Chains of Love? Global Production and the Firm-Level Diffusion of Labor Standards

Under what conditions does the global economy serve as a means for the diffusion of labor standards and practices? We anticipate variation among internationally engaged firms in their propensity to improve labor standards. Upgrading is most likely when a firm's products exhibit significant cross-market differences in markups, making accessing high-standards overseas markets particularly profitable. Additionally, upgrading is more likely when lead firms attach a high salience to labor standards. Therefore, while participation in global production induces “trading up” behaviors among firms overall, the effect strength varies across industries. We test our expectations via a survey experiment, which queries foreign firms operating in Vietnam about their willingness to invest in labor-related upgrading. We find strong evidence for the effect of markups on upgrading choices and suggestive evidence for the saliency mechanism.