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12 December 2005

Consumer Demand for Labor Standards, Part I

Michael Hiscox and Nicholas Smyth, guest bloggers

We are very grateful to all the members of the Applied Statistics Workshop for inviting us to present our paper (abstract here) in the workshop this week. Thanks, especially, to Mike Kellerman for organizing everything and playing host.This was the first time we have presented the results from our experiments, and we received some very valuable feedback and suggestions for future work on this topic. One important question that was raised was why we do not simply assume that firms already know how much consumer demand there is for good labor standards? That is, if firms could make a buck doing this sort of thing, why not assume they would already be doing it? We think there are probably a couple of answers to this question. As we noted at the workshop (and in the paper), credible labeling would require cooperation from, and coordination with, independent non-profit organizations that could certify labor standards in factories abroad. So part of the issue here for firms is the uncertainty surrounding whether such organizations would be willing and able to take on such a role. The uncertainty about establishing a credible labeling scheme with cooperation from independent groups, on top of the uncertainty about consumer demand itself, may explain why firms are not doing as much research in this area as (we think) is warranted.

The other answer, or part of the answer, is that many firms may consider it too risky to do market research on labor standards labeling. We talked a little about how many firms refused to participate in our labeling experiments because they could not vouch for labor standards in all the factories from which they source and they were anxious about negative publicity if consumers or activist groups became curious about unlabeled items in their stores. Note that this is not evidence that labeling strategies must also be too risky for firms to ever contemplate. The risks of doing research on this issue are not identical
to the risks attached with actually adopting a labeling strategy (which depend on what the research can tell us about consumer demand, and on whether a firm decides to switch to selling only labeled products or some combination of labeled and unlabeled products, etc).

More on our paper and the questions that arose in the presentation tomorrow.

Posted by James Greiner at December 12, 2005 2:38 AM

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