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Does paycheck frequency matter? Evidence from micro data

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  • Baugh, Brian
  • Correia, Filipe

Abstract

Using a unique dataset from an account aggregator, we analyze cross-sectional differences and within-household time-series variation in paycheck frequency. We find that higher paycheck frequency results in less credit card borrowing, less consumption, but more instances of financial distress — even when the change in paycheck frequency is employer-initiated. We find that pay frequency strongly determines within-month time patterns of financial distress. Our theoretical model reconciles these empirical results — higher paycheck frequency increases consumers’ willingness to allocate to illiquid savings vehicles, leading to a reduction in both consumption and within-paycycle borrowing.

Suggested Citation

  • Baugh, Brian & Correia, Filipe, 2022. "Does paycheck frequency matter? Evidence from micro data," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1026-1042.
  • Handle: RePEc:eee:jfinec:v:143:y:2022:i:3:p:1026-1042
    DOI: 10.1016/j.jfineco.2021.12.002
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    References listed on IDEAS

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    Cited by:

    1. Laamanen, Jani-Petri & Matikka, Tuomas & Paukkeri, Tuuli, 2022. "Once or Twice a Month? The Impact of Payment Frequency on Spending Behavior," Working Papers 147, VATT Institute for Economic Research.

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    More about this item

    Keywords

    Paycheck frequency; Labor income; Household debt; Financial distress;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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