Chapter 3: Causes of Work Stoppages and Their Economic Impacts

Section IV: Economic Impacts of Work Stoppages

Introduction

Although it is common ground that work stoppages have various and wide-ranging negative impacts, demonstrating these consequences by hard empirical evidence remains challenging and there is little research to support conclusions. Accordingly, in this section, we will cite some of the research findings while mentioning the constraints to detailing the impacts of work stoppages. If more concrete results are required, an option is described which will provide suggestions to provide better evaluations of the economic impacts of work stoppages.

It is also recognized that work stoppages have important non-economic impacts on individuals and families, as well as having other social and even political ramifications. These however are even more intractable to describe empirically and little was found in the literature researched on this subject.

Work Stoppage Economic Impacts

There is little in the way of comprehensive and rigorous studies on the economic effects of work stoppages because the specific data of firms thus affected are rarely available. Even businesses involved in work stoppages have difficulty measuring all of the costs. For workers of supplier or competitor firms directly or indirectly affected by a work stoppage, information is even more difficult to gather. Overall, partial approaches can under- or over-estimate all of the economic impacts because adjustments by parties and persons indirectly affected before, during and after work stoppages are not considered.

The following outline some of the conclusions of studies that have attempted to measure the economic impact of work stoppages.

  • Production losses: Regarding the impact on costs and savings of companies in work stoppages it was found that the principle impact occurred from loss of sales and general costs (e.g. interest, insurance, etc.). Other less significant costs included general advertising, fines for late delivery, additional insurance costs and sabotage. Businesses attributed little importance to the savings realized during strikes.1

  • Expected negative effects on profits, productivity and shareholder yield:

    • During the period prior to the work stoppage, workers responded to employer offers by working with less care and effort. The loss in productivity ranged from 2% to 12%, based on the type of production and the duration of the work stoppage2

    • A two-year strike at the Decatur Bridgestone/Firestone (B/FS) tire plant in Illinois was associated with the recall of 14.4 million tires, 271 deaths and 800 injuries during or immediately after the strike. Poor quality tires were associated with the work stoppage. In the four months following the work stoppage, the market value of B/FS securities fell from US $16.7 million to US$7.5 million, and the B/FS management was replaced.3

    • For Canadian companies listed on the Toronto Stock Exchange that had undergone a work stoppage between 1972 and 1995, (i.e. 304 occurrences) yield decreased in the case of legal work stoppages 3.9% from when the work stopped. For illegal work stoppages, security yields had already begun decreasing in the 30 days prior to the work stoppage, i.e. at the time of the stoppage; security yields had already dropped an average of 3.2%. In the 30 days following the work stoppage, yields fell a further 4.3%. Overall, work stoppages resulted in an average a 4.5% drop in yields.4

  • Indirect effects: In an econometric analysis based on sector employment and production data in the American manufacturing industry between 1967 and 1981, it was found that work production fell by 2.7% for companies that used the products of companies on work stoppage. On the other hand, goods suppliers to companies on work stoppage incurred an 18% drop in productivity. The main reason put forth for this was that, even if production fell, these companies maintained their employment level to minimize the negative effects of temporary layoffs on labour relations. Lower profits from these companies were therefore expected.5

  • Total negative, microeconomic effects on companies affected by a work stoppage and the positive effects on competing companies.

    • Using an input-output model of the Canadian economy in 1961, the effects on intermediate and final demand of goods in the manufacturing sector in order were taken into account to evaluate the costs of work stoppages. They found that work stoppages in 1967 had cost the equivalent of 0.2% of GNP for that year.6

    • Using quarterly data from the American manufacturing industry and an econometric model to assess the effects of work stoppages on work productivity between1961 and 1981, it was estimated that one additional work stoppage during a quarter reduced industry work productivity for that period by 1% to 2%. 7

    • With the help of sector production data in the Canadian manufacturing industry and different econometric models, production losses associated with work stoppages between 1971 and 1985 were assessed and it was estimated that production losses of less than 1% resulted for most sectors. Losses increased to 1.7% for the manufacturing sector, 2% for primary metals and tobacco products and 3% for pulp and paper. The greatest loss of approximately 9% was in the wood sector.8

  • Investment : Econometric estimates were used to assess the effects of work stoppages on net investments in Canada between1967 and 1999. The number of workers involved in work stoppages over the last five years increased by 1%, which reduced total investment by 0.1%. In the construction sector, this 1% increase in affected workers caused investments to fall by nearly 3%. 9

  • Foreign trade :

    • A significant work stoppage on the Australian economy reduced investments and consumption. This translated into lower imports and a depreciation of the Australian currency, which in turn, promoted higher exports. The net effect of a work stoppage during the year it occurred was a 6% real depreciation of the currency, along with a 4% reduction in imports and a 13% increase in exports. This result indicated the effects on foreign trade, but it depends on the work stoppage scenario examined and the structure of the Australian economy. 10

    • On the other hand, using a derived equilibrium equation of the Canadian trade balance from a summary model of the economy for the period of 1971-1993 with parameters that measured the effects of work stoppages on the equilibrium of the balance of trade, the net effect was found to be practically negligible for most sectors exporting goods.11

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An Option for Better Measurement of and Response to Economic Impacts of Work Stoppages in the Federal Private Sector

The strategic importance to the Canadian economy characterizes private companies under federal jurisdiction. The companies are linked to the core economic infrastructure for transport, communications, financial intermediation and certain companies deemed of national interest by Parliament.

Employment under federal jurisdiction represents approximately 7% of Canadian workers. A preliminary analysis showed that a work stoppage in these companies had potentially little impact on the suppliers of these companies. Conversely, some companies hold a strategic position because their production is used by large segments of the manufacturing sector (e.g. transportation companies are generally unionized) or by overall activity sector, such as banking (scarcely unionized).

We currently lack sufficient data to measure the importance of companies under the federal private jurisdiction to the functioning of the Canadian economy. An option to overcome these limitations would involve the Labour Program engaging in analysis of these issues using the facilities of the Research and Data Development Division. Measures would be taken to identify, as correctly as possible, all activity sectors under federal jurisdiction and this information used to develop measures of the direct and indirect effects of work stoppages in the federal private jurisdiction on third parties. This exercise would also require assessing the potential importance of work stoppages per sector. Related analysis could include developing measures of behavioural adjustments of parties to measure the short- and long-term economic impacts of work stoppages under the federal jurisdiction.

We are advised that information from this analysis could be combined with results generated from work stoppage predictive analysis discussed above. This could perhaps help to reduce the economic costs of work stoppages under federal jurisdiction were the FMCS to proactively intervene by suggesting to companies at risk of a work stoppage with high economic impact that they receive training tailored to their needs, or by sponsoring special sessions on best practices in conferences on industrial relations. The development of these indices would require active collaboration on the part of the FMCS and the Labour Program's Data Development and Research Division.

Notes :

[1] Return to footnote 1 Tang and Ponak (1986), Employer Assessment of Strike Costs, Relations Industrielles, 41-3, pp. 552-571.

[2] Return to footnote 2 Imberman (1979), Lost profits represent only the tip of an iceberg, Harvard Business Review, 57-3, pp. 133-138.

[3] Return to footnote 3 Krueger and Mas (2002), Strikes, Scabs and Tread Separations: Labor Strife and the Production of Defective Bridgestone/Firestone Tires, Working Paper 461, Industrial Relations Section, Princeton University .

[4] Return to footnote 4 Hanrahan et al (1997), The Effect of Work Stoppages on the Value of Firms in Canada, Review of Financial Economics, 6-2, pp. 151-166 .

[5] Return to footnote 5 McHugh (1991), Productivity effects of strikes on struck and nonstruck industries, Industrial and Labor Relations Review, 44-4, pp. 722-732.

[6] Return to footnote 6 Hameed and Lomas (1975), Measurement of production losses due to strikes in Canada : An Iinput-Output Analysis, British Journal of Industrial Relations, 13, pp. 86-93 .

[7] Return to footnote 7 Flaherty (1987), Strike Activity, Worker Militancy, and Productivity Change in Manufacturing, Industrial and Labor Relations Review, 40-4, pp. 585-600.

[8] Return to footnote 8 Ahmed (1989), The effect of the joint costs of strikes on strikes in Canadian manufacturing industries - a test of the Redder-Neumann-Keenan theory, Applied Economics, 21, pp. 1353-1367.

[9] Return to footnote 9 Budd and Wang (2004), Labor Policy and Investment: Evidence from Canada , Industrial and Labor Relations Review, 57-3, pp. 386-401.

[10] Return to footnote 10 Dixon and Wittwer (2004, op. cit.), Forecasting the Economic Impact of the Industrial Stoppage Using a Dynamic, Computable General Equilibrium Model, Australian Journal of Labour Economics, 7-1, pp. 19-51 .

[11] Return to footnote 11 Alvi (2001), The Impact of Strikes on Canadian Trade Balance, Applied Economics Letters, 8, pp. 389-396.

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Date Modified:
2012-01-18