For people with seasonal incomes, saving income earned during the high season is important for being able to purchase goods and necessities in the off-season. However, in the absence of formal savings mechanisms, it is especially difficult to postpone purchasing something now in favor of longer-term goals. When people cannot save, they may even choose to work less, feeling that working will not help them reach important goals. In Malawi, researchers partnered with a tea firm to study the impact on productivity and financial behavior of allowing workers to defer payment of a part of their wages for three months until the end of the high season. 

Policy Issue 

Saving money is hard for many people due to the difficulty of postponing purchases now in favor of longer-term goals. When people lack access to secure and convenient savings options, putting aside money can be even harder. Yet, failure to save causes problems for households who are then unable to make important investments (e.g., maintaining their homes or paying school fees). For agricultural workers, saving income earned during the peak farming season is an important way to reach savings goals that include purchases of durable goods and necessities in the off-season. Not saving may also discourage people from working. If they do not or cannot save their wages for leaner times or for important future purchases, working during the agricultural season has lower value for laborers. A reliable savings option that makes funds available in the off-season when they’re needed may encourage workers to work more during the main season, if it helps them reach their financial goals.

Context of the Evaluation 

In Malawi, workers who pick tea are paid piece-rate wages during the main season (four to five months in duration). Wages in the off-season are substantially lower. The Lujeri Tea Estates in the Mulanje district of southern Malawi and researchers are providing workers with the option to defer payment of part of their wages to the end of the main season. The firm employs about 8,000 workers during the main season. Around 40 percent of these workers are women.

Around half of Lujeri workers participate in informal rotating savings groups during the main agricultural season. Members of the group take turns receiving the regular contributions of all other members. Workers who are not members cite lack of trust as a major reason for not participating. Deferred wages may be seen as a more secure savings mechanism than these groups. 

Details of the Intervention 

Researchers are implementing a randomized evaluation to study the effects of deferred wages on workers’ investments, consumption, and well-being, as well as on the labor supply.

Researchers randomly assigned 870 workers into one of two groups. A treatment group has the option to defer receipt of part of their wages for payment at the end of the season. A comparison group of workers continues to receive their full wages at the regularly scheduled biweekly paydays. Using survey and administrative payroll data, the researchers will examine whether workers in the treatment group save more during the agricultural season, spend more on larger purchases at the end of the season, and consume or work more during the off-season.

Results and Policy Lessons 

Project ongoing; results forthcoming.