Does Ethics Matter?

A Look at the Labor Side of

Market Efficiency
Juny Blanco, Pierre Macalino
 The Ford Pinto Case
• In 1968, Ford produced a small compact car called the Ford
Pinto.
• In their rush to take advantage of the then rising market, they
sold the car knowing that it had engine problems.
• Hundreds of reports of exploding engines. The case was
brought to court.
• Ford’s defense? Cost-benefit Analysis.
• The company lost a lot of their consumer population after
this.
 Does being Ethical pay? Ethical Behavior does
affect a Firm’s ability to sell

• Consumers expect the goods they buy to be

produced in an ethical manner.
• Firms had to adjust to the general concerns of the
public lest they be scrutinized and lose consumer
population.
• Dolphin-safe label became popular among US
Fishing Industry Firms.
 Coffee
• Wall Street discovered that efforts to move towards a
more ethical behavior appears to be a wise investment.
• Ethical
Consumers Controlled
are relatively more affected by the Unethical
unethical behavior of firms than ethical.
• 9.71portion of the consumers
A larger 8.31 wanted to pay less5.89
for the coffee made from unethical means than those
who wanted to pay more for coffee made from ethical
means.
• Consumers punishes unethical firms more than they
reward ethical ones.
 Labor Market Efficiency

• Allocating a country’s human resources to its most

productive sectors
• Market Flexibility
• No. of employees that work for jobs that are suitable
to their skillset
• Unemployment Insurance
 Labor Market Efficiency
Common Indicators
• Unemployment Rate

• Wage

• Education
• Environmental responsibility
• Dedication to quality service
• Fair market play Ethical
• Fair treatment of employees
• Labor standards and human rights, Sound business
Behavior of
practices Firms
• Responsible stewardship of finances
 Does the
Ethical
the total labor market efficiency of a country is
implicated by, and has a correlation with, the ethical Behavior of
behavior of its firms
Firms affect
Labor Market
Efficiency?
 3 E’s versus 3+3 E’s

Economy, Efficiency,
Economy, Efficiency, Effectiveness +
Effectiveness Empathy,
Evaluation, Ethics
 • Caused by a rise in global consciousness

• Employees want to work in a workplace where there are

similar ethical beliefs

• In a study done on in 2008, 88.3% of the respondents said

they were willing to forego financial benefits in order to work
for a company with a highly ethical reputation.
3 + 3 E’s
• If they (employees) perceive their workplaces as a catalyst of
global movements, they would tend to believe in a stronger
purpose for their work and thus have more reason to work
harder.
 • Data used is from the Global Competitiveness Report of
the World Economic Forum and World Bank Database

• 2016-2017 is the chosen time period

• GRETL
Empirical
Strategy • Ordinary Least Squares Method: Cross-Sectional Analysis

• Models used: Labor Market sub-indicators from different

studies
lme
Dummy
0 + 𝛿0ede + 𝛿1Definition
= βVariables
Independent
Variables menap + 𝛿2LAMC +
𝛿
gdpc
ede
une3
menap
cois + 𝛿 4 ae + 𝛿5 ssa + β gdpc
GDP per capita
Emerging
1 + β
and developing Europe
Unemployment
Middle East, North
Rate 2 une
Africa, and Pakistan
tlf + β tlf+ β qe + βLatin
lamc
3 4 5rts
Total labor+
America β6theetcs
force
and Caribbean+u
que
coits Quality of Education
Commonwealth of Independent States
rts
ae Research and
Advanced economies
training services
etcs
ssa Ethical behavior
Sub-Saharan Africa
of firms
lme
eda Labor market
Emerging andefficiency
developing Asia
 Variable (with Labor Market Efficiency as Dependent Coefficient (SE)
Variable)
Constant 2.14 ***
• The ethical behavior of firms is significant at 10%, 5%, and (0.26)
1% levels
GDP per capita (gdpc) −6.52e-07
(1.87e-0)
• Total labor force of the country is significant at the 1% level
Unemployment rate (une) 0.000228
• Both coefficients of these variables are positive, indicating a (0.006)
positive
Total relationship
labor force with Labor Market Efficiency 1.11e-010 *
(6.17e-011)
Quality of education 0.09
(0.08)
Availability of research and training services 0.006
(0.09)
Ethical behavior of firms 0.42 ***
(0.09)
Variable (with Cooperation in Labor Employer Relations Coefficient (SE)
as Dependent Variable)
Contant 2.09 ***
(0.261830)
GDP per capita (gdpc) 1.08e-06
(2.37e-06)
Unemployment rate (une) 0.0083
(0.0071)
Total labor force 1.66e-010 **
(7.83e-011)
Quality of education 0.06
(0.096)
Availability of research and training services −0.0501
(0.11)
Ethical behavior of firms 0.58 ***
(0.10)
Variable (with Country Capacity Coefficient (SE)
to Attract Talent as Dependent Variable)
Constant −0.79
(0.50)
GDP per capita (gdpc) 1.87e-07
(3.59e-06)
Unemployment rate (une) −0.0023
(0.011)
Total labor force 1.07e-010
(1.18e-010)
Quality of education 0.11
(0.15)
Availability of research and training services 0.35 **
(0.17)
Ethical behavior of firms 0.62 ***
(0.15)
Variable (with Efficient Use Coefficient (SE)
of Talent as Dependent Variable)
Constant 1.57 ***
(0.30)
GDP per capita (gdpc) −2.60e-06
(2.16e-06)
Unemployment rate (une) 0.00034
(0.0064)
Total labor force 4.13e-011
(7.11e-011)
Quality of education 0.21 **
(0.088)
Availability of research and training services −0.025
(0.10)
Ethical behavior of firms 0.44 ***
(0.09)
•Dummy
The Middle East, North Africa, and Pakistan
Variable are statistically
Coefficient (SE)
significant at 10% and 5% levels. They have
Emerging and developing Europe
a negative effect on labor
−0.0714034
market efficiency (0.149225)
Middle East, North Africa, and Pakistan −0.362745 **
• The Commonwealth of independent states are statistically significant
(0.151766)
at 10% and 5% levels. They have a positive effect on labor market
Latin America and the Caribbean
efficiency −0.121874
(0.145461)
Commonwealth of independent states 0.332956 **
(0.165116)
Advanced economies 0.0618238
(0.136523)
Sub-Saharan Africa 0.130876
(0.127607)
• Ramsay’s Test’s null hypothesis is that specification is adequate. Since the
value is above 0.05, the hypothesis is accepted.

• White’s
Test
Test’s null hypothesis is that there is no heteroskedasticity. Since the
Value
value is above 0.05, the hypothesis is accepted.
Number of Observations 138
Ramsay’s Test 0.156
White’s Test 0.528476
R-Squared 0.704724
(Adjusted R-Squared) (0.666210)
• The ethical behavior of firms is significant across all models

Variable Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

• The coefficient
(SE) is consistently
(SE) positive, and
(SE) (SE) nearly identical,
(SE) across
(SE) the
six different
Constant models
2.14009 *** 2.1438 *** 2.1501 *** 2.27468 *** 2.27135 *** 2.3271 ***
(0.261830) (0.260378) (0.252107) (0.246442) (0.246600) (0.246442)

Ethical 0.41823 *** 0.4148 *** 0.4145 *** 0.41182 *** 0.44202 *** 0.4687 ***
behavior of (0.0806376) (0.0796412) (0.0791810) (0.0802014) (0.0750937) (0.0492230)
firms
• Having more ethical firms in a country has a positive effect on their labor
market efficiency

• Ethics is now – more than it has ever been in history – a significant

indicator of productivity
• The transition of economies with globalization sets a different path for
businesses from what it used to be

• The labor market is more cautious and critical of business malpractices

and unethical activities in general
Thank You