Abstract
Financial market frictions and behavioral constraints leave many in developing countries struggling to save sufficient funds to purchase durable goods, make profitable investments, or smooth consumption across the year. Savings constraints prevent individuals from making basic investments such as upgrading their dwellings with iron sheet roofs, paying for school fees or having better food options during low income seasons.
Barriers to saving may also have an important negative impact on individuals by depressing labor supply. If smaller income streams cannot be easily saved and aggregated to invest in goods and services that people value, this lowers the effective returns from working. Similarly, if funds cannot be easily transferred from high earning potential periods to low earnings potential periods, this reduces the incentives to work during the high earning potential periods.
One method for saving up larger sums is to defer receipt of income, a form of commitment savings that is surprisingly popular in developing countries. While there is demand for deferred payment in developing countries, this topic has been relatively understudied. Deferred payment is a particular form of commitment savings that merits study because it does not rely on access to bank services.
We study how allowing agricultural workers to defer payment of a portion of their wages to the end of the season affects financial behavior and labor supply. By reducing constraints to saving up large sums, deferred payment should reduce contemporaneous consumption and increase spending and investment that occurs after the payment has been received. In addition, deferred payments may increase the returns to working because deferred pay can be used to purchase sufficiently expensive goods or smooth future consumption.
Our study design will also allow us to shed light on the impact of mobile money on worker outcomes by adding experimental variation of offers to part of regularly scheduled two-weekly payments into mobile money wallets.