This paper develops a new approach to test for downward wage rigidity by examining transitory shocks to labor demand (i.e., rainfall) across 600 Indian districts. Nominal wages rise during positive shocks but do not fall during droughts. In addition, transitory positive shocks generate ratcheting: after they have dissipated, wages do not adjust back down. Ratcheting reduces employment by 9 percent, indicating that rigidities distort employment levels. Inflation, which is unaffected by local rainfall, enables downward real wage adjustments—offering causal evidence for its labor market effects. Surveys suggest that individuals believe nominal wage cuts are unfair and lead to effort reductions. (JEL E24, E31, J23, J31, O15, O18, R23)

Relative-pay concerns have potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether coworkers within production units receive the same flat daily wage or differential wages according to their (baseline) productivity ranks. When coworkers’ productivity is difficult to observe, pay inequality reduces output by 0.45 standard deviations and attendance by 18 percentage points. It also lowers coworkers’ ability to cooperate in their own self-interest. However, when workers can clearly perceive that their higher-paid peers are more productive than themselves, pay disparity has no discernible effect on output, attendance, or group cohesion. These findings help inform our understanding of when pay compression is more likely to arise in the labor market

This paper measures excess labor supply in equilibrium. We induce hiring shocks—which employ 24 percent of the labor force in external month-long jobs—in Indian local labor markets. In peak months, wages increase instantaneously and local aggregate employment declines. In lean months, consistent with severe labor rationing, wages and aggregate employment are unchanged, with positive employment spillovers on remaining workers, indicating that over a quarter of labor supply is rationed. At least 24 percent of lean self-employment among casual workers occurs because they cannot find jobs. Consequently, traditional survey approaches mismeasure labor market slack. Rationing has broad implications for labor market analysis. (JEL E24, J22, J23, J31, J64, O15, R23)

A significant part of the development experience is the change in the way work is structured. To use a historical example, the Industrial Revolution involved workers moving from agriculture to manufacturing; from working on their own to working with others in factories; and from flexible work-hours to rigid work-days. How are we to understand these changes? Why did they occur? What impacts did they have on labor productivity and possibly growth? In answering questions such as these, economic theories draw on different assumptions about aggregate production, market failures, and innovation. Yet almost all rely on one of two determinants of labor productivity: human capital and incentives. Human capital theories (broadly construed) emphasize how work arrangements utilize the distribution of human capital and, in learning models, facilitate its development. Incentive theories (again broadly construed) emphasize how workplace arrangements align worker payoffs to minimize moral hazard. In this paper, we bring together and advance a growing literature on a third feature: worker self-control. Individuals may not be able to work as hard as they would like. Some work-place arrangements may make self-control problems more severe, while others may ameliorate them. 1 Below, we describe evidence from a field experiment broadly supportive of the self-control perspective. We then argue that many work arrangements can be understood

Workers who are worried about their personal finances may find it hard to focus at work. If so, reducing financial concerns could increase productivity. We test this hypothesis in a sample of low-income Indian piece-rate manufacturing workers. We stagger when wages are paid out: some workers are paid earlier and receive a cash infusion while others remain liquidity constrained. The cash infusion leads workers to reduce their financial concerns by immediately paying off debts and buying household essentials. Subsequently, they become more productive at work: their output increases by 7% (0.11 std. dev.), and they make fewer costly, unintentional mistakes. Workers with more cash on hand thus not only work faster but also more attentively, suggesting improved cognition. These effects are concentrated among more financially constrained workers. We argue that mechanisms such as gift exchange or nutrition cannot account for our results. Instead, our findings suggest that financial strain, at least partly through psychological channels, has the potential to reduce earnings exactly when money is most needed.

Self-control problems change the logic of agency theory by partly aligning the interests of the firm and worker: both now value contracts that elicit future effort. Findings from a year-long field experiment with full-time data entry workers support this idea. First, workers increase output by voluntarily choosing dominated contracts (which penalize low output but give no additional rewards for high output). Second, effort increases closer to (randomly assigned) paydays. Third, the contract and payday effects are strongly correlated within workers, and this correlation grows with experience. We suggest that workplace features such as high-powered incentives or effort monitoring may provide self-control benefits.

Schooling may build human capital not only by teaching academic skills but by expanding the capacity for cognition. We focus specifically on cognitive endurance: the ability to sustain effortful mental activity over a continuous stretch of time. As motivation, we document that globally and in the United States, the poor exhibit cognitive fatigue more quickly than the rich do across field settings; they also attend schools that offer fewer opportunities to practice thinking for continuous stretches. Using a field experiment with 1,600 Indian primary school students, we randomly increase the amount of time students spend in sustained cognitive activity during the school day—using either math problems (mimicking good schooling) or nonacademic games (providing a pure test of our mechanism). Each approach markedly improves cognitive endurance: students show 22% less decline in performance over time when engaged in intellectual activities—listening comprehension, academic problems, or IQ tests. They also exhibit increased attentiveness in the classroom and score higher on psychological measures of sustained attention. Moreover, each treatment improves students’ school performance by 0.09 standard deviations. This indicates that the experience of effortful thinking itself—even when devoid of any subject content—improves general cognitive capacity. Finally, we complement these results with quasi-experimental variation indicating that an additional year of schooling improves cognitive endurance, but only in higher-quality schools. Our findings suggest that schooling disparities may further disadvantage poor children by hampering the development of a core mental capacity.