Subsidy, Shirking, and Strategy: Assessing the Effect of Consumption Subsidy on Worker Effort and Intervening Strategy

Abstract

I study how workers and managers in a firm respond to a temporary government consumption subsidy program. Using exogenous variation in eligibility criteria, I show that workers who become eligible for the program reduce their effort at work and shirk more. As a result, these workers earn less in performance-based pay, leading to a net decrease in their overall take-home pay. Additionally, I find that managers strategically intervene to mitigate the impact of diminished worker efforts on overall production efficiency. Managers reallocate more difficult tasks to non-shirking workers while assigning less demanding tasks to those who reduce their effort. In addition to task reallocation, managers also implement stricter disciplinary measures to address shirking behavior. This study highlights the potential unintended consequences of the consumption subsidy program on both worker and firm outcomes and underscores the importance of management in safeguarding productivity and efficiency in response to shocks.