Corporate Social Responsibility and Workers' Motivation at the Industry Equilibrium

Victor Hiller - LEMNA, Université Paris II Panthéon-Assas

Victor Hiller
En collaboration avec Natacha Raffin (Université de Rouen, CREAM)

Abstract: We consider an industry in which firms compete at two levels: the labor market and the product market. In the labor market, two types of workers coexist: socially responsible workers or not. Firms may strategically use CSR investments to screen and elicit greater effort from responsible workers. By doing so, virtuous firms lower their production costs and display a competitive advantage in the product market. As a consequence, CSR strategies by firms shape the toughness of the competition in that market. In turn, incentives that firms have to invest in CSR are dampened when competition becomes harsher. Hence, we identify a twofold relationship between CSR and competition. Given the feedback e ffects on the competitive pressure, an increase in workers' social awareness may reduce the overall level of CSR. We also show that an exogenous increase in competition may positively or negatively a ffect the corporate social performance depending on pre-existing market conditions.