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When Unions "Mattered": The Impact of Strikes on Financial Markets, 1925-1937

Literature › Works

John Dinardo; Kevin F. Hallock (2002). When Unions "Mattered": The Impact of Strikes on Financial Markets, 1925-1937. Industrial and Labor Relations Review, Vol. 55, No. 2. Cornell University, School of Industrial & Labor Relations.
Type journal article
Scope Comparative and methods
Method econometric
Period studied 1925–1937
Regions United States
Themes unions strikes, methods data sources, comparative theory, business and state
Citation key dinardo2002

Argument

The paper uses an event-study design to measure how 36 major US strikes of 1925-37 affected industry-level stock returns. Strikes that labor historians regard as pivotal produced sizeable negative excess returns for whole industries. The losses were larger for longer, violent, industry-wide and union-won strikes, for strikes that won recognition, and for strikes that raised wages. Most of the "news" appears to reach the market at the start of a strike, though wage outcomes mattered more at the end. The authors read this as evidence that markets saw union victories as major determinants of the profit share going to shareholders. It has no South African content; it is a US comparative and methodological reference.

Evidence and method

36 strikes from Filippelli's (1990) encyclopedia of labor conflict, coded for duration, violence, recognition, wage change, number of strikers, union age and winner. Monthly industry stock price indexes from Cowles (1938) cover 69 industries, 1906-37, and were hand-scanned with OCR. Griffin (1939) strike statistics are used to check how representative the sample is.

Findings

  • Average strike start lowers industry stock prices by about 3%. (p. 10)

    This means that industry stock prices dropped by about 3% around the time of the start of the strike.

  • Union wins produce large losses at the start of the strike. (p. 10)

    the point estimates in the row labeled "union win" indicate losses to the firm of about 7%

  • Union losses have small, statistically insignificant effects, so the response is asymmetric. (p. 10)

    union losses led to generally quite small stock price changes (-1%) that were not distinguishable from zero at conventional levels of significance.

  • Strikes ending in wage cuts raised industry value. (p. 11)

    when wages fell in response to the strike, the estimated positive impact on the value of the industry was roughly 9%

  • Recognition strikes had a much larger negative effect than non-recognition strikes. (p. 12)

    strikes leading to the recognition of the union by the firm appear to have had a much larger negative share price reaction than strikes that did not lead to the recognition of a union.

  • Reactions around strike ends are weaker, which is consistent with news arriving mainly at the start. (p. 12)

    This is consistent with the view that most of the "news" in strikes occurs at the beginning of the strike

  • Combining start and end windows gives very large wage-related effects. (p. 12)

    Strikes that resulted in lower wages led to increases of 22% in the value of the firm, and strikes with no wage increases led to losses on the order of 7%.

  • The sample is small and selective because of data limits. (p. 7)

    In part due to limitations of our financial market data, we examine only 36 strikes occurring over the time period we consider.

  • Earlier studies of post-1962 strikes report share price falls of 1-4%. (p. 4)

    they all suggest a negative share price reaction of between 1% and 4% around the start of the strike.

  • Markets saw union victories as shifting profits away from shareholders. (p. 15)

    Our analysis suggests that financial markets viewed union victories in the interwar period as very important determinants of the share of firm profits going to stockholders.