Do Factory Managers Know What Workers - Ricerca sull'intelligenza artificiale specializzata al MIT

Do Factory Managers Know What Workers
Want? Manager–Worker Information
Asymmetries and Pareto Optimal Human
Resource Management Policies
PARIS ADLER, DRUSILLA BROWN, RAJEEV DEHEJIA,
∗
GEORGE DOMAT, AND RAYMOND ROBERTSON

This paper evaluates the conjecture that factory managers may not be offering
a cost-minimizing conﬁguration of compensation and workplace amenities by
using manager and worker survey data from Better Work Vietnam. Working
conditions are found to have a signiﬁcant positive impact on global life
assessments and reduce measures of depression and traumatic stress. We ﬁnd
signiﬁcant deviations in manager perceptions of working conditions from those
of workers. These deviations signiﬁcantly impact a worker’s perception of
well-being and indicators of mental health. Such deviations may lead the
factory manager to underprovide certain workplace amenities relative to the
cost-minimizing conﬁguration, which may in part explain the persistence of
relatively poor working conditions in developing economies.

Keywords: apparel, human resource management, working conditions, Viet Nam
JEL codes: J32, J81, O15

IO. introduzione

Human resource management (HRM) literature spanning more than 50 years
reveals a signiﬁcant debate over whether or not HRM (or strategic HRM)
policies improve ﬁrm performance generally or induce speciﬁc worker responses
such as loyalty or effort.1 Hackman and Oldham (1976) ﬁnd that speciﬁc job
characteristics can put workers in a psychological state that motivates them to
focus on work quality. Huselid’s (1995) ﬁnding of a positive correlation between
high-performance work systems and turnover, proﬁts, and ﬁrm value suggests that

∗Drusilla Brown: Professor, Department of Economics, Tufts University. E-mail: Drusilla.Brown@tufts.edu; Rajeev
Dehejia (corresponding author): Professor, Robert F. Wagner Graduate School of Public Service, New York University.
E-mail: rajeev@dehejia.net; Raymond Robertson, Professor, Bush School of Government and Public Service, Texas
UN&M University. E-mail: robertson@tamu.edu. The authors would like to thank the managing editor and anonymous
referees for helpful comments. The usual disclaimer applies. ADB recognizes “Vietnam” as Viet Nam.

1McGregor (1960) points out that ﬁrms may choose to view workers as either factor costs to be minimized

or as talent that improves with investment.

Asian Development Review, vol. 34, NO. 1, pag. 65–87

C(cid:3) 2017 Asian Development Bank
and Asian Development Bank Institute

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66 ASIAN DEVELOPMENT REVIEW

positive worker responses increase ﬁrm performance. While the causality has been
debated (Vedere, Per esempio, Wright et al. 2005), meta-analyses (Combs et al. 2006,
Judge et al. 2001) and broad literature reviews (Croucher et al. 2013) suggest an
emerging consensus of a positive relationship.

The necessary conditions for positive effects of HRM policies include the
ability and willingness of managers to understand and implement such policies
(Khilji and Wang 2006; Kuvaas, Buch, and Dysvik 2014) and that the HRM
policies are congruent with worker preferences (Bowen and Ostroff 2004). Questo
paper falls into the second category of ﬁndings and extends them by comparing
worker and manager perceptions of the value workers place on different HRM
policies using detailed manager and worker-level data from Viet Nam’s apparel
sector.

Working conditions in developing economies that are below international
standards pose a signiﬁcant challenge for international value chains. The argument
that developing economy producers choose relatively poor conditions is often cited
as evidence that such conditions are optimal for local producers. Economic theory,
Per esempio, suggests a cost-minimizing ﬁrm will divide monetary compensation
and workplace amenities at the point where the marginal cost of an amenity is equal
to the modal worker’s marginal willingness to forgo earnings (Lazear and Gibbs
2009, Lazear and Oyer 2013).

IL
Several factors may interfere with the ﬁrm’s ability to construct
cost-minimizing compensation conﬁguration of HRM policies. Firms that face
binding capital constraints or ﬁnd acquiring information about efﬁciency-enhancing
investments in amenities to be costly or uncertain may underprovide amenities.
Uncertainty, in particular, or a lack of information, in general, features prominently
in recent research. Mezias and Starbuck (2003) suggest managers do not always have
perfect information. Using experimental data from India, Bloom et al. (2013) show
that informational barriers were the primary factors precluding the implementation
of productivity-improving measures. From a theoretical perspective, Bowles (2004)
concludes that ﬁrms will underprovide workplace amenities in a bargaining context
in which supervisors imperfectly observe worker effort.

Imperfect information concerning the marginal value of workplace amenities
may extend to workers as well. For some innovations, particularly those related
to HRM, the employee must perceive and understand the organizational change
the ﬁrm is attempting to implement. Per esempio, the introduction of signiﬁcant
pay incentives will only increase productivity if employees understand the formula
that rewards effort and the ﬁrm complies ex post with its ex ante pay commitments.
Dunn, Wilson, and Gilbert (2003) report evidence that ﬁrms underprovide workplace
amenities because workers themselves underappreciate the importance of workplace
amenities ex ante when choosing employment. The implication is that comparisons
between supervisor and worker perceptions should be based on contemporaneous
dati.

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 67

It may not be surprising, Perciò, that several other studies ﬁnd that ﬁrms
underprovide nonpecuniary compensation to workers. Per esempio, Herzog and
Schlottmann (1990), analyzing United States Census data for the period 1965–1970,
ﬁnd that the willingness to pay in the form of forgone earnings for risk mitigation
and workplace safety exceeds its marginal cost. Leblebici (2012) ﬁnds that 100%
of employees strongly agree that supervisor relations affect their productivity.
Helliwell, Huang, and Putnam (2009) and Helliwell and Huang (2010UN, 2010B)
ﬁnd that ﬁrms appear to undervalue the importance of trust and workplace social
capital. Moving 1 point on a 10-point workplace trust scale has the same effect on
global life satisfaction as a 40% increase in income.

This paper presents a simple test for detecting errors in implementation
of HRM innovations by comparing worker and manager perceptions of working
conditions. The value of workplace innovations can be measured by estimating a
standard hedonic equation that regresses a measure of worker well-being on wages
and working conditions. Working conditions are measured ﬁrst from the perception
of workers and then from the perspective of the ﬁrm. The estimated coefﬁcients in the
hedonic equation when working conditions are measured from the perspective of the
employee provide the true value to the ﬁrm of a workplace innovation once effectively
implemented. The estimated coefﬁcients when working conditions are measured
from the perspective of the manager indicate the value of workplace innovations
that the ﬁrm perceives. The difference between the coefﬁcients provides a measure
of the efﬁciency loss due to ineffective implementation.

Data collected during the monitoring and evaluation of Better Work Vietnam
provide a novel opportunity to measure HRM implementation errors and their impact
on the cost structure of apparel ﬁrms in global supply chains.2 Survey responses
from 3,526 workers and 320 factory managers in 83 apparel factories enrolled in
Better Work Vietnam provide measures of worker well-being, wages, and working
conditions from the perspective of both workers and managers. This allows us
to empirically estimate a hedonic model of worker well-being using both worker
perceptions of working conditions and manager perceptions, and then to compare
the two.

Anticipating the results reported below, a broad range of workplace
innovations as perceived by workers have a signiﬁcantly higher impact on measures
of worker well-being than innovations reported by human resource managers. IL
discrepancy strongly suggests that ﬁrms enrolled in Better Work Vietnam are failing
to effectively implement innovations in which workers place a high value.

A theoretical framework is presented in section II, data in section III, E

results in section IV. Conclusions and directions for future research follow.

2Better Work is a program developed by the International Labour Organization and the International Finance
Corporation. Firms are monitored against core standards and local labor law. Additional information is available at
http://betterwork.org/global/

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68 ASIAN DEVELOPMENT REVIEW

II. Theoretical Framework

Proﬁt-maximizing HRM requires that factories allocate resources to a
package of compensation and workplace amenities to minimize the cost of providing
employees a reservation level of workplace satisfaction. If labor markets are perfectly
competitivo, the cost of the reservation compensation package will be equal to the
employee’s marginal revenue product. To model this formally, we begin with the
assumption that a ﬁrm will choose a vector of compensation components, B, A
minimize the cost of inducing work effort by an employee.3 For a factory with two
compensation components, B1 and B2, the cost-minimizing problem is

min
{B1,B2}

P1 B1 + P2 B2 + λ[U {g1(B1), g2 (B2)} − UR]

(1)

where Pi (i = 1, 2) is the cost to the ﬁrm of providing beneﬁt Bi, and UR is
the reservation utility necessary to induce the representative worker to accept
employment. Identifying the cost-minimizing compensation conﬁguration will
require the ﬁrm to know how workers value different types of beneﬁts and amenities.
Therefore, gi is a function that reﬂects the worker’s perception of any working
condition, Bi, as perceived by the ﬁrm. The λ represents the Lagrange multiplier.
The ﬁrst order conditions for the program in equation (1) imply that

P1/g(cid:4)
1
P2/g(cid:4)
2

= U1
U2

(2)

The condition in equation (2) is depicted at point A in the ﬁgure below.

Cost-Minimizing Working Conditions

Fonte: Author’s illustration based on equation (2).

3In our model, we do not distinguish between the incentives of owners and managers. For the dimension
of management that we are studying, the design of HRM schemes, this seems like a plausible assumption since
owners will observe factory costs and we are assessing a one-time or periodic design of HRM systems rather than a
continuous effort.

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 69

Firms may make two errors in attempting to locate point A. The ﬁrst, Ovviamente,
is that the ﬁrm may simply lack information on the marginal rate of substitution
(U1/U2). Tuttavia, consider the possibility that the ﬁrm manager has collected
information on the relative valuation placed on each workplace amenity Bi by the
ﬁrm’s employees but may not know how workers perceive working conditions as
given by gi. In questo caso, the ﬁrm will attempt to set the cost-minimizing bundle
secondo

P1
P2

= U1
U2

(3)

the ﬁrm particularly
as indicated by point C. Here, we have assumed that
underappreciates the small size of g(cid:4)
1. The true cost of achieving reservation utility
UR is higher at compensation conﬁguration C than at the efﬁcient bundle A, given
imperfect implementation.

The slope of the indifference curve in the ﬁgure is determined by the
relative weights that workers place on wages, beneﬁts, and workplace amenities.
We employ a hedonic model to estimate these preferences by predicting measures of
individual worker well-being, Uij, which is a function of the following compensation
components:

Ui j = α0 + αW Bi j + γ Xi j + μZ j + ε

(4)

where Bij is a vector of workplace amenities as perceived by worker i in factory j,
Xij is a vector of characteristics of worker i in factory j, and Zj is a vector
of characteristics for factory j. The estimated coefﬁcients on the compensation
components reveal the weights that workers associate with different compensation
components in terms of well-being.

To compare differences between worker and manager perceptions of working
conditions, we replace information on working conditions as reported by workers
with information on working conditions as reported by human resource managers.
The dependent variable remains a measure of self-reported worker well-being.
Tuttavia, workplace characteristics are reported by the factory human resource
manager as given by Bj in equation (5):

Ui j = α0 + αM B j + γ Xi j + μZ j + ε

(5)

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(cid:2)

(cid:3)

B j

from equation (1), it follows that αM = g(cid:4)αW . Così,
Given that Bi j = gi j
a measure of working conditions transmission ﬁdelity can be measured by
G(cid:4) = αM
αW
In estimating equation (4), there is a possibility of reverse causality. For
esempio, poor mental health may affect the perception of a hostile work environment.

70 ASIAN DEVELOPMENT REVIEW

Better Work compliance assessments provide an alternative measure of working
conditions. We then use Better Work compliance assessment data to measure β j as
in equation (6):

Ui j = α0 + αC β j + γ Xi j + μZ j + ε

(6)

Estimating equations (4), (5), E (6) generates a set of coefﬁcients on
working condition indices from the perspective of workers, managers, and Better
Work compliance assessments. The coefﬁcients provide a measure of the relative
importance to workers of each working condition at the present level, relative to
other working conditions. A difference in magnitude of the worker coefﬁcient and
the manager coefﬁcient indicates discrepancies in implementation of workplace
amenities and components of working conditions. Per esempio, if the coefﬁcient
from the worker’s perspective on a particular index is twice the magnitude of the
same coefﬁcient from the manager’s perspective, then the implementation of that
working condition is half as effective as the manager believes.

The factory may address a problem of implementation in two ways. It
can either increase the quantity of a beneﬁt or working condition that is poorly
implemented or it can improve its implementation of that beneﬁt. A factory
intervention program could therefore improve the efﬁciency in a factory by ﬁnding
differences in perceptions of implementation and providing beneﬁt levels that more
closely match worker perceptions.

Below, a two-step procedure is used to construct the working condition
aggregates from the survey and compliance data. In the ﬁrst step, working conditions
as reported by workers, human resource managers, and compliance assessments are
aggregated into indices of working conditions. Factor analysis is then applied to
identify the underlying HRM systems. Equations (4), (5), E (6) are each estimated
using the indices and underlying factors.

We use two different measures of worker well-being as dependent variables.
The ﬁrst is a global life satisfaction assessment and the second is a mental health
index comprised of ﬁve indicators of depression including feelings of sadness,
restlessness, hopelessness, fear, and instances of crying.

The independent variables are indices of working conditions including
information on wages, regularity of pay, information provided to workers, pay
structure, training, verbal and physical abuse, sexual harassment, working time,
issues related to freedom of association and collective bargaining, occupational
health and safety, and health services provided by the factory. Differences in factories
unrelated to the compensation package are controlled for using an index of factory
characteristics. Factory characteristics include number of employees and the ratio
of workers to managerial employees. Additionally, worker demographic controls
include gender, marital status, education level, self-perceived health status, age,

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 71

and number of family members living in the household. Clark (2010) ﬁnds that
after controlling for these worker characteristics, levels of happiness among similar
workers are comparable within an economy, which is an assumption we make in the
subsequent analysis.

Each independent variable of interest is represented by an index with values
between 0 E 1. The resulting coefﬁcient on each index will therefore be interpreted
as the relative value the worker places on each working condition, holding other
characteristics constant.

III. Data

When a factory enters the Better Work Program, Better Work Enterprise
Advisors visit the factory to collect information about the factory’s compliance with
labor standards and working conditions before implementing any other program
elements or training. At some point after enrollment, an independent research team
visits the factory from Better Work’s monitoring and evaluation program (separately
from the Better Work Enterprise Advisors). The data used in the analysis below
were collected during these independent worker and manager surveys undertaken in
Vietnamese apparel factories from January 2010 through August 2012.

A total of 3,526 workers were surveyed at 83 factories, with no nonresponses
among factories or managers. Thirty-three of these factories had an additional round
of surveys taken after having participated in the program for approximately 1 year.
In each factory, 30 randomly selected workers and four factory managers (general
manager, human resources manager, ﬁnancial manager, and industrial engineer)
undertook a self-interview via a computer program loaded onto a PC tablet, Ancora
with no nonresponses. In our hedonic regressions, the managers’ survey responses
on working conditions are matched with the workers in their factory.

The population surveyed was not a random sample of workers in the
Vietnamese apparel industry. Firm enrollment in Better Work Vietnam is voluntary
and workers who are randomly selected have the option to refuse to participate.
Limiting analysis to a self-selected group of apparel factories focuses speciﬁcally on
those factories that are attempting to achieve a competitive advantage by developing
a record of compliant behavior. Tuttavia, there is little cross-worker variation in
wages in the apparel sector. As a consequence, the contribution of monetary income
to worker well-being may not be detected by the statistical analysis.

The worker survey includes information about households and family
composition, health, compensation, beneﬁts,
training, working conditions,
workplace concerns, mental well-being, and life satisfaction. The human resource
manager survey asks questions about the factory’s human resource practices
including hiring, compensation, and training. This survey also asks about manager
perceptions of worker concerns with factory conditions and practices.

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72 ASIAN DEVELOPMENT REVIEW

Tavolo 1. Worker Characteristics

Gender
Female
Male
Current Marital Status
Never married
Married
Widowed divorced or separated
Highest Level of Education
No formal education
Primary school
Lower secondary school
Upper secondary school
Short-term technical training
Long-term technical training
Professional secondary school
Junior college diploma
Bachelor’s degree
Rate Overall Health
Very good
Good
Fair
Poor

Fonte: Authors’ calculations.

81.71
18.29

44.02
54.19
1.79

0.70
12.06
57.95
24.76
0.33
0.91
2.01
0.64
0.64

18.68
44.71
36.36
0.24

UN. Worker and Manager Data

A summary of worker demographics can be found in Table 1. Over 80%
of workers in the survey are female and over 50% are married. Around 87% Di
workers have completed at least lower secondary school, nearly a third of whom
have completed upper secondary school as well. Only 65% of workers consider
themselves to be in good or very good health, and almost a quarter consider
their children’s health to be only fair or poor. Over 50% of workers occasionally
experience severe headaches and 20% of workers occasionally experience severe
stomach pain (Better Work Monitoring and Evaluation 2011).

1. Worker Well-being

Following Lazear and Gibbs (2009), participants were asked to rate their
global life satisfaction on a 5-point scale. Tavolo 2 contains a summary of worker
responses. In measures of worker well-being, almost three-quarters of workers stated
that they are either satisﬁed or very satisﬁed with their lives. Measures of mental
well-being were selected from the Harvard Symptoms Checklist (Mollica et al.
1987) and include feelings of sadness, crying easily, feeling restless, feeling fearful,

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 73

Tavolo 2. How Satisﬁed Are
You with Your Current Life?

Don’t want to answer
Very satisﬁed
Satisﬁed
Somewhat satisﬁed
Somewhat unsatisﬁed
Not satisﬁed at all

Fonte: Authors’ calculations.

%
0.09
20.14
52.79
19.50
6.99
0.49

Tavolo 3. How Much Have You Been Bothered or Troubled by the Following?

Don’t want to answer
Not at all
A little of the time
Some of the time
Most of the time
All of the time

Feeling
triste
0.15
73.33
18.89
6.29
1.18
0.15

Crying
easily
0.09
82.29
13.09
4.25
0.21
0.06

Feeling hopeless Restless, unable Feeling
fearful
about the future
0.12
0.09
87.97
86.54
8.90
10.51
2.49
2.13
0.39
0.55
0.12
0.18

to sit still
0.09
88.61
8.81
2.13
0.30
0.06

Notes: Numbers represent percentages of responses. Columns sum to 100.
Fonte: Authors’ calculations.

or feeling hopeless about the future. Tavolo 3 contains a summary of responses for the
mental well-being variables. Though a quarter of workers reported feeling sad a little
or some of the time, more than 80% of workers reported that they are not troubled by
crying easily. More than 85% of workers said that they do not feel restless, fearful,
or hopeless about the future (Better Work Monitoring and Evaluation 2011).

2. Wages

In 66% of factories, managers stated that 100% of workers are paid hourly.
Only 20% of workers stated that their pay is determined by a piece rate. Thirty
percent of workers reported that they have a production quota set by their supervisor.
Factory managers state that piece rate pay is a concern for employees in 25% Di
factories and that the explanation of the piece rate is a concern in 14% of factories.
Fifteen percent of employees stated that the piece rate is a concern and 7% Di
employees stated that the explanation of the piece rate is a concern for workers in
the factory. Managers said that low wages are a concern in over 23% of factories,
while only 17% of workers expressed concerns with low wages. Allo stesso modo, Anche se
10% of factory managers stated that late payment of wages is a concern, only 5%
of workers articulated their concerns with late payments (Better Work Monitoring
and Evaluation 2011).

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74 ASIAN DEVELOPMENT REVIEW

Concerns with Abuse, Occupational Safety, and Health

Managers stated that workers are concerned with verbal abuse in over 20%
of factories, while physical abuse was reported as a concern in less than 7% Di
factories. Almost 10% of workers expressed concerns with verbal abuse and 3% Di
workers reported concerns with physical abuse or sexual harassment (Better Work
Monitoring and Evaluation 2011).

While almost 30% of managers reported that workers have concerns with
factory temperature, only 12% of workers expressed similar concerns. Around 15%
of factories reported concerns with accidents or injuries, though less than 5% Di
workers reported similar concerns. Less than 8% of factories reported that workers
have concerns with air quality or bad chemical smells, while 9% of workers expressed
concerns with air quality and over 10% of workers expressed concerns with bad
chemical smells (Better Work Monitoring and Evaluation 2011).

Training

Though over 90% of factory managers said that they have some sort of
induction training for new workers that includes information on work hours,
overtime, safety procedures, and equipment, less than half of workers said that they
received any type of training other than in basic skills when they began working in
the factory. Managers stated that information on items such as incentives and pay
structure are included in less than 50% of factory induction training programs. Half
of the managers surveyed said that 50% or more of their sewers had been trained in
new sewing skills or quality control in the last 3 months, but no more than 7% Di
workers stated that they had gone through any type of training in the past 6 months
(Better Work Monitoring and Evaluation 2011).

5. Worker–Manager Relations

Over 75% of workers stated that they would be very comfortable seeking
help from a supervisor, but only half of workers stated that they felt treated with
fairness and respect when a supervisor corrected them. Only 37% of workers stated
that their supervisor followed the rules of the factory all of the time.

One hundred percent of factories report having a trade union representative,
which is typical for Viet Nam, but only 52% of factory managers thought that
the trade union representative would be very effective in helping resolve a conﬂict
between managers and workers. At least 70% of factories have worker committees,
but only 45% of factory managers thought that a worker committee would be
effective in helping resolve a conﬂict. Almost 90% of workers are represented
by a collective bargaining agreement (Better Work Monitoring and Evaluation
2011).

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 75

Coding the Worker and Manager Data

All responses to questions for the worker and manager surveys were ﬁtted
to a scale that ranges from 0 A 1. This process differed slightly for each question
depending on the type of question. For all questions, answers nearer to 1 reﬂect a
more desirable working condition.

There are four different types of questions on the surveys: (io) binary (yes or
NO), (ii) multiple-choice questions with mutually exclusive answers, (iii) questions
where the participant is prompted to check all that apply, E (iv) open-ended
questions. Each of these was coded as follows:

Yes or no questions. The more desirable response was coded as a 1 and the other

response as a 0.

Multiple-choice questions. Responses were ﬁrst ordered from least desirable to
most desirable and then divided by the number of possible responses. Questo
category includes all questions pertaining to concerns despite the fact that
they were instructed to choose all that apply. The reason is that the possible
responses could still be rated from least severe to most severe. Così, the most
severe response given is the most relevant.

Multiple-response questions. The number of responses selected by the participant
was divided by the total number of possible responses. If the responses
were negative aspects of working conditions, the score was then subtracted
from 1.

Open-ended questions. These questions solely dealt with wages. Hence, each

worker’s reported wage was divided by the highest paid worker’s wage.

Constructing Indices

The subclusters of working conditions identiﬁed by Better Work guided the
construction of aggregates from the worker and manager surveys. Within subclusters,
the mean of the questions was taken to be the score for that aggregate. This yielded
21 aggregates from the worker survey and 16 aggregates for the managers from
which we work with an overlapping set of 15 working condition aggregates. These
include issues related to child labor, paid leave, and contracting procedures. IL
components of the indices are reported in Tables A.1 and A.2 of the Appendix for
workers and managers, rispettivamente, and in the summary statistics in Table 4. Wage,
gender discrimination, forced labor, collective bargaining, and chemical hazards are
the most favorable conditions from worker perspectives. The ratio of temporary to
permanent workers, training, and concerns about the method of pay are the least
favorable. Except for health services and in-kind compensation, managers perceive
less variation in working conditions than workers.

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76 ASIAN DEVELOPMENT REVIEW

Tavolo 4. Summary Statistics

Worker Concerns

Manager Perceptions
of Worker Concerns

Variable

Obs. Mean Std. Dev. Obs. Mean Std. Dev.

Wage concern index
5,790 0.961
5,874 0.652
Bonus concern index
In-kind compensation and beneﬁts index 5,864 0.667
5,878 0.845
Pay transparency index
5,855 0.304
Training index
5,863 0.939
Gender discrimination index
5,880 0.988
Forced labor index
5,627 0.909
CBA index
5,860 0.982
Chemical hazard index
5,881 0.672
Health services index
5,872 0.991
Equipment safety index
5,877 0.971
Environment index
5,323 0.178
Temporary to permanent worker index
Method of pay index
5,880 0.493
CBA = collective bargaining agreement.
Fonte: Authors’ calculations.

0.129
0.123
0.114
0.101
0.280
0.165
0.049
0.288
0.078
0.120
0.051
0.080
0.168
0.064

305
305
305
305
305
305
305
305
305
305
305
305
305
305

0.874
0.948
305
305
0.739
305
0.972
0.814
305
0.518
305
0.916
305
0.943

0.244
0.161
0.652
0.667
0.164
0.123
0.111
0.177
0.109
0.243
0.054
0.152
0.168
0.163

Compliance data are stratiﬁed into eight clusters that are further divided into
38 subclusters. All of the compliance questions are simple yes or no questions.
Hence, the compliance score is the mean of all the questions that belonged to a
speciﬁc subcluster. The means of all the subclusters within a cluster are calculated to
obtain that cluster’s score. Subcluster means were excluded when data were missing
or exhibited zero variance across all factories. Per esempio, among the child labor
subclusters the variance was nearly zero. Therefore, only the broad cluster of child
labor was included when performing the analysis on the subclusters. Note that there
are more aggregates for compliance data than for the worker and manager surveys.
The reason is that there are several points that are covered in the compliance data
that are not covered in the surveys. These include issues related to child labor, paid
leave, and contracting procedures.

Control variables include worker demographics and an index controlling for
the size of the factory, which is composed of questions pertaining to how many
full-time and part-time workers are in a factory.

IV. Empirical Results

Speciﬁcations are estimated with ordinary least squares.4 Two indicators of
worker well-being, life satisfaction and worker well-being, serve as the dependent
variables. There are three sources of working conditions: worker survey, manager
survey, and compliance assessment.

4Results are qualitatively similar when using ordered logits.

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DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 77

Every regression equation includes a common set of worker demographic
and factory controls. Control variables include the factory size index in addition
to the gender of the worker, age, formazione scolastica, general health, marital status, E
number of people living in their household. It is worth noting that selection on
unobservables remains a concern: if workers with better unobservables have both
higher life satisfaction and are sorted in better jobs, this would tend to induce a
correlation between working conditions and well-being.

Controlling for age and education addresses the observable dimension of this

sorting, but not the unobservable dimension.

UN. Worker Perceptions of Working Conditions

Consider ﬁrst the estimation of equation (4): life satisfaction and worker
well-being for which working conditions are measured based on worker perceptions
as reported in the worker survey. Findings are reported in columns (1) E (2) Di
Tavolo 5.

Primo, the coefﬁcient on the wage is statistically signiﬁcant only in the worker
well-being equation. In a hedonic equation, the coefﬁcient on the wage is usually
used to place a monetary value on the other working conditions, which then is
possible for well-being but not worker satisfaction. One possible explanation is
that there is limited wage variation in this data set, therefore the lack of statistical
signiﬁcance is not entirely surprising.

Secondo, working conditions appear to have a stronger effect on life satisfaction
than on mental well-being: working conditions have a statistically signiﬁcant effect
for seven indices in column (1) compared to four in column (2). Inoltre, for
three of the four indices that are signiﬁcant for well-being (wage concerns, pay
transparency, and health services), the magnitude of the impact on satisfaction
is larger. This is not surprising given that
the worker well-being questions
are intended to identify participants that are suffering from various degrees of
depression. These results suggest that poor working conditions may affect a global
sense of life satisfaction even before workers begin to experience symptoms of
depression.

Turning to the indices themselves, eight working condition factors in the
life satisfaction equation reported in column (1) are signiﬁcant at a 10% level or
higher. Tuttavia, they are not all positive. Lack of wage concerns, access to health
services, pay transparency, collective bargaining, and the environment index are
positive. Training, gender discrimination, and equipment accidents are negative.
Tuttavia, these negative impacts are not statistically signiﬁcant in column (2) for
worker well-being.

The negative effect of training is understandable if training is undertaken in a
hostile tone or is perceived as disciplinary in nature. Explaining the environmental
index is more challenging. One would expect that fear of dangerous equipment and

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78 ASIAN DEVELOPMENT REVIEW

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< p ∗ , 5 0 . 0 < p ∗ ∗ , 1 0 . 0 < p ∗ ∗ ∗ . s e s e h t n e r a p n i s r o r r e d r a d n a t s t s u b o R : s e t o N . t n e m e e r g a g n i n i a g r a b e v i t c e l l o c = A B C . s n o i t a l u c l a c ’ s r o h t u A : e c r u o S 80 ASIAN DEVELOPMENT REVIEW other workplace hazards would be as important as other aspects of harsh working conditions in determining life satisfaction. B. Manager Perceptions of Working Conditions We turn now to consider the impact of manager perceptions of working conditions on worker life satisfaction and well-being. Estimates of the parameters of equation (5) are reported in columns (3) and (4) of Table 5. A striking feature of the results in Table 5 is that far fewer indices have statistically signiﬁcant impacts. For worker satisfaction, only pay transparency and the equipment safety index enter as statistically signiﬁcant (and positive). For worker well-being, equipment safety enters as positive and signiﬁcant as well and the bonus concern enters negatively. The manager assessments do not pick up the relevance of forced labor, health services, environment, training, and wage concerns. In this sense, managers underappreciate the value of workplace amenities on well-being and satisfaction from the workers’ perspective. The managers’ assessment of the value of wages is also smaller than workers’ own assessment. C. Formally Comparing Perceptions of Working Conditions The transmission parameters for a common set of working conditions are reported in columns (5) and (6) of Table 5. For each working condition, the α coefﬁcients from the worker and manager perspectives (estimated separately as described above) are reported along with robust standard errors calculated with the combined variance–covariance matrix from the two separate regressions. The transmission coefﬁcient, g’, is then calculated as the quotient of the manager coefﬁcient divided by the worker coefﬁcient. Below each quotient (in parentheses) is the p-value of a chi-square test of the nonlinear hypothesis that the quotient is equal to 1. In column (5), which focuses on the transmission coefﬁcients where the index is statistically signiﬁcantly and different from 1, we note that the transmission coefﬁcient is less than 1 in all but one instance. In other words, working conditions typically have a greater impact on worker satisfaction based on worker perceptions rather than those of managers. Likewise, in column (6), three of the ﬁve transmission coefﬁcients that are statistically signiﬁcant and different from 1 are less than 1, and one of the coefﬁcients that is greater than 1 in absolute value is negative, meaning that managers ﬂip the importance of working conditions when compared to the workers’ assessment. For example, managers underweight the relevance of the wage and low wage concerns more generally than workers. However, a similar pattern can be observed for nonmonetary beneﬁts such as health services and the working environment, which enter positive for both l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 81 Table 6. Compliance Cluster Regression Results Child labor index Compensation index Contract and HR index Discrimination index Forced labor index Freedom of association index OSH index Working time index Factory index Male Education Married Worker health Household size Age Constant Satisﬁed 1.247 (3.32)∗∗ −1.722 (3.94)∗∗ 0.020 (0.08) 5.764 (4.27)∗∗ 13.538 (4.31)∗∗ 0.925 (1.95) 0.054 (0.29) 0.607 (2.33)∗ 0.132 (1.13) −0.039 (0.81) −0.033 (4.80)∗∗ 0.109 (2.63)∗∗ 0.481 (6.44)∗∗ 0.040 (2.33)∗ −0.000 (0.07) −4.480 (2.64)∗∗ 0.07 2,051 Well-being 0.602 (3.25)∗∗ −1.011 (4.70)∗∗ −0.133 (1.08) 2.800 (4.22)∗∗ 6.571 (4.25)∗∗ 0.406 (1.74) 0.179 (1.95) 0.516 (4.01)∗∗ −0.038 (0.66) 0.065 (2.80)∗∗ −0.020 (6.02)∗∗ 0.076 (3.72)∗∗ 0.121 (3.29)∗∗ 0.022 (2.58)∗ 0.003 (1.84) 0.265 (0.32) 0.08 2,051 R2 N HR = human resource, OSH = occupational safety and health. Notes: t-statistics in parentheses. ∗p < 0.05; ∗∗p < 0.01. Source: Authors’ calculations. satisfaction and well-being from the workers’ perspective but are not statistically signiﬁcant from the managers’ perspective. This suggests that there are potential efﬁciency gains from aligning working conditions with worker values. D. Compliance Assessments of Working Conditions Finally, we consider working conditions as measured by Enterprise Assessments and the results are reported in Tables 6 and 7. Two forms of aggregation are used. Compliance averages are calculated for each subcluster. Subclusters were l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 82 ASIAN DEVELOPMENT REVIEW Table 7. Compliance Subclusters Regression Results Child labor index Method of payment index Minimum wage index Overtime index Paid leave index Premium pay index Social security index Information index Contracting procedure index Discipline index Employment contract index Termination index Gender index Other grounds index Bonded labor index CBA index Strikes index Union operations index Chemicals index Emergency prepare index Health services index OSH manage index Welfare facilities index Accommodation index Work protection index Satisﬁed 0.230 (0.44) 5.056 (3.48)∗∗ −0.725 (2.02)∗ −0.143 (0.92) −1.049 (3.19)∗∗ 0.525 (3.06)∗∗ −0.283 (1.79) −0.319 (1.51) 0.436 (2.75)∗∗ −0.621 (3.12)∗∗ 0.099 (0.51) 0.679 (0.99) −1.837 (2.94)∗∗ −2.208 (1.29) 4.715 (5.91)∗∗ −0.258 (0.83) 0.420 (0.50) 1.326 (4.56)∗∗ −0.199 (2.39)∗ −0.111 (0.49) 0.174 (1.29) 0.224 (1.92) 0.208 (1.25) −0.932 (0.88) 0.151 (0.73) Well-being 0.228 (0.87) 0.861 (1.19) −0.073 (0.41) −0.228 (2.96)∗∗ −0.340 (2.08)∗ 0.061 (0.72) 0.143 (1.82) −0.272 (2.58)∗∗ 0.114 (1.44) −0.327 (3.31)∗∗ −0.176 (1.81) 0.558 (1.64) −0.839 (2.70)∗∗ −2.672 (3.14)∗∗ 2.395 (6.04)∗∗ −0.105 (0.68) 0.129 (0.31) 0.732 (5.07)∗∗ −0.090 (2.17)∗ 0.183 (1.63) −0.025 (0.37) 0.118 (2.04)∗ −0.218 (2.63)∗∗ −0.398 (0.75) 0.306 (2.97)∗∗ Continued. l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 83 Table 7. Continued. Work environment index Leave index Overtime working index Regular hours index Factory index Male Education Worker health Household size Age Constant Satisﬁed 0.139 (0.77) −0.502 (0.83) 0.456 (2.66)∗∗ −0.580 (1.85) 0.147 (1.12) −0.045 (0.94) −0.036 (5.39)∗∗ 0.411 (5.52)∗∗ 0.037 (2.27)∗ 0.001 (0.28) −1.504 (0.78) 0.11 2,054 Well-being 0.067 (0.74) −0.394 (1.30) 0.504 (5.93)∗∗ −0.234 (1.50) 0.049 (0.75) 0.067 (2.82)∗∗ −0.022 (6.72)∗∗ 0.109 (2.95)∗∗ 0.023 (2.82)∗∗ 0.004 (3.10)∗∗ 3.700 (3.87)∗∗ 0.11 2,054 R2 N CBA = collective bargaining agreement, OSH = occupational safety and health. Notes: ∗p < 0.05, ∗∗p < 0.01. Source: Authors’ calculations. aggregated into clusters using the Better Work taxonomy, with the results reported in Table 6. Results within the subclusters themselves are reported in Table 7. Analysis based on the Better Work clusters suggests that Better Work is effectively identifying working conditions that signiﬁcantly affect worker well-being. Coefﬁcients are positive and statistically signiﬁcant for child labor (satisfaction 1.247, well-being 0.602), discrimination (satisfaction 5.764, well-being 2.800), forced labor (satisfaction 13.538, well-being 6.571), and work time (satisfaction 0.607, well-being 0.516). The coefﬁcient estimates for equation (6) are of the same order of magnitude as for equation (4). That is, variations in working conditions as identiﬁed by Better Work are similar in magnitude as those detected by workers themselves. The one compliance point on which Better Work assessments deviate signiﬁcantly from those of workers is compensation. Improvements in compensation compliance as measured by Better Work are negatively associated with worker outcomes. The compensation coefﬁcient is −1.722 in the satisfaction equation and −1.011 in the well-being equation. l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 84 ASIAN DEVELOPMENT REVIEW The source of the discrepancy can be understood by examining the results when working conditions are measured by the subclusters as reported in Table 7. Negative coefﬁcients emerge for the minimum wage index (−0.725), paid leave index (−1.049), discipline index (−0.621), gender index (−1.837), and the chemicals index (−0.199). The negative relationship between some compliance points and global life satisfaction raises questions about factory conditions that Enterprise Assessments are identifying, although it is also possible that Better Work assessments are inducing ﬁrms to deviate from the cost-minimizing compensation conﬁguration. Placing equal emphasis on all dimensions of compliance may put Better Work assessments somewhat at odds with worker preferences with regard to working conditions. V. Conclusion One possible reason for the persistence of poor working conditions in developing economies is that managers may not be fully aware of the value that workers place on different workplace amenities. Analysis of manager and worker survey data from Better Work Vietnam Monitoring and Evaluation, collected from January 2010 through August 2012, indicates that working conditions have a signiﬁcant positive impact on global life satisfaction and measures of depression and traumatic stress. This paper offers a simple test of the conjecture that factory managers may not be offering a cost-minimizing conﬁguration of compensation and workplace amenities. The ﬁndings reveal signiﬁcant deviations of manager perceptions of working conditions from those of workers and these deviations signiﬁcantly impact a worker’s perception of well-being and indicators of mental health. Such deviations may lead the factory manager to underprovide certain workplace amenities relative to the cost-minimizing conﬁguration. In particular, while workers value monetary beneﬁts, they also value nonmonetary amenities such as health services and a safe working environment. Furthermore, that manager perceptions do not align with those of workers suggests that managers are unaware that incremental investments in such nonmonetary beneﬁts would be valued by workers, in addition to incremental monetary rewards. the fact At the same time, further research will be needed to formulate speciﬁc policy proposals. In particular, in order to determine whether the working conditions conﬁguration is cost minimizing, it is necessary to know the marginal cost of each working condition. It would also be valuable to estimate similar hedonic worker satisfaction and well-being models in other labor markets and economies. Finally, our analysis provides a framework for assessing the impact of Better Work on working conditions and the impact that Better Work-induced innovations have on life satisfaction and mental health. l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 85 References Better Work Monitoring and Evaluation. 2011. “Vietnam Baseline Data Report.” http://betterwork .com/global/wp-content/uploads/Impact-Research-Vietnam-Baseline-Report-Worker-Persp ectives-from-the-Factory-and-Beyond.pdf Bloom, Nicholas, Benn Eifert, Aprajit Mahajan, David McKenzie, and John Roberts. 2013. “Does Management Matter? Evidence from India.” The Quarterly Journal of Economics 128 (1): 1–51. 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Appendix Index Method of pay index∗ Annual wage∗ Wage concern index∗ Bonus concern index∗ In-kind compensation and beneﬁts index∗ Pay transparency index∗ Deductions concern index Disciplinary concerns index Training index∗ Gender discrimination index∗ Race discrimination index Religion and/or ethnic discrimination index Forced labor index∗ CBA index∗ Union representative assistance index Chemical hazard index∗ Health services index∗ Table A.1. Worker Indices Components How often paid, late payment concerns Annualized pay, Tet bonus Low wage concerns Bonuses received, Tet concerns In-kind compensation concerns, beneﬁts received Info on pay statement, piece rate explanation concerns Deductions made, deduction concerns Workers corrected fairly, verbal abuse concerns, physical abuse concerns Induction training, recent training Gender as a barrier to promotion, sexual harassment concerns Ethnicity as a barrier to promotion, nationality as a barrier to promotion Religion as a barrier to promotion Punch clock concerns, bathroom denials Presence of a collective bargaining agreement Comfort in seeking out a trade union representative Hazardous chemical concerns Presence of a health clinic, health services provided, treatment quality Food water sanitation index Drinking water satisfaction, canteen satisfaction, bathroom Equipment safety index∗ Environment index∗ satisfaction, how often workers drink Dangerous equipment concerns, accident concerns Temperature concerns, air quality concerns Continued. l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3 DO FACTORY MANAGERS KNOW WHAT WORKERS WANT? 87 Index Overtime index Sunday work concern index Temporary to permanent worker index∗ Table A.1. Continued. Components Too much overtime concerns Too much work on Sundays concerns Current employees, ratio of temporary to permanent employees, nonproduction employees CBA = collective bargaining agreement. Note: ∗denotes indices common to the worker and manager surveys. Source: Authors’ compilation. Index Components Table A.2. Manager Indices Age veriﬁcation index Method of pay index∗ Annual wage∗ Wage concern index∗ Bonus concern index∗ In-kind compensation and beneﬁts index∗ Pay transparency index∗ Training index∗ Gender discrimination index∗ Forced labor index∗ CBA index∗ Union effectiveness index Chemical hazard index∗ Health services index∗ Housing index Equipment safety index∗ Environment index∗ Temporary to permanent worker index∗ Age veriﬁcation required on application Late payment concerns Annualized pay, Tet bonus Low wage concerns Tet concerns In-kind compensation concerns, meal allowance, beneﬁts provided Info on pay statement, piece rate explanation concerns Induction training, time spent training basic skills, recent supervisor training, recent sewer training Sexual harassment concerns Punch clock concerns Presence of collective bargaining agreement, issues dealt with by CBA, presence of worker committee, worker committee effectiveness Trade union effectiveness Hazardous chemicals concerns Health services provided Housing provided Dangerous equipment concerns, accident concerns Temperature concerns, air quality concerns Current employees, ratio of temporary to permanent employees, nonproduction employees CBA = collective bargaining agreement. Note: ∗denotes indices common to the worker and manager surveys. Source: Authors’ compilation. l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a d e v / a r t i c e - p d l f / / / / / 3 4 1 6 5 1 6 4 2 7 8 9 a d e v _ a _ 0 0 0 8 1 p d . f b y g u e s t t o n 0 7 S e p e m b e r 2 0 2 3
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