Can Sourcing Help Enforce Global Labor Standards? Evidence from the Gap Inc Supply Chain

41 Pages Posted: 18 Oct 2019

See all articles by Matthew Amengual

Matthew Amengual

University of Oxford - Said Business School

Greg Distelhorst

University of Toronto, Centre for Industrial Relations and Human Resources; University of Toronto, Rotman School of Management

Date Written: October 9, 2019

Abstract

Multinational firms with global supply chains manage the labor and environmental practices of their supplier firms. Does this "private regulation" cause social compliance to improve? How does the organization of these programs shape their efficacy? This study uses a regression discontinuity design to estimate the causal effects of private regulation on labor compliance, analyzing over one thousand factories supplying the multinational retailer Gap Inc. This retailer's 2016 change in management practices allows us to study private regulation when first decoupled from and later aligned with the activity of the sourcing department, which controls allocation of orders to factories. Before alignment we estimate precise, near-zero effects of failing audits on future social compliance. However, after the alignment of sourcing with supplier responsibility, failing an audit caused factory compliance to improve by 0.8 standard deviations and reduced the probability of future failure by 22 percentage points. Independent labor compliance data from the ILO/IFC Better Work program shows similarly large effects. Longer-term suppliers improved most, consistent with the hypothesis that committed commercial relationships enhance the credibility of demands to improve labor standards. Private regulation did cause improved labor compliance. Yet it only did so after aligning sourcing activity with the management of social responsibility.

Keywords: private regulation, decoupling, supply chain, social responsibility, social performance, labor standards, compliance

JEL Classification: J8, F16, F23, F66, D22

Suggested Citation

Amengual, Matthew and Distelhorst, Greg, Can Sourcing Help Enforce Global Labor Standards? Evidence from the Gap Inc Supply Chain (October 9, 2019). Available at SSRN: https://ssrn.com/abstract=3466936 or http://dx.doi.org/10.2139/ssrn.3466936

Matthew Amengual

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Greg Distelhorst (Contact Author)

University of Toronto, Centre for Industrial Relations and Human Resources ( email )

HOME PAGE: http://www.gregdistelhorst.com

University of Toronto, Rotman School of Management

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