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The Importance of Just Process: Mutual Dissatisfaction Between Managers and Workers in Foreign-Owned Companies

Oct 2016
SCID Working Paper
581
By  James Chu, Marcel Fafchamps, David Jonason
The introduction of foreign companies may help developing countries achieve faster economic growth, but it raises a number of challenges. In particular, studies have found that labor relationsbetween domestic workers and their international managers are often characterized by mutual dissatisfaction. This study explores when and why managers and workers experience mutual dissatisfaction within the context of Ethiopia. We conduct case studies of 16 domestic and foreign-managed factories in and around Addis Ababa. The evidence suggests that mutual dissatisfaction stems in part from a mismatch in expectations regarding just process, i.e., the procedures by which working conditions in the factory are set and modified. Mismatches occurred along three dimensions. Specifically, managers and employees disagreed over whether labor laws represent a basis for employment negotiation, or unreasonable bureaucracy; whether workers should be active participants in the labor management practices; and whether changes in working conditions ought to be motivated by viewing employees as human resource investments or extended family members.