The Macroeconomics Seminar:
Time: 12:15 pm – 13:30 pm
Date: 9 th of February 2022

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Claire LELARGE (Université Paris Saclay) “The Cognitive Load of Financing Constraints: Evidence from Large-Scale Wage Surveys”

Abstract : In this paper, we take advantage of the implicit cognitive exercise available in standard Labor Force Surveys in order to provide new and population-wide insights about the cognitive load associated with poverty and financial constraints (Mullainathan and Shafir, 2013). Survey respondents are requested to report their monthly wages, which we compare to their administrative, fiscal counterparts. We propose a well-defined index of worker-level uncertainty which filters out their potential rounding behavior and reporting biases. We estimate it using ML/EM techniques and find that workers tend to perceive their own wages with a degree of uncertainty of around 10%. Through the lens of a simple rational signal extraction model, this amounts to estimates of workers’ attention ranging from 30% to 84% depending on their wage, education, tenure and gender. Most importantly, we show that the attention of the lowest paid 30% of workers is cyclical and increases steadily (by 17 percentage points) in the ten days preceding payday, before immediately dropping on that day, which through the lens of a simple model is indicative of end-of-month financing (liquidity) constraints. Furthermore, this pattern reveals that these financing constraints induce cognitive costs which arise from the not too concave (or convex) costs of achieving high levels of attention, and the convex costs of maintaining them over time.

Joint work : Clémence BERSON (Banque de France) and Raphael LARDEUX (INSEE)

Organizers:
ARNE UHLENDORFF  (CREST), Grégory CORCOS (CREST)

Sponsors:
CREST