Race to Rebalance: Global Supply Chains and Labor Market Regulation

Abstract

Exploiting 18 million freight shipment records, we show that U.S. firms increase import 6% more from countries that strengthen labor laws through mandatory workforce policy (MWP) regulations, especially from new suppliers. While firms importing from MWP countries experienced increasing operating costs, they also receive favorable employmentcondition evaluations and have fewer negative social issues reported. Our results are consistent with firms responding to employee preferences: the import increase from MWP countries is more pronounced when majority of firms’ employees are in Democratic states, and in industries with high employee bargaining power. Our results are robust to alternative channels and have important policy implications.

Keywords: Import, Global Supply Chains, Labor Policy, Employee preference, Corporate social responsibility JEL Codes: F16, G34, F23, J08

JEL Classification: F16; G34; F23; J08