The Economic Impact of Labour Strikes

Since the Industrial Revolution, unions have played a large role in improving working conditions.[1] By monopolizing labour power and mobilizing workers, unions have been able to negotiate shorter work days, improved wages and a safer workplace. However, the strength of unions and the high wages they demanded for their workers may have contributed to the exodus of manufacturing employment from advanced industrialized nations, as companies sought greater comparative advantage in low-income countries.

While trade unions appear to be declining due to the changing nature of employment in advanced industrialized economies, they still yield tremendous influence. Europe is now the scene of a worker stoppage in the airline industry over disagreements about pay. Swedish cockpit crews flying for SAS AB recently joined pilots at Air France-KLM Group in hampering regional travel during Euro 2016, one of the biggest events of the year.[2]

Labour strikes may appear to be localized, but can actually have a major impact on the economy when measured in both direct and indirect terms. A perfect illustration of this is the 1998 General Motors strike, a 54-day labour disruption that resulted in huge declines in auto sales. The strike cost General Motors a staggering $1.2 billion in the third quarter, causing a net loss of $809 million compared to a net gain of $973 million the previous year.

The strike also negatively influenced domestic consumer spending and the trade deficit, not to mention sectors that directly rely on General Motors products and services.[3]

Another recent example of the impact of labour strikes on the economy is South Africa, a nation struggling with weak economic growth and corruption. South Africa experienced at least 88 labour strikes in 2014, costing the economy roughly $500 million, according to government estimates.[4]

Labour disruptions in financial services are much less common than sectors such as manufacturing, education and travel and tourism. Indeed, the large majority of the biggest strikes have occurred in the production industries. In the United States in particular, labour strikes were much more common before the Second World War.[5]

The decline of labour unions is expected to continue as advanced industrialized economies become more knowledge intensive. The rise of freelance work and fractional employment is also likely to reduce the need for unionization. Union membership in the United States peaked in 1979 at 20 million members. By 2013, that number had fallen to 14.5 million. Britain has seen its union membership decline by nearly 50% to 6.5 million, according to the OECD.[6] The digital age is likely to accelerate this trend.

[1] Brent Radcliffe (June 19, 2016). “Unions: Do They Help Or Hurt Workers?”

[2] Richard Weiss (June 13, 2016). “SAS, EasyJet Pilots Join Air France as Europe Hit by Strikes.” Bloomberg.

[3] Korey Harlyn Coon. The Ripple Effect of Union Strakes.

[4] Michael Kaplan (September 18, 2015). “South Africa Labor Strikes Cost Economy $500M Per Year As Nation Struggles With Slow Economic Growth.” IB Times.

[5] Investopedia. The Ten Biggest Strikes In U.S. History.

[6] E.H. (September 28, 2015). “Why trade unions are declining.” The Economist.

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