Corporate Social Responsibility and workers' motivation at the industry equilibrium

We consider an industry in which firms compete at two levels, the labor market and the product market. On the labor market two types of workers co-exist, socially responsible or not. Firms may strategically use CSR investments in order to screen and to elicit more effort from responsible workers. By doing so, virtuous firms lower their production costs and display a competitive advantage on the product market. As a consequence, CSR strategies by firms shape the toughness of competition on that market. In turn, incentives that firms have to invest in CSR are dampened when competition becomes harsher. Hence, we identify a twofold relationship between CSR and competition. Due to feedback effects on the competitive pressure, an increase in workers' social awareness may reduce the overall level of CSR. We also show that an exogenous increase of competition may affect positively or negatively the corporate social performance depending on the proportion of responsible workers.