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Waiting for the paycheck : individual and aggregate effects of wage payment
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1830-7728
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EUI MWP; 2016/05
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BERNIELL, Inés, Waiting for the paycheck : individual and aggregate effects of wage payment, EUI MWP, 2016/05 - https://hdl.handle.net/1814/40804
Abstract
This paper shows that the frequency at which workers are paid affects the within-month patterns of both household expenditure and aggregate economic activity. To identify causal effects, I exploit two novel sources of exogenous variation in pay frequency in the US. First, using a (as-good-as-random) variation in the pay frequency of retired couples, I show that those who are paid more frequently have smoother expenditure paths. Second, I take advantage of the cross-state variation in laws, and compare the patterns of economic activity in states with different legislation on pay frequency of wages. I document that low pay frequencies lead to within-month business cycles when many workers are paid on the same dates, which generates costly congestion in sectors with capacity constraints. These findings have important policy implications in a context where firms and workers do not internalize such congestion externalities, which generates market equilibria with suboptimally low pay frequencies.