IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/104584.html
   My bibliography  Save this paper

Why do they just do it? A theory of outsourcing and working conditions

Author

Listed:
  • Donado, Alejandro

Abstract

Nike and other companies have long been criticized for outsourcing their production to contract factories with dismal working conditions. Despite the overwhelming amount of interest, there exists no theory for studying this topic. The current paper fills this gap. In the model, the most productive firms in the North make high profits and outsource their manufacturing production to contract factories in the South. Factories pay wages that can compensate for poor working conditions, but these wages might not meet workers' basic needs. The paper studies an extension under which factory workers are not appropriately compensated for inferior working conditions.

Suggested Citation

  • Donado, Alejandro, 2020. "Why do they just do it? A theory of outsourcing and working conditions," MPRA Paper 104584, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104584
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/104584/1/MPRA_paper_104584.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benjamin Powell & David Skarbek, 2006. "Sweatshops and Third World Living Standards: Are the Jobs Worth the Sweat?," Journal of Labor Research, Transaction Publishers, vol. 27(2), pages 263-274, April.
    2. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
    3. Esther Ann Bøler & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2015. "R&D, International Sourcing, and the Joint Impact on Firm Performance," American Economic Review, American Economic Association, vol. 105(12), pages 3704-3739, December.
    4. Powell,Benjamin, 2014. "Out of Poverty," Cambridge Books, Cambridge University Press, number 9781107688933, October.
    5. Kimberly Ann Elliott & Richard B. Freeman, 2003. "Can Labor Standards Improve under Globalization?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 338, April.
    6. Alejandro Donado & Klaus Wa¨lde, 2012. "How trade unions increase welfare," Economic Journal, Royal Economic Society, vol. 122(563), pages 990-1009, September.
    7. Joshua Hall & Peter Leeson, 2007. "Good for the Goose, Bad for the Gander: International Labor Standards and Comparative Development," Journal of Labor Research, Springer, vol. 28(4), pages 658-676, September.
    8. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2009. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," World Scientific Book Chapters, in: Globalization And International Trade Policies, chapter 17, pages 623-687, World Scientific Publishing Co. Pte. Ltd..
    9. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    10. Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2017. "Offshoring and Volatility: Evidence from Mexico’s Maquiladora Industry," World Scientific Book Chapters, in: International Macroeconomic Interdependence, chapter 2, pages 31-44, World Scientific Publishing Co. Pte. Ltd..
    11. Thomas Barnay, 2016. "Health, work and working conditions: a review of the European economic literature," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(6), pages 693-709, July.
    12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    13. Ann Harrison & Jason Scorse, 2022. "Multinationals and Anti-Sweatshop Activism," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 13, pages 291-317, World Scientific Publishing Co. Pte. Ltd..
    14. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-350, April.
    15. Edmonds, Eric V. & Pavcnik, Nina, 2005. "The effect of trade liberalization on child labor," Journal of International Economics, Elsevier, vol. 65(2), pages 401-419, March.
    16. Viscusi, W. Kip, 1980. "Imperfect job risk information and optimal workmen's compensation benefits," Journal of Public Economics, Elsevier, vol. 14(3), pages 319-337, December.
    17. Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692, Elsevier.
    18. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
    19. O. Ashenfelter & R. Layard (ed.), 1987. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 2, number 2.
    20. Levine, David I. & Rothman, Dov, 2006. "Does trade affect child health?," Journal of Health Economics, Elsevier, vol. 25(3), pages 538-554, May.
    21. Elena Cottini & Claudio Lucifora, 2013. "Mental Health and Working Conditions in Europe," ILR Review, Cornell University, ILR School, vol. 66(4), pages 958-988, July.
    22. Jason M. Fletcher & Jody L. Sindelar & Shintaro Yamaguchi, 2011. "Cumulative effects of job characteristics on health," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 553-570, May.
    23. Steven Brakman & Harry Garretsen (ed.), 2008. "Foreign Direct Investment and the Multinational Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026457, April.
    24. Wright, Greg C., 2014. "Revisiting the employment impact of offshoring," European Economic Review, Elsevier, vol. 66(C), pages 63-83.
    25. Drusilla K. Brown, 2000. "International Trade and Core Labor Standards: A Survey of the Recent Literature," Discussion Papers Series, Department of Economics, Tufts University 0005, Department of Economics, Tufts University.
    26. Locke, Richard M. & Qin, Fei & Brause, Alberto, 2007. "Does monitoring improve labor standards? Lessons from Nike," LSE Research Online Documents on Economics 59405, London School of Economics and Political Science, LSE Library.
    27. Alejando Donado & Klaus Wälde, 2010. "How Bad is Globalization for Labour Standards in the North?," Working Papers 1011, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 19 Aug 2010.
    28. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, vol. 95(2), pages 19-24, May.
    29. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    30. Permanyer, Iñaki, 2014. "Assessing individuals' deprivation in a multidimensional framework," Journal of Development Economics, Elsevier, vol. 109(C), pages 1-16.
    31. Powell,Benjamin, 2014. "Out of Poverty," Cambridge Books, Cambridge University Press, number 9781107029903, October.
    32. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    33. Sarosh Kuruvilla & Mingwei Liu & Chunyun Li & Wansi Chen, 2020. "Field Opacity and Practice-Outcome Decoupling: Private Regulation of Labor Standards in Global Supply Chains," ILR Review, Cornell University, ILR School, vol. 73(4), pages 841-872, August.
    34. Goel, Manisha, 2017. "Offshoring – Effects on technology and implications for the labor market," European Economic Review, Elsevier, vol. 98(C), pages 217-239.
    35. Richard LOCKE & Thomas KOCHAN & Monica ROMIS & Fei QIN, 2007. "Beyond corporate codes of conduct: Work organization and labour standards at Nike's suppliers," International Labour Review, International Labour Organization, vol. 146(1-2), pages 21-40, March.
    36. Kuruvilla, Sarosh & Liu, Mingwei & Li, Chunyun & Chen, Wansi, 2020. "Field opacity and practice-outcome decoupling: private regulation of labor standards in global supply chains," LSE Research Online Documents on Economics 101169, London School of Economics and Political Science, LSE Library.
    37. O. Ashenfelter & R. Layard (ed.), 1987. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philipp Herkenhoff & Sebastian Krautheim, 2018. "The International Organization of Production in the Regulatory Void," CESifo Working Paper Series 6922, CESifo.
    2. Moser, Christian, 2016. "How Could Wage Inequality Within and Across Enterprises be Reduced?," MPRA Paper 95381, University Library of Munich, Germany.
    3. D’Ambrosio, Anna & Leombruni, Roberto & Razzolini, Tiziano, 2017. "Native-Migrant Differences in Trading Off Wages and Workplace Safety," IZA Discussion Papers 10523, Institute of Labor Economics (IZA).
    4. Eric Defebvre, 2016. "Harder, better, faster... yet stronger? Working conditions and self-declaration of chronic diseases," TEPP Working Paper 2016-07, TEPP.
    5. Goel, Manisha, 2017. "Offshoring – Effects on technology and implications for the labor market," European Economic Review, Elsevier, vol. 98(C), pages 217-239.
    6. Éric Defebvre, 2018. "Harder, better, faster … Yet stronger? Working conditions and self‐declaration of chronic diseases," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 59-76, March.
    7. J R Clark & Benjamin Powell, 2013. "Sweatshop Working Conditions and Employee Welfare: Say It Ain’t Sew," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 55(2), pages 343-357, June.
    8. repec:ilo:ilowps:469448 is not listed on IDEAS
    9. András Miklós, 2019. "Exploiting Injustice in Mutually Beneficial Market Exchange: The Case of Sweatshop Labor," Journal of Business Ethics, Springer, vol. 156(1), pages 59-69, April.
    10. Chikako Oka, 2010. "Channels of buyer influence and labor standard compliance: the case of Cambodia's garment sector," Post-Print hal-02952274, HAL.
    11. Herkenhoff, Philipp & Krautheim, Sebastian & Semrau, Finn Ole & Steglich, Frauke, 2024. "Corporate Social Responsibility along the global value chain," Journal of Development Economics, Elsevier, vol. 167(C).
    12. Sebastian Benz & Wilhelm Kohler & Erdal Yalcin, 2016. "Offshoring and Volatility of Demand," CESifo Working Paper Series 5970, CESifo.
    13. Afonso, Oscar & Gil, Pedro Mazeda, 2024. "Territorial comparative advantage, wage inequality, and monetary policy in the global world," Journal of International Money and Finance, Elsevier, vol. 143(C).
    14. Benjamin Powell, 2018. "Sweatshop Regulation: Tradeoffs and Welfare Judgements," Journal of Business Ethics, Springer, vol. 151(1), pages 29-36, August.
    15. Donado, Alejandro. & Wälde, Klaus., 2012. "Globalization, trade unions and labour standards in the North," ILO Working Papers 994694483402676, International Labour Organization.
    16. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    17. T. Gries & R. Grundmann & I. Palnau & M. Redlin, 2017. "Innovations, growth and participation in advanced economies - a review of major concepts and findings," International Economics and Economic Policy, Springer, vol. 14(2), pages 293-351, April.
    18. Schneck, Stefan, 2011. "The acceptance of earnings losses after voluntary mobility," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-47.
    19. John DiNardo & David S. Lee, 2010. "Program Evaluation and Research Designs," Working Papers 1228, Princeton University, Department of Economics, Industrial Relations Section..
    20. Alejandro Donado & Klaus Wälde, 2008. "Trade Unions go global!," Working Papers 2008_22, Business School - Economics, University of Glasgow, revised Aug 2008.
    21. Daria Taglioni & Deborah Winkler, 2016. "Making Global Value Chains Work for Development," World Bank Publications - Books, The World Bank Group, number 24426.

    More about this item

    Keywords

    Outsourcing; working conditions; compensating wage differentials; labor standards; subcontracting; Nike; sweatshop;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:104584. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.