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Is Corporate Social Responsibility Associated with Lower Wages?

Abstract

Firms with a reputation as socially responsible may have an important cost advantage: If workers prefer their employer to be socially responsible, equilibrium wages may be lower in such firms. We explore this hypothesis, combining Norwegian register data with data on firm reputation collected by an employer branding firm. Adjusting for a large set of background variables, we find that the firm’s social responsibility reputation is significantly associated with lower wages.

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Notes

  1. 1.

    For discussions of CSR, see Benabou and Tirole (2010), Besley and Ghatak (2007), McWilliams and Siegel (2001).

  2. 2.

    However, several authors have studied the relationship between wages and firms’ profit versus non-profit status, with mixed results. See, e.g., Leete (2001), Mocan and Tekin (2003), Frank (2004).

  3. 3.

    See Lyon and Maxwell (2011).

  4. 4.

    There is a literature on the link between firms’ actual social behavior, e.g. green production, and their economic performance (for example, Telle 2006), but these studies typically do not focus on wage levels. Cole et al. (2009), using UK data, found a small wage premium for working in a polluting industry; these results could, however (as the authors do), be explained by workers’ increased health risks when exposed to pollution. For studies on the relationship between CSR and financial performance see, e.g., Waddock and Graves (1997), McWilliams and Siegel (2000).

  5. 5.

    See http://www.universumglobal.com/Startpage.aspx.

  6. 6.

    If the respondent has reported to be familiar with less than six companies on the provided list: “Now choose the company/companies you would like to work for more than any other”. Otherwise: “Now choose 5 companies you would like to work for more than any other”.

  7. 7.

    “What do you associate with these companies? (Please select as many alternatives as are applicable.)” The complete list of company’s characteristics includes: Competitive working environment, Conservative working environment, Dynamic organization, Good/confidence-inspiring management, Exciting products/services/customers, Financial strength, Good reputation at my school, Equality between the sexes, High ethical standards, Innovation, Market success, Recruiting only the best, Strong corporate culture, Diverse/multicultural employees, Corporate social responsibility, Excessive overtime.

  8. 8.

    Since the format of the question is to tick a box if one associates a characteristic with the firm, a “no” is hard to distinguish from a missing response.

  9. 9.

    An alternative would be to use an absolute CSR count; however, if CSR is not the most important characteristics for choosing ideal employers, this would imply that if two firms A and B have the same CSR reputation, but A is more popular due to e.g. high salaries or prestige, A would receive a higher score.

  10. 10.

    A robustness check revealed that increasing this number to e.g. eight did not cause substantial changes in our estimates.

  11. 11.

    The employment register provides the employer’s identification number, which we use to link with our CSR reputation data.

  12. 12.

    To make sure that only full time employees are included, we only include job registers expanding the entire calendar year. Second, we include only those registered with 100 % positions in the employment register. Finally, the restriction of yearly cash wage above 200,000 NOK was added to minimize the possibility that results are driven by register errors in job duration or position percentage.

  13. 13.

    Based on International Standard Code for Occupation (ISCO) by International Labour Organization (ILO), see http://www.ilo.org/public/english/bureau/stat/isco/index.htm for details.

  14. 14.

    The log wage regression mimics a Mincerian model, see Heckman et al. (2006) and Lemieux (2006) for discussions of Mincer style wage regression analysis. 

  15. 15.

    In NOYP, respondents report current hourly wages and also whether they associate their current employer with CSR. This data cannot be merged with the individual level register data, but one could perform a regression of log hourly wage on a dummy indicator of CSR using only the NOYP survey data (neither NOGS nor register data). Preliminary analysis using this approach did not reveal any clear relationships between wage and CSR. This approach reduces the size and scope of the dataset considerably, however: NOYP 2006 and NOYP 2007 regressions are based on self-reported wage data for 3,362 and 3,060 individuals, respectively, all of whom are highly educated within economics, business, engineering/natural science, IT or law. Our preferred approach comprises about 109,000 officially registered wage observations, including all types of employees in firms for which we have CSR reputation data.

  16. 16.

    Recall that the relative CSR score is observed on the firm level (although based on survey data), not on the individual level.

  17. 17.

    We conducted standard White tests which did confirm the existence of heteroskedacity. The robust standard errors are obtained by applying the vce(cluster companyid) option in Stata.

  18. 18.

    The yearly wage statistics register we derive occupational information from, does contain contracted working hours per week and contracted cash wage per month, which in theory could be used to calculate hourly wage. The quality of this particular information seems rather poor, however, hence not providing an adequate basis for reasonably consistent measurement of hourly wage.

  19. 19.

    Since the NOYP and NOGS have only partial overlap in which companies are included, the aggregated number of companies when combining NOYP and NOGS in the estimations below exceeds the numbers of companies in each survey separately.

  20. 20.

    See Appendix Tables A1–A3 for statistics on relative CSR, both for the estimation sample and the NOGS/NOYP surveys.

  21. 21.

    For brevity, our CSR reputation variable—the relative CSR score—is mostly called just “CSR” when presenting estimation results below. It should be kept in mind, however, that our data is concerned with firm reputation, not firm behavior.

  22. 22.

    Note, however, that we use rather broad industry categories here; see the Appendix.

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Correspondence to Karine Nyborg.

Additional information

This work is part of project 3171 SAMFUNN: Norms, green agents and environmental policy at the Ragnar Frisch Centre for Economic Research. We are grateful to the Research Council of Norway for funding through the Miljø2015 programme, to Sara Cools, Charles Figuieres, Bernt Bratsberg, Knut Røed, Oddbjørn Raaum and several seminar and conference participants for comments and discussion, to Carlo Duraturo and Universum for granting us access to their survey data, and to Statistics Norway for providing access to register databases.

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Nyborg, K., Zhang, T. Is Corporate Social Responsibility Associated with Lower Wages?. Environ Resource Econ 55, 107–117 (2013). https://doi.org/10.1007/s10640-012-9617-8

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Keywords

  • Self-regulation
  • Wage differentials
  • CSR

JEL Classification

  • C51
  • D21
  • D64
  • Q56