When Cost-Cutting May Go Wrong? Evidence from a Natural Experiment in Food Delivery

Choudhary, V and Sen, P (2021) When Cost-Cutting May Go Wrong? Evidence from a Natural Experiment in Food Delivery. Working Paper. SSRN.

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Cost-cutting is a central theme for many online service delivery platforms in which they induct freelance workers at a lower wage than was previously prevalent in the system. As workers engage in within-organization wage referencing, this induction can have behavioral implications for the existing workforce. In a natural experiment setting, partnering with a food delivery service in India, we shed light on these anticipated behavioral effects. We find that introduction of a lower-waged peer group can lead to significant unproductive behavior of the existing high-wage workers in the form of a 2.3% increase in food order rejection (86% higher than the baseline rejection rate). This effect however, can be mitigated by recognition (e.g., higher customer ratings) and exacerbated by a negative experience on the platform (e.g., higher customer cancellations). Counterintuitively, we find that such detrimental effects cannot be mitigated effectively by monetary incentives. Our result has a key message for the managers: economic changes can have behavioral consequences and non-monetary solutions can have a stronger lever to reduce workers' unproductive behavior under cost-cutting initiatives which may promote a feeling of “it may happen to me as well” among the existing workforce.

Item Type: Monograph (Working Paper)
Subjects: Business and Management
Date Deposited: 07 Aug 2023 15:41
Last Modified: 07 Aug 2023 15:41
URI: https://eprints.exchange.isb.edu/id/eprint/1873

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