No shame, no gain?

The role of reputation in labour market enforcement

This briefing note is part of a three-year programme of research exploring labour market enforcement generously funded by Unbound Philanthropy. In it, we combine qualitative and quantitative research to explore how powerfully reputational concerns determine firms’ behaviour when it comes to worker rights, and whether policy makers could leverage firms’ worries about their public profile more effectively in the cause of improving compliance with labour market rules.

We find that reputational concerns are an important driver of compliance. Schemes like the Government’s ‘naming and shaming’ of firms underpaying the minimum wage do have a deterrent effect, with sectors with more naming seeing a subsequent (albeit very small) reduction in underpayment in the following year. But the effects vary across different types of firm – and while firms were concerned about the reputational damage among other businesses from a worker rights scandal, businesses felt that consumers were unlikely to change their behaviour in response to labour market abuses.

Overall, our analysis suggests that reputation is a useful part of the labour market enforcement toolkit. But far more could be done to leverage it to greater effect, including wider and better-targeted publicization and eliminating so-called ‘accidental’ underpayment by ensuring that employers are clear on what is expected of them. Moreover, reputational tools must be seen as a complement to, rather than a substitute for, financial penalties: raising the fines imposed on firms that violate labour market rules, and increasing their chance of detection in the first place through more proactive inspections, remain critical policy levers in the UK’s labour market enforcement regime.