Sheena McConnell

First name
Sheena
Last name
McConnell
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.

Year of Publication
1987
Number
215
Date Published
01/1987
Publication Language
eng
Citation Key
Industrial and Labor Relations Review, Volume 44, No. 1, October 1990
McConnell, S. (1987). Cyclical Fluctuations in Strike Activity. Retrieved from http://arks.princeton.edu/ark:/88435/dsp019593tv13p (Original work published January 1987)
Working Papers
Keywords
Abstract

Private information models of strikes suggest that the
strike is used as an information revealing device by the union in
the presence of asymmetrical information. A testable prediction
of these models is that there is a concession schedule which maps
out a negative relationship between wages and strikes. In this
paper a concession schedule is estimated using a unique micro
data set of about 3000 contracts over the period 1970-1981.
Unlike previous wage determination studies, which use the
percentage change in nominal wages as the dependent variable,
this study uses the average expected real wage over the length of
the contract as the dependent variable as this is the wage that
is of interest to the negotiating parties. In order to estimate
the concession schedule it is necessary to control for all
observable variables which effect the level of wages and strike
activity. The most important determinants of the real wage are
found to be bargaining pair specific fixed effects and a general
time trend. Wage settlements at other firms in the sane industry
prior to the negotiations were also important. The estimated
concession schedule has a negative slope as predicted by the
private information models. The concession schedule is fairly
flat -— the real wage decreases by only 3% after a strike lasting
100 days.

Year of Publication
1987
Number
229
Date Published
12/1987
Publication Language
eng
Citation Key
American Economic Review, Vol. 79, No. 4, September 1989
McConnell, S. (1987). Strikes, Wages and Private Information: An Empirical Study. Retrieved from http://arks.princeton.edu/ark:/88435/dsp018w32r562w (Original work published December 1987)
Working Papers