Aid Thoughts

From the abstract of a paper soon to appear in the JPE:

Researchers and retailers have documented that consumption declines before the receipt of income, and then rises afterwards. In this paper, we identify a related phenomenon, where mortality rises immediately after income receipt. We find that mortality increases following the arrival of monthly Social Security payments, regular wage payments for military personnel, the 2001 tax rebates, and Alaska Permanent Fund dividend payments. The increase in short-run mortality is large, and occurs for a large number of causes of death.

The authors' explanation?

“There is increased economic activity after payday,” Evans says. “Some of the activity, like driving and trips to bars, will naturally increase risk. Many types of activities are also known to trigger heart attacks.”

“What surprised us was how broad-based the phenomenon was,” says Evans. “We found increased mortality after payday for the young and old, low and higher income groups, for married and single individuals. The increase in short-run mortality also occurs for a large number of causes of death. The effect was particularly pronounced for car accidents, heart attacks and especially substance abuse,” according to Evans.

So there's a flurry of activity whenever people get paid, and whenever there's a flurry of activity we expose ourselves to more risk. I would be interested to see a similar study done in a developing country. In Malawi (get ready, I'm going into generalization from the back of a taxi cab mode), many of those in informal, but regular wage employment are paid at the end of the calendar month.

This tendency to use an explicit payday leads to not only a flurry of economic activity, but also, I presume, a flurry of criminal activity, as suddenly everyone at the market is flush with cash. My gardener at the time found this out the hard way when he was attacked and slashed with a knife. We switched to middle-of-the-month payments after that.

I would like to see some similar estimates for developing countries - and wonder if the eventual creep of banking services would do more to reduce this. The mortality of the payday is likely the result of two things: an inability to smooth consumption over time (either due to financial constraints or due to old fashioned impatience) and the inability to have your paycheck sent directly to your bank account, making you a walking, cashed-up target.