Working Without Wages: The Consequences of Widespread Pay Delays

Abstract

We study the widespread yet largely undocumented phenomenon of wage withholding in low-income countries. Using original survey data from Lagos, Nigeria, we document that 30 percent of workers across firms of all sizes report delayed or unpaid salaries. To examine how workers respond to wage withholding, we implement a field experiment guided by a theoretical framework that illustrates the trade-offs they face. At the intensive margin, delaying wages increases employees’ initial effort, without affecting absenteeism or total hours worked. At the extensive margin, wage uncertainty induces worker selection: credibly signaling salary reliability increases job take-up by 25% Although this effect is driven by individuals who had initially expressed no interest in wage employment, it does not attract more productive workers. Combining intensive- and extensive margin estimates suggests that, in our setting, firms incur minimal productivity losses — about 0.2% — from engaging in wage withholding. This gives firms little incentive to refrain from the practice, despite workers valuing reliable pay highly — at over 30% of the monthly minimum wage.