jobs.
Despite the benefits this system has for employees and employers alike, this type of flexible paycheck system is very uncommon, particularly for low-income worker populations. For the workers, there are many pros and few, if any, cons.
But Adhvaryu said that employers are more reluctant to embrace the system because of the extra logistics and infrastructure required to implement it. He and his collaborators say that they hope that the long-term savings from lower turnover and higher productivity could entice firms to invest in workers’ financial wellbeing.
The impacts of this study are not meant to stay within the confines of UC San Diego’s campus, but to have a direct bearing on workers’ conditions in India and beyond.
Adhvaryu said that governments could also help incentivize companies to adopt this model by reimbursing some of the costs associated with updating their payments infrastructure, or by tax incentives for companies that have earned wage access programs in place.
“This study is part of the 21st Century India Center’s broader agenda of understanding ways in which we can improve the labor force participation and the quality of jobs for women in India,” Adhvaryu said.
He added that the impacts of this study are not meant to stay within the confines of UC San Diego’s campus, but to have a direct bearing on workers’ conditions in India and beyond.
“As an academic center, we strive to bring together the best research on topics of great importance to the U.S. and India,” he said. “We want to connect this work to governments, private sector, and impact organizations like Good Business Lab, which are doing this work on the ground.”
