Collective Layoffs and Offshoring: A Social Contract Account

Abstract

Collective layoffs can occur for many reasons, often related to a firm’s pursuit of greater efficiency and cost reduction, and they tend to trigger negative reactions among the public. Anecdotal evidence suggests that offshoring, one of the most controversial and politicized aspects of globalization, evokes particularly negative reactions. We propose a social contract account of consumer reactions to collective layoffs and demonstrate differential consumer responses to collective layoffs due to offshoring versus other reasons, such as automation. Layoffs due to offshoring are perceived as an especially egregious violation of the normative expectation that firms should support members of their society. Data from nine experimental studies (N=5,568; seven reported in the main paper and two in the General Discussion section), public consumer responses to layoffs in a large online community (N=29,045), and layoff announcements in the European Union (N=1,261) show that consumers react more negatively to collective layoffs due to offshoring compared to other reasons. Supporting our social contract account, the negative effect of offshoring is stronger when offshoring affects workers in the consumers’ home (vs. foreign) country, when the firm is domestic (vs. foreign), and when most customers are domestic (vs. foreign).