Cyclical Fluctuations in Strike Incidence and Duration

Abstract

This paper explains procyclical strike incidence and countercyclical strike duration in an asymmetric information bargaining model by focusing on the distinction between the cyclical and noncyclical parts of bargaining cost. Strike duration is inversely related to the interest rate which is the marginal cost of a strike continuing for one more period relative to the size of the rent to be shared by the firm and the union. Therefore, countercyclical strike duration can be explained by the procyclical variations in the interest rate. If there exist noncyclical fixed costs of strikes independent of strike duration, then an increase in the rent reduces fixed cost of a strike relative to the size of the rent and hence increases strike incidence. Therefore, procyclical strike incidence can be explained by the existence of noncyclical fixed costs of strikes.