Social dumping is the use of labor with wages and benefits that do not meet the set standard in a country for the purpose of cutting costs of production. Companies may rely on foreign labor or specially negotiated deals to find employees amenable to substandard conditions. Their use of cheap labor allows them to increase profits, as they can sell goods at standard prices even though they cost less to make. Nations in many areas of the world have concerns about social dumping and have taken action to reduce it.
Labor protections are supposed to apply to all workers. In social dumping, companies skirt legal protections for laborers. They may offer the bare minimum to satisfy the law, or may actively flout it. Their workers make less money than employees in comparable jobs and may not have benefits and other protections that are standard for laborers. Companies may relocate to take advantage of foreign workers, and thus cause job loss in one nation while pursuing laborers in another.
Workers in such facilities may be immigrants or residents of an economically depressed area. Their bargaining power is limited because of their low social status. The offer of a job, even at low wages, is too tempting to pass up, and thus workers will agree to contracts that do not 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 thus have a leg up in a market where other companies may abide by labor standards and practices. This is a particular concern when the process involves relocating to a country to take advantage of a special deal on labor conditions. Companies may attract foreign investment and operations by granting concessions, and this allows companies to relocate to nations with already favorable labor laws and get even more favorable treatment from the government 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 seek out ways to lower the cost of production, including relocating to take advantage of better business conditions. This counterargument suggests that nations worried about social dumping should consider their own labor laws first and determine whether it is possible to change the regulatory climate to encourage businesses to stay.