Socially Irresponsible Employment in Emerging-Market Manufacturers

Are socially irresponsible employment practices, such as abusive discipline and wage theft, systematically tied to manufacturing outcomes in emerging-market countries? Drawing on a stream of stakeholder theory that emphasizes economic interdependencies and insights from the fields of industrial relations and human resource management, we argue that working conditions within a firm are facets of a systemic approach to value creation and value appropriation. Some manufacturers operate “low road” systems that rest on harmful practices. Others operate “high road” systems in which the need to develop employees’ human capital deters socially irresponsible employment practices. To test the theory, we conduct a large-scale study of labor violations and manufacturing outcomes by analyzing data on over four thousand export-oriented small manufacturers in 48 emerging-market countries. The analysis demonstrates that socially irresponsible employment practices are associated with inferior firm-level manufacturing outcomes even after controlling for the effects of firm size, industry, product mix, production processes, host country, destination markets, and buyer mix. The theory and results suggest an opportunity for multinational corporations to improve corporate social performance in global value chains by encouraging their suppliers to transition to systems of value creation that rely on the development of worker human capital. Funding: A. McGahan received funding from Social Sciences and Humanities Research Council [Grant 435-2016-0075].