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The Effect of Wage Subsidies on Piece Rate Workers: Evidence from the Penny Per Pound Program in Florida

Ku, H; (2019) The Effect of Wage Subsidies on Piece Rate Workers: Evidence from the Penny Per Pound Program in Florida. Journal of Development Economics , 139 pp. 122-134. 10.1016/j.jdeveco.2019.03.005. Green open access

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Abstract

This paper studies a fair trade program in which consumers provide a wage subsidy (bonus) to piece-rate tomato pickers. The total subsidy—determined by sales to participating buyers—is divided among workers based on their relative output: a worker who produces more gets a larger share of the bonus. Although seemingly mimicking the existing piece-rate pay scheme, the mechanism associated with the bonus payment is really a relative performance evaluation, as the size of total bonus is exogenous and invariant to workers' effort. Therefore, for a given sized subsidy, the combined total (or per worker average) utility gains would become the largest if the workers keep their efforts at the pre-program level. Empirical analysis shows that worker effort (and hence productivity) increases substantially in response to the program, suggesting that currently, workers' combined gains per dollar of subsidy are not being maximized.

Type: Article
Title: The Effect of Wage Subsidies on Piece Rate Workers: Evidence from the Penny Per Pound Program in Florida
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jdeveco.2019.03.005
Publisher version: https://doi.org/10.1016/j.jdeveco.2019.03.005
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: piece rate, subsidy, fairness, tragedy of the commons, natural experiment
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10069821
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