Organizational Structures and the Improvement of Working Conditions in Global Supply Chains: Legalization, Participation, and Economic Incentives

by Yanhua Z. Bird, Jodi L. Short, and Michael W. Toffel

Overview — Suppliers face increasing pressure from the institutional environment as well as demands from buyers to improve working conditions. This study analyzes the internal organizational dynamics of more than 3,000 supplier firms in 55 countries. Findings call for looking beyond the symbolism of organizational structures and attending to how they can be linked with real implementation and improvement.

Author Abstract

Exploitive working conditions have spurred the development of formal organizational structures that deploy mechanisms including legalization—adherence to a set of law-like rules and procedures—and worker participation to improve labor standards in global supply chains. Yet little is known about whether these structures are associated with improved working conditions, especially in organizations in which they compete with productivity-driving economic incentives. Drawing on the economic sociology of law and organizations as well as theories of organizational learning, we investigate whether and how these formal organizational structures, individually and in combination, are associated with improved working conditions. Using data on 3,276 suppliers in 55 countries, we find greater improvement at suppliers that adopt legalization structures (operationalized as management system standards) and worker participation structures (unions) and find that the combination of these structures amplifies improvement. We find less improvement at suppliers with organizational incentive structures meant to increase worker productivity (piece-rate pay), but also find that this negative relationship is attenuated by organizational legalization and worker participation structures. These findings challenge existing theories of decoupling by showing how these organizational structures can be credible signals for improvement and can also be coupled with organizational changes via processes of organizational learning, even in the face of intense efficiency demands. Furthermore, our findings suggest important strategic considerations for managers selecting supplier factories and provide key insights for the design of transnational sustainability governance regimes.

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