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Dan Loney: Companies do layoffs at a
variety of times and for a variety of reasons, but
collective layoffs come when a
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firm lays off a significant
number of their employees. Recent research looks at how
these moves are perceived for
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those different reasons,
offshoring of jobs being one of the most important areas of
focus. Stefano Puntoni is a
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Professor of Marketing at the
Wharton School, as well as Co- Director of AI at Wharton, and
he joins us right now to discuss
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this topic. He has been part of
research on this. Stefano, great to talk to you again. How are you?
Stefano Puntoni: Thank you for having me.
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- This is obviously a very
interesting topic, especially the offshoring part. What was it
first that spurred the interest
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in doing research into this? - Yeah, we were interested in
understanding how consumers
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react to learning that a firm
has decided to lay off a significant amount of workers,
what we call a collective
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layoff. And I think it's
interesting, because while, obviously, companies don't go
necessarily around advertising
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this, they often have press
releases, things are talked about in social media, people
talk about such things on Reddit
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and other platforms, and
clearly, civic society organization, including labor
unions and local news and other
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institutions, also talk about
it. So increasingly, people learn about these things, and
they hear discussion about it.
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And we were interested in
understanding whether people were affected by this and the
liking of firms as a function of
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engaging in such actions, and
also whether, and that's maybe the more interesting part,
whether it mattered to consumers
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why these collective layoffs
were taking place. - So you mentioned Reddit, so
obviously there is a social
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media component that you used in
order to do this research. - Yeah, so one of the studies -- we
have a lot of data actually, a
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lot of randomized control trials
conducted on different populations, and then also some
observational data. And one of
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the observational data is social
media data we scraped from Reddit, where we basically
searched for discussions, threads
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that were about collective
layoffs. And in particular, we were searching for collective
layoffs discussions that related
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to two different
reasons for collective layoffs, and we focused on automation and
offshoring. Now, those two are
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interesting, because if you
think about the way that business can pursue efficiency,
typically, they can leverage one
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or two forces to shape business.
One is technology, and one is globalization. So if they
leverage technology, typically
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that means, I am going to replace
my expensive variable cost in the shape of labor with, you
know, capital investments in the
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shape of technology, and that
makes work more efficient, increase the productivity,
reduces the need for labor.
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But the other picture is, another
way I can do it is basically to lower my variable cost by moving
my jobs from a high cost country
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to a lower cost country so I
can lower my labor cost that way. And so what we did
basically was to scrape all of
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this data, run a big regression
model where we were looking at consumer online sentiment when
they were talking about these
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collective layoffs to the
function of whether the layoffs were attributed to automation
and offshoring, and we found
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significantly more negative
conversations about collective layoffs when they were about
offshoring than were about
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automation. - And that sentiment you mentioned
in the paper plays into the fact that, I guess, there is a
perception by a lot of people
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that companies should be looking
out for their employees and maybe not necessarily sending
jobs to another country. - Yeah,
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the angle that we take to explaining
this phenomenon is basically building on a very long
tradition of social science
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research and philosophy and
political economy, going back to the Enlightenment, on the notion
of social contracts. And what we
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argue is that companies and
societies or citizens and voters and consumers, they hold a
implicit social contract with
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one another. These are basically
expectations about what are we, you know, thinking the other
part is going to do. And the
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expectation on the side of
society and consumers and citizens is that we are going
to, you know, pay the
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taxes that are training your
workers, we're going to buy your products, and so forth. But on
the other side, the biggest
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contribution, in a way, in the
social contract by the side of the firm, is providing
employment opportunities. So the
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problem with the collective
layoff is that it is clearly a violation of that social
contract, and that's why people
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don't like it. And what we find
in our data is that people don't like it, especially when that
social contract violation is
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attributed to offshoring. That
makes it even more severe in the perception of people.
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Does the potential product
quality play a role in that perception as well?
- Yeah,
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so consumer reactions to firm
decisions to offshore are complex. And so there are a bunch
of different things that can be
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going on, and product quality is
one of them, is an account that we test in our studies, and we
do find some evidence for it.
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People might be reducing the
liking of a company because they also believe that the products
are going to be shoddy, or
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something like that. So that's
one element. But controlling for that, we find that people feel
more negatively about firms that
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decided to lay off workers when
they attribute that layoff to offshoring.
- That
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component of layoffs versus
offshoring is a unique one, and I find it interesting that, maybe
to a degree, people are more
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understanding of the component
of layoffs, that it's part of what happens kind of in our
country, in our cycle right now.
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- You know, a lot of people in the
literature and also in popular press have written about the
fact that consumers don't like
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it when companies are offshoring
production. The problem is that all the tests in the literature
that we could find were
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basically comparing the status
quo to a situation where now we're offshoring production. And the
problem with that comparison is
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that now you're comparing
apples and oranges, because basically what you're doing is
that you're comparing a firm
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that is not laying off anybody
to a firm that is comparing layoff -- that is laying off
workers and offshoring. So we
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did not know, based on the
evidence in the literature, whether the negative reactions
that people were talking about
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with offshoring were
really about offshoring, per se, or simply about layoffs in
general. And so what we needed
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to do is to construct our
studies in a way where, in all conditions in our RCTs, there is
a constant number of layoffs.
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And now we vary the reason for
the layoffs, and when we get an effect here, then we know that
is really an offshoring effect,
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it's not just a general reaction
to layoffs. - Is there then -- doing this
research and talking about it
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now in kind of the landscape we
are, is there an element that makes this research even more
important to bring it out now,
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because of some of these
components that maybe we're seeing going on around the world? - Well, clearly,
I mean, there's been a lot of
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conversations around, you know,
where production should take place. And I would say that a
lot of the conversations have
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been around bringing production
back to countries where maybe the production used to be, and
where, over the last maybe four
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or five decades, much less of it
took place. Now, the thing is, what motivated me to study
this topic, and we've been
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studying this for about 10 years
now actually, is that I believe that a lot of support for
policies that are meant to bring
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back production, for example,
tax breaks for corporations, that is sure, or, you know, whatever,
are predicated on a
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mistaken understanding of modern
production. You know, the factories that might
be coming back will look
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nothing like the factories that
left. Adidas, for example, is again making shoes in Germany
after 50 years of making shoes
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in Southeast Asia. The thing is,
the factory that Adidas built in 2020 is very different from the
factory that they used to have
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in Germany in the 1960s. Basically,
it's an entirely automated production line. And there will
be jobs. I mean, there will be
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security guards, and someone has
to build the buildings on construction. There will be
some engineering, obviously. And
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then maybe it's good for the
economy that we have production and consumption
closer to each other, and maybe
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it's good for innovation cycles.
It's also good maybe for, you know, the high end robotics
industry in the country,
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whatever. I mean, there are a
lot of reasons why that that move might be -- you know,
might produce joy in Germany. On
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the other hand, it is not going
to produce large numbers of the well paying jobs
for unskilled workers.
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- Do consumers then have their
opinions on being with and shopping from a corporation that
makes maybe their favorite
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product change because of some
of these decisions around labor and offshoring? - It depends a lot on whether they
know about these things. It
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also, you know, matters a lot
how much they like the company. I think if you really love a
company, you'll probably, you
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know, protect those beliefs by
constructing arguments for why it's okay they're doing
something. I would say that what
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our research shows is that an
environment where such production decisions are highly
politicized, where there is a
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discourse in society revolving
around where companies should make stuff, and that we are
taking very dramatic steps to
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force companies to behave a
certain way, I think consumers are clearly not oblivious to
these conversations. This is
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something that, we hear about it
in the news all the time. And so they're bound to shape how they
react to companies behavior for
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better or for worse. That's
something that you'll have to think for yourself, whether you
like how people think about it
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or not. But I think at least
from our point of view, it's interesting to study. - Stefano, great to talk to
you again. Thanks very much
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- Great talking to you. Thank you.
- Thank you. Stefano Puntoni, who's a Professor of Marketing
here at the Wharton School and
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Co-Director of AI at Wharton.