Wages of Sin? Labor Violations and Manufacturer Performance in China: Wednesday WIP with Greg Distelhorst
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Description
The seminar will run on Bb Collaborate:
Abstract: Do employers in emerging markets benefit from violating labor standards? The classical tradition in regulatory compliance suggests they should, as violations result from managers' rational analyses of costs and benefits. Yet later scholarship in regulatory compliance and high-performance work systems suggests that labor violations may be unrelated to, or even harm, firm performance. Empirical evidence is limited, in part due to the difficulty of measuring labor violations that managers are eager to conceal. This study offers suggestive evidence on the performance benefits of labor violations for manufacturers in the developing world. By creating a new data resource that links labor compliance audits to official industrial survey microdata in mainland China, it analyzes labor violations and economic performance in over 500 manufacturers monitored by a global sourcing agent. Analysis finds that (1) labor violations are associated with higher labor productivity and profit margins, (2) wage violations consistently predict increased labor productivity, and (3) despite their association with increased productivity and profitability, labor violations are associated with lower exports. This pattern is consistent with a classical framework in which firms in lax enforcement settings can benefit from shortchanging workers but exporting into global supply chains increases (private) enforcement and reduces the returns to labor violations.