Cyclical Fluctuations in Strike Activity

Abstract

This paper uses a unique data set of contracts and strikes to address the old question of the relationship between the business cycle and strike activity. It also examines the factors that determine when strikes occur and proposes a new test of the recent private information models of strikes. The data set contains over 7000 contracts covering both manufacturing and non-manufacturing industries for the twelve year period 1970 to 1981. Contrary to earlier findings there is no simple correlation between fluctuations in the business cycle and either the number of strikes, strike incidence or strike duration. However, once specific industry effects are controlled for then strike incidence but not strike duration varies procylically. As suggested by the Total Cost theory of strikes both demand conditions by industry and labor market conditions are important factors in determining strike activity. The level of demand by industry as proxied by the industry producer price index has a negative effect on strike incidence but a positive effect on strike duration. This opposite movement of strike incidence and strike duration which appears in this paper is not predicted by any of the theoretical models of strikes. Higher national unemployment reduces the probability of a strike, but it is regional unemployment and industry specific unemployment that have the greater negative effect on strike incidence. ‘The recent private information models of strikes suggest that an important determinant of strikes is a variable observable to the finn but unobservable to the union. In this paper I assume that the firm can predict future demand conditions better than the union. In this case the difference between actual realized future prices and the forecasts of those prices made today can be used as a proxy for this unobservable variable. This paper shows that neither the level nor the variance of this residual has any significant effect on strike activity. However, both the variance of past prices and the variance of past unemployment have a significant positive effect on strike incidence. This suggests that some form of uncertainty is an important determinant of strikes.