Pay Frequency and Employment Stability

We study whether pay timing shapes employment stability using staggered state reforms that allow employers to pay less frequently. Combining rich longitudinal labor-market records with multiple complementary data sources, we show that deregulation reduces pay frequency and produces a sharp but temporary increase in employment-to-unemployment transitions, concentrated among workers in the lowest prior-income quartile. The employment separations arise through layoffs, while quits remain unchanged. We provide detailed evidence on the mechanisms underlying this asymmetry. Less frequent pay tightens workers’ financial constraints, reduces their use of medical and professional services, worsens their health-care affordability and functional health, and lowers the time they spend working and interacting at work, thereby weakening employment relationships and contributing to employer-initiated separations. To explain the absence of quits, we examine responses on both sides of the labor market. Workers do not increase on-the-job search or interviewing, while employers neither compensate for less frequent pay by increasing earnings nor broadly reduce job openings.