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

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  • Hyejin Ku

    (University College London, Department of Economics and CReAM)

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. Alternative distribution schemes are discussed.

Suggested Citation

  • Hyejin Ku, 2018. "The Effect of Wage Subsidies on Piece Rate Workers: Evidence from the Penny Per Pound Program in Florida," CReAM Discussion Paper Series 1815, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  • Handle: RePEc:crm:wpaper:1815
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    More about this item

    Keywords

    piece rate; subsidy; fairness; tragedy of the commons; natural experiment;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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