Reinforcing Regulatory Regimes: How States, Civil Society, and Codes of Conduct Promote Adherence to Global Labor Standards Michael W. Toffel Harvard Business School Jodi L. Short University of California Hastings College of the Law Melissa Ouellet Harvard Business School San Francisco, 1934 1
Globalization & labor conditions NGOs and MDC unions accuse LDC factories of failing to adhere to global labor standards GOVERNMENT ROUTE Pressure international trade bodies for governmental solutions NAFTA labor side agreement The unfulfilled promise of NAFTA's labor side agreement Human Rights Watch has failed to protect workers rights to safe jobs UCLA Center for Labor Research & Education WTO statements ILO is the competent body international enforcement is a minefield 2
Globalization & labor conditions NGOs and MDC unions accuse LDC factories of failing to adhere to global labor standards GOVERNMENT ROUTE Pressure international trade bodies for governmental solutions NAFTA labor side agreement The unfulfilled promise of NAFTA's labor side agreement Human Rights Watch has failed to protect workers rights to safe jobs UCLA Center for Labor Research & Education WTO statements ILO is the competent body international enforcement is a minefield PRIVATE SECTOR ROUTE Pressure brands to motivate factory management Brands deploy codes of conduct calling on their suppliers to adhere to global labor standards Some brands monitor suppliers adherence to global labor standards Which suppliers are adhering to global labor standards? 3
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Electronic Industry Citizenship Coalition 2004 a coalition of the world s leading electronics companies working together to improve efficiency and social, ethical, and environmental responsibility in the global supply chain 7
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Research objectives Research questions Which factories are more likely to adhere to global labor standards and why? Outcome Labor code of conduct audits measure adherence to global labor standards including those embodied in ILO treaties (McBarnet & Kurkchiyan 2007) Data Code of conduct audits from one major social auditor (anonymous) 30,000+ audits 15,000+ factories 50+ countries Many industries 15
Industries of facilities in our sample Garment 7840 Accessories 2237 Electronics Furniture Food agricultre beverage Paper printing publishing Toys Footwear Building materials Chemicals and plastics Metal products Services 787 691 607 578 537 495 477 297 250 126 0 2,000 4,000 6,000 8,000 Number of audited facilities 16
Geography: Audited facilities & Clients seeking audits Audits by factory location (43 countries) Africa (5 countries) 280 Americas (12 countries) 3,081 United States 2,066 Mexico 410 Other 605 Asia (16 countries) 27,948 China (including Hong Kong) 20,949 Bangladesh 1,345 India 1,241 Vietnam 986 Indonesia 500 Thailand 488 Taiwan 475 Pakistan 399 Philippines 395 Sri Lanka 312 Other 858 Europe (10 countries) 606 Total 31,915 Audits by client location (33 countries) Americas (6 countries) 22,272 United States 22,135 Other 137 Asia (13 countries) 1,887 China (including Hong Kong and Macao) 1,601 Other 286 Europe (12 countries) 6,388 Germany 4,433 United Kingdom 1,102 France 506 Other 347 Unknown 1,368 Total 31,915 17
Measuring (non) adherence to global labor standards Number of labor violations Child labor (8) Forced or compulsory labor (5) Working hours (7) Occupational health and safety (33) Minimum wage (15) Disciplinary practices (6) Right of association (2) Right to organize and bargain collectively (4) Treatment of foreign workers and subcontractors (4) Dormitory conditions (6) Discrimination with respect to employment and occupation (11) Legal client regulation (8) Subcontracting (3) 18
Measuring (non) adherence to global labor standards Number of labor violations The extent to which a factory fails to adhere to global labor standards Child labor (8) Forced or compulsory labor (5) Working hours (7) Occupational health and safety (33) Minimum wage (15) Disciplinary practices (6) Right of association (2) Right to organize and bargain collectively (4) emergency Treatment preparedness of foreign workers (10 items) and fire subcontractors safety items (5) (4) canteen Dormitory items conditions (2) (6) toilets Discrimination items (8) with respect to work employment floor items and (8) occupation (11) Legal improper client regulation chemical (8) storage Subcontracting improper medical (3) waste disposal inadequate lighting inadequate ventilation lack of PPE no chemical safety data sheets unsafe electrical unsafe machinery 19
Measuring (non) adherence to global labor standards Distribution of number of labor violations per audit 4000 3000 Number of audits 2000 N=31,915 Mean=7.0 Median=5 1000 0. 0 10 20 30 Number of labor violations per audit top coded at the 99th percentile value of 28 violations to avoid influence of outliers 20
Predicting adherence to global labor standards Government institutions Labor law protection International labor treaties Government effectiveness index Civil society scrutiny Number of International NGOs Press freedom Audit attributes Third party audit protocol Audit paid by factory vs. buyer Staff hours (firm size/complexity) Buyer country scrutiny Salience of child labor (articles) Factory country demographics Income level (per capita GDP) Additional controls Industry dummies Audit year dummies OECD dummy 21
Government institutions Labor law protection: employment law index measures of a country s labor protection and employment laws (Botero et al., 2004) International labor treaties: number of labor treaties country ratified by each year (ILO) Civil society scrutiny Key independent variables Number of International NGOs in each country year (Yearbooks of International Organizations) Press freedom index: press freedom in each country year (Reporters without Borders) Buyer country scrutiny Issue salience in the buyer country: log of the annual number of newspaper articles in each country year with the term child labor (LEXIS/NEXIS) 22
Model specification Dependent variable: number of labor violations Government institutions Labor law protection International labor treaties Government effectiveness index Buyer country scrutiny Salience of child labor (articles) Civil society scrutiny Number of International NGOs Press freedom Audit attributes Third party audit protocol Audit paid by factory vs. buyer Staff hours (firm size/complexity) Factory country demographics Income level (per capita GDP) Additional controls Industry dummies Audit year dummies OECD dummy Negative binomial regression Standard errors clustered by factory country and by buyer country 23
Summary statistics Variable Mean SD Min Max Number of labor violations 7.0 6.40 0 28 Employment laws index 0.40 0.13 0 0.8 Number of labor treaties (log) 3.2 0.68 0 4.9 International NGOs (log) 7.4 0.42 5.0 8.4 Press freedom 0.4 0.28 0 0.98 Issue salience in buyer country 4.6 2.73 0 6.5 GDP per capita (log) 7.9 1.08 5.7 10.7 Government effectiveness index 0.20 0.54 0. 9 1.9 OECD 0.11 0.32 0 1 Audit paid by buyer 0.48 0.50 0 1 Audit paid by vendor, agent, or licensee 0.40 0.49 0 1 Third party audit protocol 0.15 0.36 0 1 Audit staff hours (log) 0.21 0.23 0.0 2.64 N = 31,915 audits 24
Preliminary regression results Coef. AME 1 SD Government institutions Employment laws index 0.582 4.10 [0.500] Number of labor treaties (log) 0.199** 1.40 0.95 violations [0.074] Civil society scrutiny International NGOs (log) 0.192* 1.35 more violations [0.095] Press freedom index 0.921** 6.49 1.8 violations [0.087] Buyer country scrutiny Issue salience in buyer country 0.194** 1.36 3.7 violations [0.037] Controls for GDP per capita (log), Government effectiveness index, dummies for OECD, audit paid by buyer, audit paid by vendor/agent/licensee, third party audit protocol, audit staff hours (log), audit year, industry. ** p<0.01, * p<0.05, + p<0.10 Negative binomial regression coefficients with clustered standard errors in brackets 25
50 More regression results: INGO x OECD In the OECD, factories exhibit better compliance with global labor standards in countries with more international NGOs. Outside the OECD, factories exhibit worse compliance in countries with more international NGOs. Predicted number of labor violations Predicted number of labor violations 40 30 20 10 OECD Non OECD 0-2.5-2 -1.5-1 -.5 0.5 1 International nongovernmental organizations (log) (centered) 26
More regression results: Employment law X Labor treaties Factories better adhere to global labor standards in countries with more labor treaties, especially in countries that also have more protective labor law (p<0.01) 20 Predicted number of labor violations Predicted number of labor violations 15 10 5 0-3.2-2.7-2.2-1.7-1.2 -.7 -.2.3.8 1.3 Labor treaties (log) (centered) Employment law index below median Employment law index above median 27
More regression results: Press freedom X INGOs Factories better adhere to global labor standards in countries with more press freedom, especially in the presence of more international NGOs (p<0.05) Predicted number of labor violations Predicted number of labor violations 12 10 8 6 4 2 -.4 -.2 0.2.4.6 Press freedom index (centered) Below median INGOs Above median INGOs 28
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Predicting adherence to global labor standards Government institutions Labor law protection International labor treaties Government effectiveness index Democracy Distance from capital (regulator) Civil society scrutiny Number of International NGOs Press freedom Audit attributes Third party audit protocol Audit paid by factory vs. buyer Staff hours (firm size/complexity) Unannounced vs. announced Buyer country scrutiny Salience of child labor (articles) Democracy Press freedom Factory country demographics Income level (per capita GDP) Additional controls Industry dummies Audit year dummies OECD dummy Auditor attributes Number of auditors Auditor education, tenure, gender Previously audited this facility New outcome: Improvement in adherence to global labor standards 30