The Effect of Reputation Concerns on Labor Law Compliance: A Case Study of Cambodia's Garment Factories.
Ang, Debra E.
- This thesis investigates two types of reputation concerns and their effects on working conditions in garment factories. A case study of the garment industry in Cambodia is made possible by the monitoring efforts of the International Labor Organization program, Better Factories Cambodia. The two-part hypothesis posits that the buyer's reputation and the factory's reputation both play a role in ... read moredetermining a factory's level of labor law compliance. A buyer with a substantial record of corporate social responsibility is likely to exert pressure on its supplier to maintain ethical standards in the workplace; the public disclosure of a factory's working conditions "which may enhance or tarnish a factory's reputation" is also likely to lead to higher levels of compliance. Better Factories Cambodia provided the compliance data, which was used in conjunction with primary data collected on firm and buyer characteristics. The exogenous change in the program's reporting format in 2006 allowed for a natural experiment regarding the impact of public disclosure. This research is intended to supplement the larger body of literature on personnel economics, which mainly focuses on wages and prices. The methodology in this thesis, however, investigates labor law compliance directly, using ordinary least squares regression to find correlations between the two reputation effects and retrogression on labor laws. The results show that both the buyer effect and the public disclosure effect have a negative correlation with retrogression, but the effects have opposite impacts on different types of compliance points. The conclusion incorporates directions for future research and a number of practical policy recommendations for the Better Factories Cambodia program.read less