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Bargaining Theory, Trade Unions, and Industrial Strike Activity

Literature › Works

Orley Ashenfelter; George E. Johnson (1969). Bargaining Theory, Trade Unions, and Industrial Strike Activity. The American Economic Review, Vol. 59, No. 1. American Economic Association.
Type journal article
Scope Comparative and methods
Method econometric
Period studied 1952–1967
Regions United States
Themes unions strikes, comparative theory, labour markets wages, methods data sources
Citation key ashenfelter1969

Argument

The paper argues that conventional two-party bargaining models (Hicks, Zeuthen) cannot explain why strikes happen, because they treat strikes as errors or irrationality. It proposes a three-party model of management, union leadership and rank and file. Leaders must satisfy rank-and-file wage expectations, so a strike works as an equilibrating device that lowers those expectations until a settlement is possible. The firm then compares strike costs with the lower wage costs a strike brings. The model predicts that strikes are more likely when unemployment is low and when real wages have recently grown slowly. The authors test this on US quarterly strike counts for 1952-67 and find strong support, with little evidence of instability. Profits have only a small net effect.

Evidence and method

US aggregate quarterly time series, 1952I-1967II. Strike counts come from the Monthly Labor Review (strikes beginning each quarter). The unemployment rate, the CPI, average hourly earnings in mining, construction and manufacturing, and corporate profits relative to total compensation come from BLS and Commerce Department publications. Casual evidence includes FMCS contract-rejection data, a Ford stockholder report and Simkin's contract-expiration data.

Findings

  • The authors see strikes as central to union power, and so to wage determination. (p. 2)

    Most union "power" is derived from the threat of the strike

  • The key theoretical move is to treat bargaining as involving three parties, not two. (p. 3)

    the management, the union leadership, and the union rank and file

  • A strike lowers rank-and-file expectations and so lets leaders settle. (p. 4)

    The outbreak of a strike, however, has the effect of lowering the rank and file's expectations due to the shock effect of the firm's resistance

  • The model implies that higher prior profits relative to the wage bill reduce strike probability. (p. 6)

    a strike is less likely to occur over time in a given firm or industry the greater is the previous profit level

  • The preferred equation fits well. (p. 12)

    explain about 94 per cent of the variance of the dependent variable about its overall mean

  • Slower real wage growth raises strikes. (p. 13)

    of one percentage point in the rate of change of real wages is associated with an increase of about 62 strikes per quarter

  • Strike seasonality reflects seasonality in contract expirations. (p. 13)

    The seasonal dummies confirm the hypothesis that strike activity is much heavier in the spring and summer quarters than in the fall and winter quarters.

  • A split-sample stability test finds the relationship stable over the period. (p. 13)

    We conclude that there is little evidence to suggest that this

  • The 1959 Landrum-Griffin Act is associated with a modest rise in strikes. (p. 14)

    The coefficient of LG suggests a modest, but significant increase of about 88 strikes per quarter

  • Wage-restraint policies that push leaders to curb member demands risk turmoil within unions. (p. 15)

    are likely to result eventually in political turmoil within trade unions