HR Researchers: Poverty Makes Workers Less Productive

It may be simplistic to think that poverty leads to people working harder to dig themselves out of their condition. Poverty does the exact opposite, according to a new human resources study.

Sendhil Mullainathan, a behavioral economist with the University of Chicago Booth School of Business, did an experiment in India with 408 workers over a couple of weeks at a factory where they made disposable plates.

Some of the workers were randomly paid a large portion of their compensation earlier in their work period rather than at the very end. On average, they were given 1,400 rupees or about $20. This was equivalent to what they had earned in the previous month. Many of the workers used the money to pay off outstanding debts, NPR reported.

The workers’ on-the-job performance was monitored and compared to workers that didn’t get paid upfront. 

Researchers found that the workers who were paid upfront were much more productive, making 6.2 percent more plates per hour. There were fewer mistakes and workers were more attentive on the job.

“Put simply, being poor is like having just pulled an all-nighter,” Mullainathan told NPR. And that, he said, hinders their ability to escape poverty.

When workers have fewer worries about money and paying their debts, they are not only more productive but have a better chance of elevating their condition, according to a paper, “Do Financial Concerns Make Workers Less Productive?” co-authored by Supreet Kaur, Suanna Oh, and Frank Schilbach.

Mullainathan likened poverty to a parasite, consuming mental energy that could be put to more beneficial use, in a previous study, “Scarcity: Why Having Too Little Means So Much,” co-written with Princeton University psychologist Eldar Shafir.

The U.S. poverty rate was at 10.5 percent in 2019 — the lowest since estimates were first released for 1959, according to 2019 data. However, Black Americans still found themselves disproportionately affected, with poverty rates of 18.8 percent, according to the Current Population Survey Annual Social and Economic Supplement (CPS ASEC).

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Black people continue to be over-represented in the population for poverty relative to their representation in the overall population, according to the U.S. Census.

In 2019, Black people represented 13.2 percent of the total U.S. population but 23.8 percent of the poverty population. Black Americans are more than twice as likely to live in poverty as white, according to the government report, “The Economic State of Black America in 2020.”

“The consequences of high poverty rates are felt throughout the life cycle for Black Americans,” according to the report. This includes everything from education to health. 

Employed Black men spent a significant amount of time not working at the workplace relative to non-Hispanic whites, according to a controversial paper, “Racial/Ethnic Differences in Non-Work at Work,” published in 2017 by economist Daniel S. Hamermesh, Katie R. Genadek and Michael C. Burda. This accounted for the wage gap between Black workers and white workers, according to the authors, The Economist reported.

If Mullainathan’s study holds true, poverty and its accompanying exhaustion and worries may be why some people are less productive at work.