Is Labor Productivity More Sensitive to Corporate Philanthropy Towards Welfare Shocks or Chronic Conditions?

Abstract

Do increases in labor productivity that follow from corporate philanthropy depend on the societal causes to which firms donate? Integrating insights from psychological research showing that individuals respond more charitably towards beneficiaries who experience a welfare shock (e.g., those afflicted by disasters) than beneficiaries in a chronic state of low welfare (e.g., those living in poverty), we develop and test the argument that employees exert more effort at work when their firm’s philanthropy targets welfare loss than when philanthropy targets chronic conditions. Using longitudinal data on corporate philanthropy from large U.S. companies, we present identification strategies that consistently support our argument. Our estimates suggest that, on average, a 6.63 percent greater increase in marginal labor productivity occurs when companies donate towards welfare loss after sudden shocks—such as epidemics, natural disasters, and terrorist attacks—vis-à-vis donations to chronic conditions like poverty and homelessness. This correlation survives accounting for a vector of joint fixed effects and time-varying controls as well as a battery of robustness checks. The findings suggest that the targets of philanthropic donations are important for the ways in which corporate giving acts as a non-pecuniary incentive.

Keywords: corporate philanthropy, labor productivity, nonmarket strategy, uncertainty shocks

JEL Classification: D22, D64, J24, J28, J32