Social dumping is the use of cheap labor to reduce production costs, often in violation of labor laws. Critics argue it gives companies an unfair advantage, while others see it as a natural market condition.
Social dumping is the use of labor with wages and benefits that do not meet the standard established in a country in order to reduce production costs. Companies may rely on foreign labor or specially negotiated arrangements to find employees liable to substandard conditions. Using cheap labor allows them to increase profits as they can sell goods at standard prices even though they cost less. Nations in many areas of the world have concerns about social dumping and have taken steps to reduce it.
Labor protection must apply to all workers. In social dumping, companies evade legal protections for workers. They may offer the bare minimum to satisfy the law, or they may actively flout it. Its workers earn less money than employees in comparable jobs, and they may lack benefits and other protections that are standard for workers. Companies can move to take advantage of foreign workers and thus cause job losses in one country while looking for workers in another.
Workers at these facilities may be immigrants or residents of an economically depressed area. Their bargaining power is limited because of their low social status. The job offer, even at low wages, is too tempting to pass up, and so workers agree to contracts that don’t meet industry standards or put them at a disadvantage. Social dumping can allow companies to move production to avoid high taxes and tariffs, not just higher wages.
Critics of social dumping argue that companies gain an unfair advantage by cutting costs and therefore have an advantage in a market where other companies can comply with labor standards and practices. This is a particular concern when the process involves moving to a country to take advantage of a special agreement on working conditions. Companies can attract foreign investment and operations through the granting of concessions, and this allows companies to relocate to countries with already favorable labor laws and receive even more favorable government treatment for doing business there.
Other economists and market analysts argue that what some call “social dumping” is simply the natural ebb and flow of market conditions. Companies will naturally look for ways to reduce the cost of production, including relocating to take advantage of better business conditions. This counter-argument suggests that countries concerned about social dumping should first consider their own labor laws and determine whether it is possible to change the regulatory climate to encourage companies to stay.
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