Independent analysis using Better Work data contributes to the business case for lifting compliance to labour standards and investing in up-to-date human resource management.

10 March 2017.

Geneva – A new report on the relationship between improved compliance with labour standards in Cambodian garment-exporting factories and firm performance shows that the two go hand-in-hand.  The study, Labor Compliance and Factory Performance: Evidence from the Cambodian Garment Industry, compared profit rates, productivity, and employment of the periods 2001-2002 and 2006-2008.

Using data from Better Work factory assessments and independent factory surveys the researchers found higher overall compliance on labour standards is associated with higher worker productivity and employment, higher compliance in the area of what the researchers called “modern” human resource management is associated with higher profit rate, total factor productivity and employment, and higher compliance in occupational safety and health is positively associated with employment.

The most significant relationship was that between effective or modern human resource management techniques and factory performance.  Clear and transparent communication on wages and contracts, established procedures on discipline and misconduct management, and information sharing on internal regulations appear to be significant in building trust and between workers and management.

“Workers care a lot about their relationship with their supervisors, and they obviously care a lot about pay.  If workers are being paid on time and they are being paid accurately and they understand the payment schedules and they are able to have good dialogue with the supervisors … these are things that are going to improve worker effort and retention and therefore most likely to contribute to factory performance,” said co-author Raymond Robertson, Professor of Economics and Government at Texas A &M University.

The results of the Cambodian study echo the findings of a 2016 Tufts University assessment of the Impact of Better Work on the garment industry in Indonesia, Jordan, Haiti, Nicaragua, and Vietnam.

The study adds to a growing body of evidence countering the argument that improving working conditions in developing economies will make it harder for them to compete internationally by just raising their costs.  The benefits to the factories must also be considered.

Robertson noted that communicating the latest research to factory owners is a vital step if they are going to change their approach to working conditions.   “One of the reasons we do research at all is that we want create new information and we want to share that information with the factory owners in order to reduce their costs for finding that information.  Our goal is really expanding the school of knowledge and lowering the cost of knowledge for factory managers and owners.“

Labor Compliance and Factory Performance: Evidence from the Cambodian Garment Industry was a collaboration between the Bush School of Government and Public Service, Texas A&M University and the Institute of Developing Economies, Japan External Trade Organization.