Do cash incentives really boost productivity?

Financial stress has been shown to impact productivity at work – but will alleviating employees’ money woes raise their performance? The results of a new economic study suggest, giving workers cash ahead of a scheduled payout can be empowering and this, in turn, motivates them to do better.

When employees are paid midway through a project, there is a 6.2% increase in their productivity, compared with those who are remunerated only after their work is completed. After employees receive the first tranche, their error rate also decreases through the end of their contract.

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Researchers observed these trends among low-income workers who often face financial strain. “Perhaps unsurprisingly, financial concerns loom really large: How will I pay for school fees? Will I have enough to feed my children? Can I pay healthcare bills?” said Frank Schilbach, an associate professor of economics at MIT, who led the study. “The more we’ve heard this, the more we’ve wondered how these concerns might affect behaviour, particularly at work.”

With cash on hand, however, financially stressed employees tend to raise their output while also lowering their error count during production. “This strongly suggests that attention plays an important role – that people are able to focus on their work instead of thinking about school fees, health care, and so on,” said Schilbach. The research leader also pointed out, however, that the finding may be a result of workers feeling more motivated to power through on the job, but not necessarily because they became more attentive to the details of their task.

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The theory behind employers giving workers advanced pay and implementing flexible payout schemes lends credence to the idea of giving stimulus cheques and unemployment benefits to workers who are down and out.

“What we seem to find is that the potentially positive effect of this kind of support not only improves well-being by reducing financial strain on people, but, in addition, it might help them become more attentive and productive, and so earn more money,” Schilbach said. “When you’re talking about something like unemployment insurance, you’re easing this strain on people which may help them find work at a time when they are at their most vulnerable.”