Corporate misconduct and regulatory violations drop significantly as soon as more competing employers move into the local area.
April 25, 2026
Original Paper
Do Competitive Labor Markets Discipline Firms? Evidence from Facility-Level Corporate Misconduct
SSRN · 6631318
The Takeaway
Increased competition for workers acts as a market-based police force that keeps companies in check. When employees have more job options, they are less likely to tolerate abuse or illegal working conditions. Firms realize they must treat their staff better and follow the rules to avoid losing their talent to a neighbor. Most people think of labor competition only in terms of higher wages. This research shows it also creates a safer and more ethical work environment. Giving workers the power to leave is more effective than many government regulations.
From the abstract
We examine whether local labor market competition disciplines corporate misconduct. Using a panel measure of labor market competition based on the textual similarity of job postings, we first document that firms facing more intense labor market competition have lower violation rates and smaller penalties. To identify causal effects, we exploit large facility openings across U.S. counties as shocks to local labor competition in a stacked cohort difference-in-differences design. Following these op