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Monday, 9 May 2011

Is corporate social responsibility associated with lower wages?

Yes. According to a recent paper by Nyborg & Zhang that draws on Norwegian evidence :
If workers prefer socially responsible employment, all else given, then irresponsible employers must pay more to recruit equally qualified employees. Combining survey data on firm reputation with official register data on demographic and labor market variables, comprising wage observations for more than 100,000 full-time employees, we do find a negative, substantial, and statistically significant association between wage and CSR among Norwegian firms. However, this effect is mainly observed for men. This is partly, but not fully, explained by a high correlation between firm’s CSR and gender equality policies......Hence, we 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, for example in terms of higher emission abatement expenses, responsible firms may survive market competition – even in the absence of ethical consumers or investors. Since labor costs constitute a major cost component for most firms, this might well be of substantial importance when it comes to firm profitability.
The result is hardly surprising, it makes sense that there would be a trade-off between corporate social responsibility (CSR) and employee wages for so many reasons - and not least because they both cost money. More interesting is the policy implication. It is understandable that the authors are keen to make the "environmental point"  (it's the easiest way to get your paper noticed these days), what is actually useful for our Zambian context is that there is a trade-off between CSR and wages. 

This issue matters to us because we have seen mining companies answer the call of government ministers to do more CSR projects. First Quantum Minerals  has previously rehabilitated roads in Ndola.  Konkola Copper Mines is working to empower the Luano Community in Chingola through an innovative goat draft project - an interesting alternative to microfinance. Lumwana has also got into the act with the past pledges to spend K4bn on the local area, including plans to launch a multi-million Kwacha programme to diversify its local economy in Solwezi away from dependence on mining.  As we have noted in the past, these projects are at best distortionary second best scenario. The ideal scenario is that government should tax mineral resources sufficiently in a way that profits local people and does not impact negatively on the environment and safety of workers.   In true CSR “social projects” are nothing short of "bribes" to keep local people quiet. Firms do not engage in "social responsibility", they practice "shareholder responsibility". The CSR projects are a small price that mining companies pay to local people in case they become agitated at the lack of development in the area and demand the government to do more to tax the companies (or in election time switch to the opposition). 

What is more interesting is that if we take the Nyborg & Zhang evidence seriously, there appears another serious problem. CSR may actually simply be a "fools game" where locals are conned into believing that they are gaining a school when in actual fact they are getting poor wages in return. The obvious way to prevent this of course is through some form of minimum wage or better still state mandated "reinvestment projects" tied to a stronger planning and local taxation policy. 

1 comment:

  1. If workers prefer socially responsible employment, all else given, then irresponsible employers must pay more to recruit equally qualified employees.

    The key being 'all else given' or ceteris paribus. However, it only applies in unflexible labour markets. If there is high unemployment, especially on equally skilled workers, then workers have very little leverage in threatening to take a job elsewhere.

    This issue matters to us because we have seen mining companies answer the call of government ministers to do more CSR projects.

    But it is always in order to avoid paying taxes. If you do the math, CSR is always in their financial favour.


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