Expert Commentary

Is corporate social responsibility associated with lower wages?

2013 study in Environmental and Resource Economics on firms with a reputation for corporate social responsibility, the wage levels they pay and the role of gender.

Corporate Social Responsibility (CSR) has become a popular concept among corporations in the past few decades, as firms wish to convey to the public their commitment to various environmental and social causes, as well as the ethical treatment of workers. Still, high-profile controversies such as the working conditions at Foxconn, Apple’s manufacturing supplier in China, or the 2013 collapse of a garment factory in Bangladesh, continue to raise questions about integrity and corporate values embedded within global supply chains.

The narrow definition of CSR originally given by Milton Friedman is that of exclusively unprofitable actions intended to create positive societal benefits. However, when such acts are profitable Friedman argues that they cease to constitute CSR and become “hypocritical window dressing.” Conversely, corporations such as Nestle have expanded CSR to the concept of Creating Shared Value (CSV), wherein companies engage in activities which are both socially beneficial and profitable.

Much research has been done on the effect of CSR on the profitability of firms, with one 2003 meta-study finding a positive relationship between CSR and financial performance of firms across 52 studies from various industries. This could likely be the result of consumers placing a premium on goods produced by socially responsible companies. Furthermore, the motivations of corporate leadership to engage in socially responsible production or activities can vary, with some doing so as a result of an internal sense of obligation and others from external pressure. However, limited research has been done on how individuals evaluate potential employers with respect to CSR, and what value, with respect to wages, they put on working for a socially responsible employer.

A 2013 study by researchers at the University of Oslo published in Environmental and Resource Economics, “Is Corporate Social Responsibility Associated with Lower Wages?” examines the relationship between a firm’s reputation for corporate social responsibility and its employees’ wages. The researchers utilize 2006-2007 survey data from Universum, a global branding firm for companies, on firms’ reputations for CSR among graduate students and young professionals. They analyze the relationships among CSR reputation data, employee wages and demographic characteristics.

Key findings include:

  • Without accounting for industry or demographic information, the relationship between a firm’s CSR reputation and employee wages was very negative. A firm with a strong reputation of CSR, a score of 1, on average paid 38% lower wages than a firm with a poor reputation of CSR, a score of 0.
  • When gender is accounted for, firms with a relative CSR score of 1 would be expected to pay 42% lower wages than firms with a relative CSR score of 0. Furthermore, the wage differential between men and women is 19%.
  • When differences in wages due to industry are accounted for, firms with a CSR score of 1 are expected to pay 24% less on average than those with a CSR score of 0. The authors suggest that this is because “some industries (e.g. health and care giving) presumably have a better reputation in terms of social responsibility than others (e.g. petroleum and mining).”
  • Firms that have higher degrees of gender equality frequently offer lower wages than firms with lower gender equality levels, but the comparative difference is “considerably smaller for females.” The expected wage loss for men working at a firm with a reputation for “gender equality” and high CSR (1), as opposed to low CSR (0), was 18%, while women could only expect a 6% loss.

Overall, the study finds that there is a significant negative relationship between employee wages and the reputation of an employer for being socially responsible. Furthermore, there was a strong relationship found between gender equality and CSR in firms, with the authors suggesting that women may be more inclined to join more socially responsible firms. The authors conclude that “firms associated with CSR do indeed have a cost advantage in terms of lower wage payments as compared to other firms. One implication is that even if social responsibility is associated with higher costs… responsible firms may survive market competition — even in the absence of ethical consumers or investors.”

Tags: consumer affairs, economy

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