Podcast Date: October 23, 2019


Laura Boudreau from Columbia Business School talks about a recent experiment she ran in Bangladesh with multinational buyers in the garment sector who have suppliers in the area, and were motivated to form a coalition to support safety laws after the collapse of the Rana Plaza garment factory killed over a thousand people. Although she says that the multinational compliance of labor laws can't substitute for government enforcement, she suggests that their enforcement of local labour laws and safety regulations might be able to help in the short term.

She notes that buyers face difficulties in enforcing labor laws because of incentives to cut costs. However, public discourse in developed markets such as in the United States and Europe have suggested that, in theory, multinationals may be able to pass on their higher costs if the preferences of consumers is such that they would be willing to pay more to have products that have been sourced "ethically." In such a world, multinationals could differentiate products based on the methods of their sourcing, with "safer" products commanding slightly higher prices.

Boudreau found that the extra emphasis of multinationals on compliance with safety and labor laws led to an increase in meetings of safety committees within the factories and a "small but statistically significant improvement in indicators on factory safety," including higher marks given upon spot checks of safety compliance on the factory floor, as well as more workers perceiving that they were working in safer conditions.

Interestingly, she found no negative effects on wages or labor productivity within about nine to ten months after the start of her experiment.