Labor Adjustment under Demand Uncertainty in Developing Economies: The Role of Operational Levers

Problem Definition: Manufacturing firms in developing economies face demand uncertainty under institutional conditions that differ from those in developed economies. When demand becomes difficult to predict, firms may adjust not only production, sourcing, or inventory decisions, but also the organizational resources maintained around workers. We examine whether demand uncertainty leads developing-economy manufacturers to compress organizational support resources, whether such compression affects productivity, and which operational levers mitigate these consequences. We use developed economies as an institutional contrast to show that the same demand-side uncertainty can surface through different labor-related channels. Methodology/Results: We construct a global panel of publicly traded manufacturing firms from 2002 to 2024 by combining financial statement, labor-controversy, and buyer–supplier network data. In developing economies, demand uncertainty is associated with lower SG&A expenditure per employee, consistent with organizational support compression, and this channel is also associated with lower productivity per employee, indicating consequences beyond labor-related adjustment. Regional sourcing attenuates the relationship between demand uncertainty and SG&A expenditure per employee, whereas inventory buffers do not. By contrast, in developed economies, demand uncertainty is associated with higher strike incidence, and inventory buffers attenuate this relationship. Instrumental-variable estimates support these patterns. Managerial Implications: Our findings show that managing demand uncertainty requires operational levers that fit the institutional channel. In developing economies, preserving organizational support under demand uncertainty may require responsiveness-based levers, such as regional sourcing, rather than slack-based inventory buffers. Because support compression is associated with lower productivity, such levers may help protect both labor-related resources and productive capability. By contrast, inventory buffers appear more relevant for attenuating labor tensions in developed economies. More broadly, the study cautions against directly transferring operational prescriptions from developed-economy contexts to developing-economy settings.