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Jung-Kim2016_Article_GoodNeighborsButBadEmployersTw.pdf

Good Neighbors but Bad Employers: Two Faces of Corporate Social Responsibility Programs

Heung-Jun Jung • Dong-One Kim

Received: 25 September 2013 / Accepted: 23 February 2015 / Published online: 6 March 2015

� The Author(s) 2015. This article is published with open access at Springerlink.com

Abstract Using two firm-level datasets in Korea, we

analyzed the effects of corporate social responsibility

(CSR) on employment relations. We propose that par-

ticipation in corporate social activity may not necessarily

reflect an ethical commitment to do ‘‘the right thing,’’ but

instead can be associated with mobilizing internal re-

sources to offset the costs imposed by external CSR in-

volvement undertaken because of social pressure. Analysis

of the two datasets showed similar results. The results

demonstrate that socially responsible actions facilitate

employer tendency to use performance-based pay and ef-

ficiency-based work practices. We also find that CSR has a

negative association with employment growth and in-

creased labor flexibility through contingent employment.

These findings shed light on the internal impact of CSR

involvement on a firm’s employment policies with respect

to resource allocation.

Keywords Corporate social responsibility � Employment relations � Resource allocation � Efficiency-based works � Performance-based pay � Labor costs

Introduction

As firms encounter intensive pressure from consumers,

community groups, and NGOs while simultaneously facing

heightened competition in the global economy, they are

increasingly compelled to acknowledge the demands of

corporate social responsibility (CSR). Although CSR ac-

tivities have greatly increased in recent years, conceptual

and empirical research on CSR during the last four decades

has mainly examined the relationship between CSR and

financial performance (Cochran and Wood 1984; McWil-

liams and Siegel 2000; Pava and Krausz 1996; Waddock

and Graves 1997). As a result, research on CSR has been

criticized for ignoring the relationships between CSR and

other factors (Campbell 2007; Margolis and Walsh 2003).

One of these largely uninvestigated factors is the impact

of CSR on employment relations. The lack of empirical

research in this area, despite the importance of employees

as stakeholders in business organizations, is in sharp con-

trast to the recently escalating interest in the ethics of hu-

man resource management (Inyang et al. 2011; Guest and

Woodrow 2012).

Within the realm of the research that has been under-

taken on this topic, two contrasting indications have

emerged concerning the association between CSR and

employees. From a social identification perspective, a few

recent empirical studies have suggested that organizational

CSR improves employee job satisfaction (De Roeck et al.

2014), organizational commitment (Brammer et al. 2007),

and human resource retention (Jones 2010). On the other

hand, several qualitative studies have treated CSR as part

of a corporate propaganda strategy that can easily ignore

the interests of employees affected (Deakin and Hobbs

2007; Hillman and Keim 2001). Consequently, these em-

pirical inconsistencies have raised the need for a better

comprehension of the relationship between CSR and em-

ployment relations. In line with this thinking, Jamali and

Mirshak (2007) have suggested the need for quantitative

research on the effects of CSR on employment relations at

the firm-level. Nevertheless, empirical studies on the

H.-J. Jung � D.-O. Kim (&) Business School, Korea University, 5-1 Anam-dong, Sungbuk-

gu, Seoul 136-701, Korea

e-mail: [email protected]; [email protected]

H.-J. Jung

e-mail: [email protected]; [email protected]

123

J Bus Ethics (2016) 138:295–310

DOI 10.1007/s10551-015-2587-3

impact of CSR on employment relations remain scarce

(Rodrigo and Arenas 2008).

The current paper, intended to fill this research gap,

proposes an alternative framework for examining the re-

lationship between CSR and employment relations. From a

resource allocation viewpoint, this study analyzed the ef-

fect of CSR on various employment relations outcomes

such as performance-based wages, efficiency-based work

practices, employment growth, restructuring, and contin-

gent employment. Proposed hypotheses were tested using

two kinds of Korean firm-level datasets. This study first

describes the institutional context: CSR in Korea. Theo-

retical perspective, hypotheses, analyses, and empirical

results follow. Finally, there is a discussion of findings,

conclusions, and implications.

Institutional Context: CSR in South Korea

Over the past few decades, Korean firms have drastically

revised their business strategy on CSR from traditionalism

to globalization. Engaging in CSR activity to improve a

firm’s reputation is now a popular business strategy (Kim

and Choi 2013). For instance, the total CSR expenditure of

the top 220 Korean firms has increased from USD 1.9

billion in 2008 to USD 2.5 billion in 2010 (Federation of

Korean Industries 2011). Moreover, the Federation of

Korean Industries, an organization of employers, has re-

ported that a majority of the largest 500 Korean companies

have enacted a code of ethics (Federation of Korean In-

dustries 2011).

Managerial awareness of CSR in Korea stems largely

from changing business environments because of rapid

globalization. This trend has facilitated the rapid spread of

CSR in Korea. That is, Korean firms have become more

globalized since the early 1990s. For instance, foreign di-

rect investment by Korean multinational corporations

(MNCs) increased from about USD 1068 million in 1990 to

over USD 25,590 million in 2011 (Korea Eximbank 2012).

This change has required Korean MNCs to adopt and ad-

here to global standards in response to social demands in

host countries. Thus, CSR undertaken by large Korean

firms has involved efforts to improve ethical business

practices such as management transparency, improved

corporate governance, and integrity in accounting.

Despite this increase in CSR activity, controversy exists

as to whether CSR can improve the interests of both in-

ternal and external stakeholders. Whereas corporate man-

agers argue that CSR in Korea has benefited the well-being

of employees, others believe that these policies have been

instituted merely for public relations and largely ignore the

interests of employees (Choi et al. 2010). For instance, in a

study of 30 Korean companies, Welford (2005)

demonstrated that their CSR programs focused on external

social issues rather than internal labor standards. We be-

lieve that the recent dramatic growth in CSR activities and

the debate on their impact on internal stakeholders render

the Korean case a suitable research setting for the present

study.

Theoretical Perspective and Hypotheses

Although academic debates over the last four decades have

reached no clear consensus, CSR can be roughly defined as

follows: Being closely related to the social expectations of

corporations (Zenisek 1979), CSR involves multidimen-

sional decision-making beyond the economic interests of

the business (Carroll 1979, 1991) or legal requirements

(McWilliams and Siegel 2001). Since scholars have de-

fined CSR in different ways, some researchers have at-

tached strategic implications to CSR without regard for its

alleged altruism. For example, Porter and Kramer (2006)

argued that corporate attention to CSR is not entirely vol-

untary but involves strategic decision-making. According

to their perspective, involvement in socially responsible

activity within competitive business environments is not

voluntary but a compelling strategic choice. This strategic

view stems from societal expectations that perceive CSR

involvement as a signal of corporate legitimacy. In the

same vein, managers want CSR to be directly linked to

performance (Zu and Song 2009), and CSR is certainly

related to managerial concerns about the bottom line.

CSR and Employment Relations from a Resource

Allocation Perspective

Resource is a paramount concern for managers attempting

to implement CSR programs. One can easily see the im-

portance of resource availability in pursuing CSR. Despite

the importance of resource availability in implementing

corporate responsibility programs, there is a dearth of

scholarly attention in resource allocation decision in im-

plementing specific social responsibility programs. The

present paper tries to explain the effects of CSR programs

on employment relations by exploring its integration with

the conceptual framework of resource allocation decisions

within firms.

The burden of obtaining resources for participating in

CSR within a competitive business environment is always

a concern for management. Indeed, Freeman (1984,

pp. 38–40) confirmed the relationship between CSR and

available resources, as ‘‘CSR is often looked at as an ‘‘add

on’’ to ‘‘business as usual’’ and the phrase often heard from

executives is ‘‘CSR is fine, if you can afford it.’’’’ Since

management has to consider both benefits and additional

296 H.-J. Jung, D.-O. Kim

123

costs for CSR, the situation of ‘catch 22’ in the adoption of

CSR program frequently occurs (Jamali et al. 2009).

Needless to say, corporations need resources to respond

to recent global trends, such as the adoption of codes of

conduct and ISO26000. Some costs resulting from CSR

activities are not directly financial (such as environmental

protection) but nonetheless frequently impose monetary

burdens such as investment in green technologies; others

are directly financial, such as donations to charities and the

creation of scholarship funds (Aupperle et al. 1985). As

Campbell (2007) distinguished between lip service for CSR

and substantive activities requiring significant internal re-

sources, socially responsible actions impose considerable

costs. Parkinson (2003) also noted that CSR is often con-

trolled by economic conditions rather than by managerial

choices. Therefore, maintaining a good reputation through

CSR in a competitive environment depends on a firm’s

resources to a certain degree.

A management committed to social issues is likely to

work toward mobilizing available resources. Firms in-

crease CSR involvement when they have adequate finan-

cial resources (Ullmann 1985; Waddock and Graves 1997).

If they do not have sufficient resources for CSR initiative,

however, management must mobilize other resources for

maintaining CSR programs that satisfy social expectation.

In particular, because involvement in social activity for

external stakeholders results in higher social expenses than

noninvolvement, firms pay attention to effective and effi-

cient use of resources. We used the logic of resource al-

location in formulating the theoretical framework and

hypotheses of our study.

Hypotheses

An important point here is that mobilizing resources in

response to social responsibilities may sometimes conflict

with the interests of employees. Although employees are

obviously one of the stakeholders and a few studies based

on a normative perspective have given attention to the

positive link between socially responsible actions and

outcomes of employment relations, questions are arising as

to the possibility of balancing the interests of all stake-

holders, given the limited resources (Sternberg 1997).

During the process of resource mobilization, for exam-

ple, firms can undertake cost cutting that may be detri-

mental to working conditions. If CSR is adopted as part of

a corporate propaganda strategy, the interests of employees

are more like to be ignored or sacrificed. Indeed, previous

studies have indicated that although firms were involved in

CSR activities, they often ignored their responsibilities to

their employees (Aupperle et al. 1985; Pava and Krausz

1996). Hillman and Keim (2001) asserted that employers

frequently regard CSR as an obligatory response to

external issues rather than as an obligation to their em-

ployees. Deakin and Hobbs (2007) also argued that em-

ployers tended to see CSR as concerned with external

social issues and unrelated to internal employment issues.

Similarly, IBM, the famous multinational company, has a

long reputation for its involvement in CSR, but was forced

to offer its employees early retirement, buyouts, and un-

desirable transfers in order to maintain organizational ef-

fectiveness (Cottrill 1990). Therefore, CSR itself may not

benefit employees.

Wood (1991) highlighted the importance of a balanced

CSR activity based on three dimensions: individual choice

(e.g., managerial preferences), organizational responsibility

(e.g., firm-specific interests), and institutional necessity

(e.g., general obligations). However, qualitative research

has demonstrated that because of a lack of resources, bal-

anced CSR activities in all three dimensions are rarely

achievable and thus not adopted (Cooper and Owen 2007;

Cottrill 1990; Hillman and Keim 2001; Vogel 2006). In

many cases in which a choice must be made between ex-

ternal and internal demands, a firm must consider external

demands first because of the inability, over concern for its

reputation and public image, to withdraw from social ac-

tivities. As a result, firms are increasingly directing their

CSR activities into external social issues, especially when

social demands are strong and the requisite internal re-

source is not available.

A business primarily has two options to mobilize its

resources. One is to improve its organizational efficiency.

The other is to reduce its internal costs. From a strategic

business perspective, the goal of mobilizing resources is to

generate resource reserves through both efficiency en-

hancement and cost minimization. Good examples of the

former include efforts to increase productivity by using

innovative work systems and/or undertaking practices to

enhance employee motivation. These practices are closely

associated with generating tangible and intangible re-

sources by using employee knowledge and creativity

through employee involvement programs and various in-

centives to motivate employees. Cost minimization is as-

sociated with reducing operating costs including labor

costs. It can involve adoption of more flexible utilization of

human resources such as organizational restructuring and

the use of a contingent labor force. In general, a contingent

labor force is likely to be associated negatively with the

interests of employees.

In formulating our hypotheses, we first considered the

methods that firms may adopt to improve organizational

efficiency to mobilize resources for CSR. The majority of

the literature mentioned that performance-based pay is one

popular way for organizations to enhance organizational

performance. Pay-for-performance is a monetary incentive

pay system in which employee compensation is related to

Good Neighbors but Bad Employers 297

123

job performance. Performance-based pay includes indi-

vidual merit–pay, gainsharing, and profit sharing. The

number of companies adopting pay-for-performance in

Korea has been steadily increasing since the late 1990s,

and over 50 % of all Korean companies were reported to

connect at least part of an employee’s pay to measures of

performance (Shin et al. 2014). Since monetary rewards are

the main incentive for increased productivity, quality, and

customer service, pay-for-performance is considered as a

powerful motivator in enhancing organizational perfor-

mance by motivating and reinforcing the rewarded

behavior.

Firms needing resources for CSR programs such finan-

cial donations have to improve short-term financial per-

formance by adopting performance-enhancing programs.

We determine that corporations implementing CSR pro-

grams are likely to adopt pay-for-performance because it

motivates employees through material, i.e., monetary, in-

centives. This is why that the financial performance of

firms with pay-for-performance is superior to that of firms

without it and previous empirical studies support this claim

(Abowd 1990; Delery and Doty 1996; Lee et al. 2011;

Origo 2009). For example, Origo (2009), using data from

Italian metalworking firms, found that performance-related

pay contributed to increases in productivity in the range of

7–11 %.

More specifically, prior literature has reported a sig-

nificant relationship between CSR and incentive-based

compensation (Falck and Heblich 2007; Mahoney and

Thorne 2005). Also, Jones et al. (2007), in their case study

involving Australian companies, found that the extent to

which a firm is involved in CSR was directly correlated to

its adopting a performance-based wage system. Therefore,

we are safe in assuming that firms oriented to CSR in-

volvement are more likely to adopt performance-based pay

than firms without CSR involvement. Based on this rea-

soning and on previous empirical results, we formulated

the following hypothesis:

Hypothesis 1 The degree of involvement in CSR will be

positively related to the adoption of performance-based

pay.

We also believe that firms with CSR activities are more

likely to adopt efficiency-based work practices because

these firms seek to recoup social costs through improved

productivity and enhanced quality. Indeed, one way to re-

coup the costs incurred through socially responsible actions

is to increase internal efficiency through innovative work

practices that improve organizational performance. Previ-

ous studies have generally shown that efficiency-based

work practices such as self-autonomous teams, quality

circles and job rotations contributed positively to a firm’s

performance. These practices heightened employees

morale and satisfaction and increased motivation through

involvements and better communication that in turn leads

to heightened utilization of previously untapped knowledge

and creativity within the workforce (Ichniowski et al. 1996;

Neumark and Cappelli 1999). In a similar context, Paul and

Siegel (2006) argued that managers tend to implement in-

ternal efficiency practices along with CSR programs be-

cause they expect the benefits of workplace innovation to

exceed the costs associated with socially responsible ac-

tivity. Vitaliano and Stella (2006), in their empirical study

using data from the banking industry, also found that firms

adopted practices aimed at maximizing internal efficiency

to offset the costs of socially responsible activity. Based on

the evidence from these studies, we hypothesized that firms

engaged in CSR are more likely to adopt efficiency-based

work practices than those without CSR.

Hypothesis 2 The degree of involvement in CSR will be

positively related to the degree of adaptation of efficiency-

based work practices.

Next, we alsoconstructed hypotheses regarding how firms

pursuing CSR activities attempt to use various means to

minimize operating costs. CSR costs undertaken by a firm to

solidify its public reputation and image seem to facilitate

implementation of a labor cost minimization strategy. If

firms cannot reduce such external obligations as CSR, they

may instead implement a cost-cutting strategy to decrease

internal costs such as labor. In this context, prior case studies

have observed a tendency of management to separate re-

sponsibility to employees from strategic CSR for social is-

sues (Hillman and Keim 2001; Fenwick and Bierema 2008).

That is, when a firm cannot maintain CSR activities for both

internal and external stakeholders, management tends to

pursue CSR activities exclusively for external stakeholders.

The activities likely to be continued include environmental

protection, donations, and scholarships.

In the same vein, the current study predicts a negative

relationship between CSR activities and employment

growth. Although new employee recruitment is important

in terms of corporate social obligations to both employees

and society, businesses participating in CSR may be wary

of adding personnel because they must anticipate the ex-

pense involved in CSR activities as well as plan for any

unexpected future reduction in product demand. For man-

agement, a larger employment roster implies a consider-

able increase in short-term and long-term labor costs; these

costs include recruitment, selection, training, compensa-

tion, and safety and health. In many cases, management

regards labor as a quasi-fixed cost. Indeed, several case

studies have shown either that CSR and employment are

unrelated (Deakin and Hobbs 2007), or that CSR is

positively related to employee reduction in special situa-

tions (Benson 2008). Overall, we believe that firms

298 H.-J. Jung, D.-O. Kim

123

participating in CSR tend to have a more conservative

employment policy than others and are less likely to ex-

perience employment growth:

Hypothesis 3 The degree of involvement in CSR will be

negatively related to employment growth.

According to Zu and Song (2009), managers perceive

CSR as a financial burden, and when they have to become

involved in CSR activities, they first examine their finan-

cial situation. When a firm faces additional outlays for CSR

to avoid violating its societal obligations, it is likely to

concentrate on more profitable practices that also improve

organizational efficiency through reductions in labor costs.

One way to reduce labor costs is to seek numerical flex-

ibility, and organizational restructuring is one of the most

widely used practices to achieve this. In general, restruc-

turing has been regarded as a sure way to gain short-term

financial savings when facing financial constraints. Thus,

we opine that firms with CSR are more likely to restructure

as a means to cope with CSR expenses.

The previous literature supports our proposition. For

instance, Bonvin’s (2007) case study in Switzerland de-

scribed how a firm involved in CSR did not hesitate to lay

off employees when it was short of liquid assets. Vogel

(2006) also found that many global companies made social

contributions in developing countries at the expense of

their employees’ job security in the parent country. These

studies suggest that firms meeting external demands for

social activities may have to resort to organizational re-

structuring to minimize labor costs. This view highlights a

positive association between CSR and organizational re-

structuring in externally socially responsible firms. Pursuit

of this line of reasoning leads to the following hypothesis:

Hypothesis 4 The degree of involvement in CSR will be

positively related to organizational restructuring.

Another means of securing labor flexibility is the usage of

contingent workers. Although contingent employment ar-

rangements have been criticized for the insecurity and vul-

nerability for employees, use of nonstandard forms of

employment may convey explicit advantages to contempo-

rary corporations. This is because contingent employment

provides firms with labor flexibility while typically lowering

labor costs. This labor arrangement confers flexibility because

contingent workers can be more easily terminated than per-

manent employees, enabling rapid adjustment in labor to re-

spond to changes in business conditions. Labor costs are

typically lower in this arrangement because workers are paid

less. We expect that CSR participation relates positively to the

use of contingent employment. It is believed that firms un-

dertaking social commitments such as making contributions

and providing community services prefer workforce flex-

ibility in which contingent employment is seen as an

instrument to offset social costs. Indeed, previous case studies

have presented the possibility that conditions of resource

constraints juxtapose CSR involvement and contingent em-

ployment. Smith and Helfgott (2010) reported a case in which

top management in a firm promised CSR policies focusing on

community relations and environmental protection but con-

comitantly reclassified 70 % of its workforce from permanent

to temporary contracts. In particular, CSR involvement may

accelerate the usage of contingent employment in certain

geographic regions (such as in Asia and Latin America) where

legal protection of contingent employees is limited. In such

countries, the cost of social expenses can easily be transferred

to labor in the form of contingent employment. For these

reasons, we formulated the following hypothesis:

Hypothesis 5 The degree of involvement in CSR will be

positively related to the use of contingent employment.

Taken together, we proposed the following theoretical

framework for the impact of CSR on employment relations

(see Fig. 1).

Research Methods

In the present paper, we utilized two different datasets to

construct a comprehensive picture on the effects of CSR on

employment relations. While Study 1 included only listed

firms that were relatively large and have well-developed

CSR programs, Study 2 included a representative sample of

all firms with more than 30 employees in Korea. By

analyzing two different datasets, the results can be ex-

pected to be less biased and have greater generalizability. If

different datasets provide consistent results, the resultant

findings can expect greater credibility.

Study 1

Sampling

The analysis in this study was performed at the firm level.

The sample was drawn from the CSR Index of the Korea

To mobilize resources for

CSR

To mobilize resources for CSR

- Implement performance-based pay (H1)

- Implement efficiency-based work practices (H2)

To reduce costs

- Control employment growth (H3)

- Implement restructuring (H4)

- Increase contingent employment (H5)

Fig. 1 A theoretical framework for CSR

Good Neighbors but Bad Employers 299

123

Economic Justice Institute (KEJI). Established in 1990,

KEJI is one of the leading nongovernmental organizations

in Korea. KEJI has evaluated the CSR activities of publicly

listed firms annually since 1991, and each company is rated

on multiple attributes deemed relevant to CSR. The KEJI

index covers about 350 publicly listed Korean companies

and annually discloses the scores of Korea’s top 200 firms

in terms of CSR. The KEJI index excludes banks, mutual

fund companies, and real estate investment firms because

these firms have very different financial and accounting

systems and business environments from other firms such

as those in manufacturing, transportation, and construction.

Data for 5 years (2005–2009) on the firms comprising the

KEJI Index made up the dataset analyzed in this study.

This study examined 251 firms that were listed in the top

200 at least twice during the 5-year period. After excluding

17 firms that had gone out of business or merged during the

study period, 234 firms remained in our final sample.

CSR evaluation using the KEJI index has a special ad-

vantage. This dataset has CSR performance ratings since

1991 and thus a depth of data useful for longitudinal ana-

lysis to investigate CSR trends. Indeed, the KEJI index was

the first comprehensive, multidimensional CSR rating de-

veloped in Korea. It is comparable to the index of the

Council on Economic Priorities in the U.S., the Corporate

Responsibility Index in Australia, and the Asahi Founda-

tion Index of Japan (Choi et al. 2010). The KEJI index is

also similar to the index of Kinder, Lydenberg, and Domini

(KLD), which has rated the firms of the S&P 500 (firms)

index on seven CSR categories since 1991.

Measurement

The present study collected data from four sources: the

KEJI index, telephone survey, business reports of firms,

and archival data from the Ministry of Labor and Em-

ployment in Korea. First, the KEJI index evaluates seven

qualitative areas (i.e., corporate governance, corporate

justice, economic contribution, community relations, cus-

tomer satisfaction, employee relations, and environmental

protection) based on 38 CSR items. The KEJI index is

based on publicly available data of the stock market and

other sources such as business reports. The KEJI index

used a modified version of items taken from studies by

Graves and Waddock (1994).

CSR activity was measured through the eight items of

the KEJI index listed below. These items can be classified

into three categories: community service, environmental

protection, and customer satisfaction related to social is-

sues. These eight items are as follows: amount of charitable

donations (this item belongs to community relations); en-

ergy efficiency in the workplace, environmental violations,

public disclosure of environmental violations, and rewards

related to environmental protection (these four items be-

long to environmental protection); and, lastly, certificates

of service, certificates of quality, and reductions in the

growth of advertising (these three items belong to customer

satisfaction). Each of the eight items was rated with stan-

dardized values calculated from the original scores. 1 Two

categories of values, 0–2 and 0–3, were used for these eight

items. The scale from 0 to 2 was used for energy efficiency,

public disclosures about environmental violations, certifi-

cates of service, and reductions in the growth of advertis-

ing. The scale from 0 to 3 was applied to amount of

charitable donations, rewards related to environmental

protection, environmental violations, and certificates of

quality. Therefore, the total possible score of CSR as the

sum of the above eight items ranged from 0 to 20.

Second, we conducted a telephone survey to collect data

for dependent variables such as performance-based pay,

efficiency-based work practices, and contingent employ-

ment. Human resources managers in the 234 firms were

surveyed in this way. We collected data for the past 5 years

(2005–2009) because firms usually had HR records for this

period. The telephone survey was conducted between April

1, 2011, and October 1, 2011. Completed questionnaires

were collected from 166 firms (response rate: 70.94 %)

after several follow-ups. The 166 firms included 88

unionized and 78 nonunion organizations. The perfor-

mance-based pay variable was measured by the existence

of an individual merit–pay system, gainsharing, or profit

sharing program, as used in the study by Brown (1990). If a

firm had an individual merit–pay system, it was coded as 1

(otherwise 0). If a firm had a gainsharing or profit sharing

program, it was coded as 1 (otherwise 0). The perfor-

mance-based pay variable was calculated by the sum of the

two variables above, ranging from 0 to 2. Efficiency-based

work practices were obtained from HR managers and were

measured by three items used by Osterman (1994). The

three items are: team, QC activity, and job rotation. Re-

sponses were rated from 0 (nonexistent) to 1 (existent). All

three items were summed, and the variable, efficiency-

based work practices, was rated on a scale of 0–3. The

contingent employment variable was calculated as a per-

centage of the sum of part-time and fixed-term employees

1 All items of the KEJI index were standardized by the following

process: First, a standardized value was created by two methods. One

is linear interpolation, which is a method of curve fitting using linear

polynomials fy ¼ ymin þ ðymax � yminÞðx � xminÞ=ðxmax � xminÞg : The second is a method using interval scales (i.e., A, B, C, D, and E). Both

methods are dependent on characteristics of the original data. For

example, the interpolation standardization is used when the original

data have few missing values and have a standard normal distribution.

On the other hand, standardization using the interval scale is applied

when the original data have many missing values and their

distribution is skewed. Second, final values are obtained by calcu-

lating the weighted rate of each item.

300 H.-J. Jung, D.-O. Kim

123

per the total number of employees. These data were also

drawn from the responses of HR managers.

Third, the business reports of the sample firms were

sources of data for several variables. Employment growth

was obtained from the business reports and calculated as

the total number of employees in the previous year divided

by the present number of employees. Organizational re-

structuring was measured by dichotomous categories used

by Ahmadjian and Robinson (2001), who defined restruc-

turing as a decrease in the number of permanent employees

by more than 5 % from the previous year (between year

t - 1 and year t). Organizational restructuring was mea-

sured by whether employee numbers declined by more than

5 % from one year to the next (coded 1 if true, 0 if not)

(between 2004 and 2005, 2005 and 2006, 2006 and 2007,

2007 and 2008, and 2008 and 2009, respectively).

Control variables, which may have accounted for some

variations in the dependent variables at the firm level, were

also collected from business reports. We controlled for

firm-specific characteristics (i.e., firm size, ratio of pro-

duction/operation workers and unionization, if any) that

may influence a firm’s employment relations policies and

strategies (Evans 1987). Firm size was measured as the

natural log of the number of total employees. The ratio of

production/operation workers was measured as a percent-

age of the number of production/operation workers divided

by the total number of employees. The degree of foreign

ownership was controlled to reflect the corporate gover-

nance structure because foreign ownership exerts a con-

siderable impact on employment relations (Slaughter

2007). Foreign ownership was measured as a percentage of

the number of foreign-owned stock divided by the total

amount of stock. Financial variables such as sales growth

and labor costs per worker were controlled because overall

financial performance plays a role in shaping employment

relations policies and strategies (Huselid 1995). The sales

growth variable was calculated as the percentage growth in

sales in a given year compared with the preceding year.

Also, labor costs per worker were measured by dividing the

amount of total wages by the number of total workers.

Finally, data related to labor unions were provided by

the Ministry of Labor and Employment in Korea. The

union variable was measured as a dummy variable and

coded as ‘‘nonexistent’’ (coded 0) or ‘‘existent’’ (coded 1).

Analyses

We used STATA (13.0 version) for unbalanced panel data

analysis. In general, a longitudinal data analysis provides

several advantages (Baltagi 2008). First, pooling multiple

observations for each firm increases both sample size and

degrees of freedom. Further, temporal effects that are not

detectable in a cross-sectional analysis can be controlled.

More importantly, the panel data enable us to reduce

multicollinearity in linear regression analyses. The selec-

tion of the appropriate model in panel data analysis is

important to ensure correct estimation, because the fixed

and random effects models represent different assumptions

about data. In general, if researchers analyze a population

that has heterogeneity within entities, the fixed effect

model is considered appropriate, whereas they analyze the

randomly chosen or stratified sample, the random effect

model is regarded suitable (Behrman and Wolfe 1989).

Since the present analyses dealt with the population of

firms with socially beneficial CSR activities, fixed effect

models were considered more appropriate (Borenstein et al.

2011). Fixed effects regressions were used to test Hy-

potheses 1, 2, 3, and 5. For Hypothesis 4, a logistics re-

gression model was used because the dependent variable,

organizational restructuring, was a 0–1 nominal variable.

In all models, control variables were included because of

their possible influence on employment and HRM

practices.

Results

Descriptive statistics and correlations for all variables are

presented in Table 1.

All hypotheses were empirically supported. Table 2

presented the relationships between CSR and dependent

variables. First, the regression coefficient of the CSR

variable on performance-based pay was positive and sig-

nificant (b = .02, p \ .01, R2 = .11). Also, CSR has a positive and significant relation with efficiency-based work

practices (b = .02, p \ .05, R2 = .06). Thus, Hypotheses 1 and 2 were supported. Overall, these results indicated that

firms participating in socially responsible activities may

enhance internal efficiency through various HRM prac-

tices. In addition, three CSR index categories (i.e., com-

munity relations, customer satisfaction, and environmental

protection) on dependent variables were individually esti-

mated. In general, the individual estimations showed weak,

but hypothesized relationships between independent de-

pendent variables. While community service has significant

and anticipated relationships with both performance-based

pay and efficiency-based work practices, customer satis-

faction activities were not significantly related with HR

policies for organizational efficiency. Environmental pro-

tection showed a significant and positive relationship only

with performance-based pay. Taken together, the results

tend to show that the more firms participated in external

CSR activities, the more they relied on strategies that en-

hanced internal efficiency.

Second, we tested the effects of CSR on employment

growth, organizational restructuring, and the usage of

contingent employment. The relationship between CSR

Good Neighbors but Bad Employers 301

123

T a b le

1 D e sc ri p ti v e st a ti st ic s a n d c o rr e la ti o n s (K

E JI

2 0 0 5 – 2 0 0 9 )

V a ri a b le s

M e a n

S E

(1 )

(2 )

(3 )

(4 )

(5 )

(6 )

(7 )

(8 )

(9 )

(1 0 )

(1 1 )

(1 2 )

(1 3 )

(1 4 )

(1 5 )

(1 ) F ir m

si z e (t h e lo g o f to ta l

e m p lo y e e s)

6 .6 9

1 .2 7

1

(2 ) S a le s g ro w th

(% )

7 .5 7

1 5 .6 1

.0 0

1

(3 ) F o re ig n o w n e d ra te

(% )

1 8 .7 4

2 0 .3 5

.3 6 * *

- .0 5

1

(4 ) O p e ra ti o n w o rk e rs

ra ti o (%

) 5 7 .1 7

2 4 .7 4

.2 2 * *

.0 2

.0 8 *

1

(5 ) L a b o r c o st s p e r w o rk e r

(m il li o n K o re a n W o n )

3 0 .7 6

2 0 .3 4

- .1 0 * *

.0 4

.1 1 * *

- .2 2 * *

1

(6 ) U n io n

.6 8

.4 7

.1 3 * *

.0 4

.0 4

- .0 4

.0 3

1

(7 ) C S R

(K E J I in d e x )

1 1 .1 4

1 .3 3

.3 5 * *

- .0 2

.2 0 * *

.1 0 * *

- .1 2 * *

- .0 1

1

(8 ) E m p lo y m e n t g ro w th

ra te (%

) 1 .1 3

9 .9 1

.0 9 * *

- .2 1 * *

.0 3

- .0 9 * *

- .0 0

- .0 5

- .0 1

1

(9 ) R e st ru c tu ri n g

.1 5

.3 5

- .1 1 * *

.1 7 * *

- .0 5

.0 6

- .0 5

- .0 3

- .0 5

- .5 4 * *

1

(1 0 ) C o n ti n g e n t e m p lo y m e n t

(% )

1 9 .0 9

3 6 .4 1

.0 4

- .0 3

.2 7 * *

- .0 9

.2 9 * *

- .0 8

- .1 8 *

- .0 1

.0 2

1

(1 1 ) E ffi c ie n c y -b a se d w o rk

p ra c ti c e s

2 .5 5

.7 9

.1 1 *

.0 4

- .1 1 *

.0 3

- .0 5

.0 1

.0 1

- .0 6

.0 5

- .1 6

1

(1 2 ) P e rf o rm

a n c e -b a se d p a y

1 .6 7

.4 9

.2 4 * *

- .0 7

- .0 6

.1 6 * *

- .0 7

- .1 5 * *

.0 6

.0 3

.0 7

- .0 6

.2 1 * *

1

(1 3 ) C S R (c o m m u n it y )

1 .8 5

.8 8

.0 8 *

- .0 5

.0 8 *

- .0 5

.0 7 *

.0 5

.5 8 * *

.0 9 * *

- .1 5 * *

.0 2

- .1 1 *

.0 0

1

(1 4 ) C S R (c u st o m e r)

3 .3 3

.3 8

.0 0

.0 1

.0 3

.0 3

- .0 8 *

- .2 3 * *

.3 6 * *

- .1 0 * *

.1 5 * *

- .0 8

- .0 1

.0 1

- .1 3 * *

1

(1 5 ) C S R (e n v ir o n m e n t)

5 .9 6

.9 4

.4 2 * *

.0 2

.2 0 * *

.1 8 * *

- .2 0 * *

.0 3

.7 3 * *

- .0 6

.0 0

- .2 3 *

.1 2 * *

.0 8 *

- .0 6

.2 3 * *

1

U n io n (e x is te n c e 1 , n o n e x is te n c e 0 ), re st ru c tu ri n g (e x is te n c e 1 , n o n e x is te n c e 0 )

* S ta ti st ic a ll y si g n ifi c a n t a t th e .0 5 le v e l, * * a t th e .0 1 le v e l (t w o -t a il e d te st s)

302 H.-J. Jung, D.-O. Kim

123

T a b le

2 R e su lt s o f p a n e l a n a ly si s w it h fi x e d e ff e c t (K

E JI )

P e rf o rm

a n c e -b a se d p a y

E ffi c ie n c y -b a se d w o rk

p ra c ti c e s

1 2

3 4

5 6

7 8

9 1 0

C o n st a n t

2 .0 3 (. 4 4 )* * *

2 .1 9 (. 4 3 )* * *

2 .2 5 (. 4 4 )* * *

2 .1 0 (. 4 4 )* * *

2 .0 5 (. 4 4 )* * *

.9 5 (. 9 2 )

1 .1 9 (. 9 1 )*

1 .1 7 (. 9 2 )

1 .1 6 (. 9 3 )

1 .0 6 (. 9 3 )

F ir m

si z e

- .0 7 (. 0 6 )

- .0 8 (. 0 6 )

- .0 8 (. 0 6 )

- .0 7 (. 0 6 )

- .0 7 (. 0 6 )

.1 8 (. 1 4 )*

.1 8 (. 1 4 )

.1 8 (. 1 4 )

.1 8 (. 1 4 )*

.1 7 (. 1 4 )

S a le s g ro w th

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )*

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

.0 0 (. 0 0 )

.0 0 (. 0 0 )

.0 0 (. 0 0 )

.0 0 (. 0 0 )

.0 0 (. 0 0 )

F o re ig n -o w n e rs h ip

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

- .0 0 (. 0 0 )* * *

O p e ra ti o n w o rk e r’ s

ra ti o

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

.0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

.0 0 (. 0 0 )*

.0 0 (. 0 0 )*

.0 0 (. 0 0 )*

.0 0 (. 0 0 )*

.0 0 (. 0 0 )*

L a b o r c o st s p e r w o rk e r

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

- .0 0 (. 0 0 )

U n io n

- .0 1 (. 0 5 )

- .0 1 (. 0 5 )

- .0 1 (. 0 5 )

- .0 1 (. 0 5 )

- .0 1 (. 0 5 )

.2 0 (. 1 0 )* *

.1 9 (. 1 0 )* *

.1 9 (. 1 0 )* *

.2 0 (. 1 0 )* *

.2 0 (. 1 0 )* *

C S R

.0 2 (. 0 1 )* * *

.0 2 (. 0 1 )* *

C S R (c o m m u n it y )

.0 2 (. 0 1 )* * *

.0 2 (. 0 1 )* * *

.0 4 (. 0 2 )* *

.0 4 (. 0 2 )* *

C S R (c u st o m e r)

- .0 0 (. 0 2 )

- .0 0 (. 0 2 )

.0 3 (. 0 3 )

.0 3 (. 0 3 )

C S R (e n v ir o n m e n ta l)

.0 2 (. 0 1 )* *

.0 0 (. 0 1 )*

.0 1 (. 0 2 )

.0 1 (. 0 2 )

R 2

.1 1

.1 1

.0 9

.1 0

.1 2

.0 6

.0 6

.0 5

.0 5

.0 6

N o . o f o b se rv a ti o n s

4 9 2

5 0 6

E m p lo y m e n t g ro w th

1 1

1 2

1 3

1 4

1 5

C o n st a n t

- 1 9 4 .6 3 (1 9 .3 4 )* * *

- 2 0 0 .7 4 (1 8 .9 2 )* * *

- 1 9 6 .6 1 (1 9 .0 3 )* * *

- 1 9 9 .7 7 (1 9 .4 5 )* * *

- 1 9 4 .3 7 (1 9 .5 6 )* * *

F ir m

si z e

3 2 .0 1 (2 .7 1 )* * *

3 1 .9 4 (2 .7 2 )* * *

3 2 .2 5 (2 .7 2 )* * *

3 1 .8 7 (2 .7 2 )* * *

3 2 .2 9 (2 .7 2 )* * *

S a le s g ro w th

- .1 5 (. 0 2 )* * *

- .1 5 (. 0 2 )* * *

- .1 5 (. 0 2 )* * *

- .1 5 (. 0 2 )* * *

- .1 5 (. 0 2 )* * *

F o re ig n -o w n e rs h ip

- .0 2 (. 0 3 )

- .0 2 (. 0 3 )

- .0 3 (. 0 3 )

- .0 2 (. 0 3 )

- .0 3 (. 0 3 )

O p e ra ti o n w o rk e r’ s ra ti o

- .0 8 (. 0 4 )* *

- .0 8 (. 0 4 )* *

- .0 8 (. 0 3 )* *

- .0 8 (. 0 4 )* *

- .0 8 (. 0 4 )* *

L a b o r c o st s p e r w o rk e r

- .0 9 (. 0 4 )* *

- .0 9 (. 0 4 )* *

- .0 9 (. 0 4 )* *

- .0 9 (. 0 4 )* *

- .0 8 (. 0 4 )* *

U n io n

- 3 .2 0 (3 .9 8 )

- 3 .2 0 (3 .9 9 )

- 3 .0 6 (3 .9 8 )

- 3 .0 5 (3 .9 9 )

- 3 .2 1 (3 .9 8 )

C S R

- .7 2 (. 4 4 )* *

C S R (c o m m u n it y )

- .6 5 (. 6 5 )

- .6 8 (. 6 5 )

C S R (c u st o m e r)

- 2 .2 8 (1 .1 7 )* *

- 2 .3 1 (1 .1 7 )* *

C S R (e n v ir o n m e n ta l)

- .3 0 (. 7 3 )

- .2 0 (. 7 3 )

R 2

.2 9

.2 9

.2 9

.2 5

.2 9

N o . o f o b se rv a ti o n s

7 7 1

Good Neighbors but Bad Employers 303

123

T a b le

2 c o n ti n u e d

O rg a n iz a ti o n a l re st ru c tu ri n g

1 6

1 7

1 8

1 9

2 0

C o n st a n t

F ir m

si z e

- 4 .3 5 (1 .7 0 )* * *

- 4 .6 6 (1 .7 0 )* * *

- 5 .0 6 (1 .7 8 )* * *

- 4 .3 2 (1 .7 3 )* * *

- 4 .7 4 (1 .8 4 )* * *

S a le s g ro w th

.0 3 (. 0 1 )* * *

.0 3 (. 0 1 )* * *

.0 3 (. 0 1 )* * *

.0 3 (. 0 1 )* * *

.0 3 (. 0 1 )* * *

F o re ig n -o w n e rs h ip

.0 3 (. 0 2 )* *

.0 2 (. 0 2 )*

.0 3 (. 0 1 )* *

.0 2 (. 0 2 )*

.0 3 (. 0 2 )* *

O p e ra ti o n w o rk e r’ s ra ti o

.0 1 (. 0 2 )

.0 1 (. 0 2 )

.0 1 (. 0 2 )

.0 2 (. 0 2 )

.0 1 (. 0 2 )

L a b o r c o st s p e r w o rk e r

.0 3 (. 0 3 )

.0 3 (. 0 3 )

.0 3 (. 0 3 )

.0 3 (. 0 3 )

.0 3 (. 0 3 )

U n io n

1 4 .8 6 (8 8 0 .7 0 )

1 4 .4 2 (7 3 4 .3 9 )

1 6 .0 3 (1 7 0 7 .4 5 )

1 4 .6 7 (8 3 2 .9 0 )

1 5 .9 9 (1 6 4 9 .2 1 )

C S R

.2 9 (. 1 8 )*

C S R (c o m m u n it y )

.1 7 (. 2 7 )

.1 1 (. 2 8 )

C S R (c u st o m e r)

1 .2 4 (. 5 7 )* *

1 .2 7 (. 5 8 )* *

C S R (e n v ir o n m e n ta l)

.2 0 (. 3 0 )

.2 4 (. 3 1 )

R 2

- 2 L L

1 6 3 .3 8

1 7 0 .6 2

1 6 5 .6 8

1 7 0 .5 8

1 6 4 .8 4

N o . o f o b se rv a ti o n s

2 7 7

C o n ti n g e n t e m p lo y m e n t

2 1

2 2

2 3

2 4

2 5

C o n st a n t

2 0 .5 5 (7 4 .1 2 )

3 9 .1 1 (7 2 .9 1 )

4 3 .7 3 (7 3 .2 9 )

5 1 .1 3 (7 4 .4 1 )

2 1 .7 1 (7 4 .9 2 )

F ir m

si z e

- 3 .6 6 (9 .8 7 )

- 3 .9 7 (9 .9 3 )

- 5 .5 7 (9 .9 4 )

- 5 .6 2 (1 0 .0 3 )

- 3 .5 8 (9 .9 7 )

S a le s g ro w th

.0 2 (. 0 5 )

.0 3 (. 0 5 )

.0 1 (. 0 5 )

.0 1 (. 0 5 )

.0 2 (. 0 5 )

F o re ig n -o w n e rs h ip

- .0 0 (. 0 3 )

- .0 0 (. 0 3 )

.0 0 (. 0 3 )

- .0 0 (. 0 3 )

.0 0 (. 0 3 )

O p e ra ti o n w o rk e r’ s ra ti o

.0 0 (. 0 8 )

.0 1 (. 0 8 )

.0 1 (. 0 8 )

.0 1 (. 0 8 )

.0 0 (. 0 8 )

L a b o r c o st s p e r w o rk e r

.1 0 (. 0 7 )*

.1 0 (. 0 7 )*

.1 1 (. 0 7 )*

.1 1 (. 0 7 )*

.1 0 (. 0 7 )*

U n io n

6 .1 2 (6 .8 0 )

4 .8 2 (6 .9 1 )

7 .2 3 (6 .9 3 )

6 .4 3 (6 .9 6 )

5 .9 7 (6 .9 8 )

C S R

1 .6 9 (. 9 2 )* *

C S R (c o m m u n it y )

1 .9 6 (1 .2 6 )*

2 .0 0 (1 .2 7 )*

C S R (c u st o m e r)

2 .5 0 (2 .1 3 )

2 .6 7 (2 .1 3 )

C S R (e n v ir o n m e n ta l)

.4 1 (1 .5 6 )

.7 2 (1 .5 5 )

R 2

.0 8

.0 7

.0 6

.0 4

.0 9

N o . o f o b se rv a ti o n s

1 1 3

C o e ffi c ie n t is

n o n st a n d a rd iz e d b , p a re n th e si s is st a n d a rd

e rr o r

S ta ti st ic a ll y si g n ifi c a n t * a t th e .1 0 le v e l, * * a t th e .0 5 le v e l, * * * a t th e .0 1 le v e l (o n e -t a il e d te st s)

304 H.-J. Jung, D.-O. Kim

123

and employee growth was revealed to be both negative and

significant (b = -.72, p \ .05, R2 = .29), indicating that firms engaged in CSR tended to hesitate in hiring new

employees, possibly because of the financial constraints

imposed by the commitment to CSR. Regarding the rela-

tionship between CSR and organizational restructuring, the

result of logistic regressions exhibited a positive and sig-

nificant association (b = .29, p \ .10, -2LL = 163.38) between CSR and organizational restructuring. This finding

implies that firms rated higher for CSR engaged more ac-

tively in restructuring than firms with lower CSR scores.

This finding is consistent conceptually with the negative

relationship of CSR with employment growth. Taken to-

gether, these results indicate that CSR based on external

social issues may negatively influence employment growth

and employment security. Finally, the impact of CSR on

contingent employment likewise exhibited a positive and

significant relationship (b = 1.69, p \ .05, R2 = .08), suggesting that firms with CSR are more likely to use

contingent workers than firms without CSR. Overall, these

findings suggest that firms involved in CSR tend to rely on

labor flexibility to offset social costs.

Again, we separately investigated the effects of each

category of CSR on employment relations. CSR initiative

for customer satisfaction showed significant and an-

ticipated relationships with employment growth and orga-

nizational restructuring. Also, CSR initiative for

community relations also showed significant and an-

ticipated positive relationships with contingent employ-

ment. In other regression equations, regression coefficients

generally showed expected, but insignificant, signs. Over-

all, the results tend to indicate that the more the firms

participated in external CSR activities, the more they im-

plemented strategies to minimize labor costs.

Despite the above findings, there can be concerns over

the generalizability of this sample. The present study con-

strained the sample to firms which had robust CSR pro-

grams according to the KEJI index. By limiting the sample

to only those firms which had appeared in the top 200 list at

least twice, the sampling methods produced a biased sample

with regard to CSR performance. The low standard de-

viation of CSR relative to its mean revealed this tendency.

Although one can assert that this renders the finding of the

association between CSR and employment relations out-

comes even more impressive statistically since the present

analysis dealt with such little variation in the variable, we

have to acknowledge the problem of generalizability.

Study 2

To remedy the generalizability problem of Study 1, we

conducted Study 2 utilizing a presumably less biased

dataset with very different measures of CSR.

Sampling

In Study 2, we examined the effects of CSR on the same

dependent variables using longitudinal data drawn from the

Korean Workplace Panel Survey (KWPS). This survey was

conducted by the Korea Labor Institute (KLI), a govern-

ment-funded labor research group. The WPS dataset in-

cludes workplaces selected by stratified sampling of all

establishments with more than 30 employees. The KWPS

was administered at 290 public enterprises and 1615 pri-

vate firms. Thus, the collected data are regarded to be na-

tionally representative sample of Korean firms. A survey

has been conducted biennially since 2005 in over 1905

workplaces and completed through face-to-face interviews

with HR managers, IR managers, and employee represen-

tatives or union leaders. Specifically, HR managers re-

sponded to questions about CSR activities and HR

practices such as performance-based pay and efficiency-

based work practices, and contingent employment.

In the current analysis, we used datasets from 2007, 2009,

and 2011. Although the KWPS has been conducted four times

since 2005, questions about CSR activities were begun in

2007. Thus, we use the data except for 2005. On the other

hand, we excluded firms with multiple workplaces because

some information,includingfinancial data (e.g., labor costs) is

difficult to infer in firms with multiple workplaces. Our ana-

lysis therefore includes only firms that have a single work-

place. Finally, we excluded public (i.e., state-owned)

enterprises from our analysis because public enterprises pri-

marily pursue public interests rather than organizational effi-

ciency,andthistheoreticalframeworkisinapplicabletopublic

enterprises. Notably, CSR involvements in public enterprises

can be undertaken to comply with government regulations

rather than a firm’s profit-maximizing voluntary decision.

Measures

In Study 2, the measure of CSR, performance-based pay,

efficiency-based work practices, and contingent employ-

ment were collected from the KWPS dataset. Performance-

based pay, efficiency-based work practices, restructuring,

and contingent employment were measured by the same

measures as those used for Study 1. All other control

variables were also obtained from the same data sources as

those of Study 1. In addition, we controlled for 10 industry

dummy variables (i.e., manufacturing, education, trans-

portation, service, construction, bank, retail, publication,

broadcasting, and engineering industries). Unlike the KEJI

index in Study 1, the KWPS data provide solutions to three

institutional questions to measure CSR involvement: (1)

whether a firm has mid- and long-term plans to conduct

CSR programs; (2) whether a firm has codes of conduct in

implementing CSR activities, and (3) whether a firm

Good Neighbors but Bad Employers 305

123

operates an independent (stand-alone) department for CSR

programs. For example, respondents were asked the fol-

lowing question: ‘‘Does your company have mid- and

long-term plans for CSR actions?’’ All responses were

coded as 1 or 0. We summed responses for the three items

as a measure for CSR involvement. Factor analysis indi-

cated assignment of an Eigen value of 1.83 for a single

item comprised of CSR involvement and loadings, .87 for

plans for CSR, .88 for codes of conduct for CSR, and .89

for an independent department for CSR. Cronbach’s alpha

for all items was .84, which was acceptable for statistical

analyses. The measures of performance-based pay, effi-

ciency-based work practices, and contingent employment

were identical in both Study 1 and Study 2.

Analyses

We used STATA (13.0 version) for unbalanced panel data

analysis. A random effects model was estimated in study 2.

Since the present analyses dealt with the stratified sample

of firms in Korean firms, random effect models were

deemed more appropriate (Borenstein et al. 2011).

Results

Descriptive statistics and bivariate correlations for vari-

ables used in Study 2 are presented in Table 3.

All proposed hypotheses except for Hypothesis 4 were

empirically supported.The first column of Table 4 presented

the relationships between CSR and performance-based pay.

The regression coefficient of the CSR variable was both

positive and significant (b = .08, p \ .05, R2 = .28). The second column showed that CSR has both a positive and

significant relation with efficiency-based work practices

(b = .25, p \ .01, R2 = .29). In the third column, the rela- tionship between CSR and employee growth was shown to

have a negative and significant association (b = -1.14, p \ .10, R2 = .33). The fourth column indicates the rela- tionship between CSR and organizational restructuring, and

the result of the logistic regressions revealed no significant

association between CSR and organizational restructuring.

The fifth column presents the impact of CSR on contingent

employment. The results again reveal a positive and sig-

nificant relationship between CSR and the contingent em-

ployment variable (b = 1.02, p \ .05, R2 = .14). All of the findings in Study 2 were consistent with those of Study 1

except for organizational restructuring.

Discussion and Conclusions

This paper used two Korean firm-level panel datasets to

test the effects of CSR involvement on employment- T a b le

3 D e sc ri p ti v e st a ti st ic s a n d c o rr e la ti o n s (K

W P S 2 0 0 7 , 2 0 0 9 , 2 0 1 1 )

V a ri a b le s

M e a n

S E

(1 )

(2 )

(3 )

(4 )

(5 )

(6 )

(7 )

(8 )

(9 )

(1 0 )

(1 1 )

(1 2 )

(1 ) F ir m

si z e (t h e lo g o f to ta l e m p lo y e e s)

4 .8 2

1 .1 6

1

(2 ) S a le s g ro w th

(% )

2 2 .6 1

3 8 4 .2 6

- .0 2

1

(3 ) F o re ig n o w n e d ra te

(% )

4 .7 5

1 8 .5 9

.1 1 * *

- .0 0

1

(4 ) O p e ra ti o n w o rk e rs

ra ti o (%

) 3 0 .9 4

3 2 .7 0

- .0 8 * *

- .0 3

.0 4 *

1

(5 ) L a b o r c o st s p e r w o rk e r (m

il li o n K o re a n W o n )

4 2 .1 9

1 9 .0 1

.1 5 * *

- .0 1

.1 6 * *

.1 5 * *

1

(6 ) U n io n

.2 7

.4 5

.3 7 * *

- .0 2

.0 5 *

.1 3 * *

.1 8 * *

1

(7 ) C S R

1 .5 3

1 .3 1

.1 4 * *

.0 5

.1 3 * *

.0 6

.2 2 * *

.0 7

1

(8 ) E m p lo y m e n t g ro w th

ra te

(% )

2 3 .3 7

3 2 .4 9

.0 5 *

.0 7 * *

- .0 6 * *

- .0 4

- .1 6 * *

- .1 5 * *

- .1 6 * *

1

(9 ) R e st ru c tu ri n g

.2 4

.4 3

- .1 6 * *

- .0 3

- .0 3

.0 0

- .0 8 * *

- .1 0 * *

- .0 6

- .1 4 * *

1

(1 0 ) C o n ti n g e n t e m p lo y m e n t (%

) 4 .1 0

1 2 .3 6

.0 4

- .0 0

.0 0

- .0 5 *

.0 6 * *

.0 3

.2 1 * *

.0 7 * *

.0 0

1

(1 1 ) E ffi c ie n c y -b a se d w o rk

p ra c ti c e s

1 .2 8

.9 7

.1 5 * *

- .0 3

.1 0 * *

- .0 1

.1 2 * *

.0 4

.4 4 * *

- .0 4

- .0 3

.0 8 * *

1

(1 2 ) P e rf o rm

a n c e -b a se d p a y

.8 7

.8 4

.1 8 * *

- .0 2

.1 8 * *

- .0 8 * *

.1 8 * *

- .0 0

.2 7 * *

- .0 3

- .0 9 * *

.0 4

.2 6 * *

1

U n io n (e x is te n c e 1 , n o n e x is te n c e 0 ), re st ru c tu ri n g (e x is te n c e 1 , n o n e x is te n c e 0 )

* S ta ti st ic a ll y si g n ifi c a n t a t th e .0 5 le v e l, * * a t th e .0 1 le v e l (t w o -t a il e d te st s)

306 H.-J. Jung, D.-O. Kim

123

related issues. Major findings include CSR involvement (1)

facilitates employer tendency to use performance-based

pay and efficiency-based work practices, (2) has a negative

association with employment growth, and (3) showed a

positive relationship with increased labor flexibility

through restructuring and/or contingent employment.

The present quantitative findings support the results of

previous qualitative studies. Royle’s (2005) case study

found a positive correlation between CSR and perfor-

mance-oriented payment systems, and Vitaliano and Stella

(2006) identified a positive relationship between CSR in-

volvement and efficiency-based work practices. The posi-

tive association between CSR and labor flexibility was

manifested in several qualitative studies (Benson 2008;

Bonvin 2007; Smith and Helfgott 2010). However, while

previous studies analyzing CSR and employment relations

relied largely on a small set of cases, the present study

enhances the generalizability of these earlier studies. This

enhancement is owed to the adoption of multivariate panel

analyses that used two relatively large datasets each cov-

ering a 5-year period.

The results of this study accordingly have theoretical

implications. First, our findings support the argument that

as institutional pressures mount for explicit CSR behavior

such as charitable donations, firms tend to introduce CSR

activities as window dressing (Matten and Moon 2008). As

Freeman (1994) stated, these firms seem to suffer from the

‘‘separation thesis’’ or ‘‘separation fallacy’’ that there is

disconnect between business and ethics, or in this case

‘‘doing well’’ and ‘‘doing good.’’ These findings imply that

participation in corporate social activities may not neces-

sarily represent a commitment to do the right thing, but

instead can be associated with mobilizing internal re-

sources in response to the costs of CSR actions undertaken

because of institutional pressure.

Some have argued that CSR activities can lead to co-

operative labor-management relations, improve organiza-

tional identity, and commitment (Bhattacharya et al. 2008;

Brammer et al. 2007; Deakin and Whittaker 2007; Jones

2010; Turker 2009). The empirical findings of the present

study, however, seem to stand in contrast to this argument.

In reality, CSR commitment to social issues seems to im-

pose additional costs, and in response, firms with limited

resources appear to mobilize resources even by under-

mining the interests of internal stakeholders. Apparently,

the view arguing the positive impacts of CSR on

Table 4 Results of panel analysis with random effect (KWPS 2007, 2009, 2011 year)

1 2 3 4 5

Performance-

based pay

Efficiency-based

work practices

Employment

growth

Organizational

restructuring

Contingent

employment

Constant -.27 (.49) .76 (.50)* 9.49 (12.05) 3.44 (1.75)** 8.43 (6.91)

Industry (education) -.12 (.47) .19 (.31) -7.17 (7.36) -23.72 (110273.70) -2.35 (4.22)

Industry (transportation) -.54 (.20)*** -.68 (.18)*** -.68 (4.48) -1.66 (.80)** -6.63 (2.58)***

Industry (service) .17 (.19) .69 (.19)*** .98 (4.64) -1.61 (.82)** -2.06 (2.67)

Industry (construction) .08 (.26) .61 (.23)*** -1.30 (5.68) .78 (.59)* 1.18 (3.28)

Industry (bank) .57 (.42)* .45 (.48) 7.26 (11.84) .26 (1.23) .80 (6.82)

Industry (retail) .29 (.21)* .39 (.22)** -4.70 (5.58) .92 (.57)* 6.65 (3.21)**

Industry (publication) -.44 (.20)** .05 (.20) 13.49 (4.80)*** .34 (.51) -5.17 (2.76)**

Industry (broadcasting) .19 (.22) .02 (.22) .68 (5.42) .17 (.59) -5.98 (3.12)**

Industry (engineering) -.31 (.21)* .16 (.21) -6.43 (5.24) -.01 (.62) -6.86 (3.02)**

Firm size .16 (.07)** .02 (.08) 5.33 (1.83)*** -.62 (.27)** -.38 (1.05)

Sales growth -.00 (.00) -.00 (.00) .01 (.01) .00 (.00)* .00 (.01)

Foreign-ownership .00 (.00)* .00 (.00)* -.04 (.05) -.01 (.01)* .02 (.03)

Operation worker’s ratio .00 (.00) .00 (.00)* -.03 (.05) .00 (.01) -.04 (.03)*

Labor costs per worker .01 (.00)** .00 (.00) -.23 (.06)*** -.02 (.01)** -.01 (.03)

Union -.22 (.12)** .07 (.11) -12.14 (2.73)*** -.52 (.35)* 2.69 (1.56)**

CSR .08 (.04)** .25 (.038)*** -1.14 (.83)* .00 (.12) 1.02 (.47)**

R 2

.28 .29 .33 .14

-2LL 168.12

No. of observations 288 416 416 416 416

Coefficient is nonstandardized b. Parenthesis is standard error. Industry manufacturing dummy variable is reference variable

Statistically significant * at the .10 level, ** at the .05 level, *** at the .01 level (one-tailed tests)

Good Neighbors but Bad Employers 307

123

employment relations, which overlooks the role of limited

resources in terms of CSR involvement, can lead to

assertions that tend to be too positivistic and rather

unrealistic.

Second, the present study clearly emphasizes the im-

portance of enterprise resources available for allocation to

various competing demands. Our evidence indicates that

managerial options concerning CSR may be restricted in

the face of insufficient resources. Management appears to

resort to improvements in internal efficiency and

minimization of labor costs as ways to marshal resources to

offset costs associated with externally oriented CSR ac-

tivities designed to both bolster a firm’s reputation and

secure its social legitimacy. The present study suggests

that, when confronted with limited resources and compet-

ing demands, management is more likely to meet external

social demands than address demands for employment

security of internal stakeholders.

Third, the present study tends to suggest two contrasting

faces of CSR. At the same time management attempts to be

projected as ‘‘a good neighbor’’ by committing to socially

desirable behavior, it appears ‘‘a bad employer’’ by un-

dermining the employment security of its own employees.

The present study implied that external CSR activities and

internal CSR activities may have a substitutive (instead of

complementary) relationship. The present study suggests

why in many cases an employer’s commitment to social

issues does not go hand in hand with employee interests.

Similarly, it attempts to explain why external CSR activity

is often incompatible with internal CSR. Our findings im-

ply that although firms are pressured to undertake socially

responsible positions toward both internal stakeholders and

society as a whole, the real world of limited resources

makes this balance of CSR difficult to achieve.

The results of the present study could be inconsistent

with the findings of the meta-analysis by Orlitzky et al.

(2003) that showed that good social performance and higher

financial performance are broadly correlated. In this regard,

an interesting suggestion for future research might be to

examine the firms which show the opposite relationship

between CSR and employment practices to the one we find

in our sample, and to see what these firms do to maintain

good employment practices, while also implementing ex-

ternal facing CSR programs. That is, researchers need to

look at some individual cases where firms get these vari-

ables to move positively together. It will be useful to find

out what programs these firms are implementing to meet

increased cost pressures for CSR programs.

This study has practical implications for policymakers

and management. First, our results suggest that policy

makers should understand the limited (or even negative) role

of CSR (or at least the current form of CSR) in enhancing

labor rights. In many countries, governments have increased

deregulation and decreased their own role in protecting labor

rights. Accordingly, employers’ discretional responsibility

to their employees has increased. Competitive market pres-

sures and limited resources, however, lead to unbalanced

CSR practices between external and internal responsibilities,

and most firms involved in CSR do not guarantee the rights of

internal stakeholders. In particular, in emerging markets

where labor regulations are weaker than those of developed

countries, the problem can be even graver. Where this is the

case, governments have to be more active in protecting labor

rights and working conditions instead of relying on private

sector CSR activities.

Second, employers should cultivate a more balanced

approach to CSR. Although harmonizing the interests of all

stakeholders is a difficult (if not impossible) task, sacri-

ficing the interests of internal stakeholders to meet social

demands may lead to undesirable consequences in labor

relations (McAdam and Leonard 2003). A long-term per-

spective that seeks to maintain a balance of CSR activity

between social issues and employee issues may help sus-

tain a firm’s growth.

The limitations of the present study should be men-

tioned. Because our sample included firms in a single

country, Korea, nation-specific characteristics may have

affected our results. Thus, our findings should be carefully

interpreted before any attempt is undertaken to generalize

the results of this paper. The present study (especially

Study 1) addresses only three dimensions of CSR: com-

munity relations, customer satisfaction, and environmental

protection to the exclusion of other dimensions of CSR

such as suppliers and financiers. Since the present study did

not adopt a holistic approach toward CSR, the findings of

the present study may indicate only that a firms’ investment

in external CSR (in the areas of community, customer, and

environment) has a negative relationship with internal CSR

in the areas of employment relations.

The present study did not test the causal relationship

between these two variables (i.e., CSR and employment

practices) and only found temporary associations between

the two. Thus, one has to be circumspect in asserting that

the investment in CSR is driving the changing employment

practices and slower hiring growth. In this regard, future

research should be helpful to understand if there is a casual

linkage between these two phenomena: CSR and employ-

ment practices. Some qualitative work may be desirable to

find out whether firms really are making an explicit trade-

off, and to understand fully why managers believe they

have to make this trade-off.

Acknowledgments This research was partially supported by the IBRE Research Fund of Korea University Business School.

308 H.-J. Jung, D.-O. Kim

123

Open Access This article is distributed under the terms of the Creative Commons Attribution License which permits any use, dis-

tribution, and reproduction in any medium, provided the original

author(s) and the source are credited.

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  • Good Neighbors but Bad Employers: Two Faces of Corporate Social Responsibility Programs
    • Abstract
    • Introduction
    • Institutional Context: CSR in South Korea
    • Theoretical Perspective and Hypotheses
      • CSR and Employment Relations from a Resource Allocation Perspective
      • Hypotheses
    • Research Methods
      • Study 1
        • Sampling
        • Measurement
        • Analyses
        • Results
      • Study 2
        • Sampling
        • Measures
        • Analyses
        • Results
    • Discussion and Conclusions
    • Acknowledgments
    • References