Final answer:
The wage subsidy is crucial to the Working Income Tax Benefit as it increases workers' take-home pay and productivity, in line with efficiency wage theory, benefiting both employers and employees.
Step-by-step explanation:
The wage subsidy is a key component of the Working Income Tax Benefit (WITB) because it effectively increases the income workers receive for their labor, thus encouraging higher effort and productivity. According to the efficiency wage theory, this is because workers tend to be more productive when they are paid more, as they fear losing their jobs would mean a decrease in salary. Employers recognize these benefits and may prefer to maintain or increase wages, rather than face the costs associated with turnover, such as hiring and training new workers. This theory supports the concept that wage subsidies, like those offered through the WITB, can improve worker motivation, reduce turnover, and ultimately be cost-effective for employers.