Why are there strikes?
The UAW at General Motors has gone on strike. But why are there strikes at all? John Kennan wrote (full text gated here):
There is no commonly accepted economic theory of strikes.
The main obstacle is that if one has a theory which predicts when a
strike will occur and what the outcome will be, the parties can agree
to this outcome in advance, and so avoid the costs of a strike..strikes are apparently not Pareto optimal, since a strike means that the pie
shrinks as the employer and the workers argue over how it should be
divided. If the parties are rational, it is difficult to see why they
would fail to negotiate a Pareto optimal outcome.
Hicks suggested two possible explanations for strikes:
either the union is trying to maintain a "reputation for toughness", or
there is private information on at least one side of the bargaining
The NYT claims that the union had to "draw a line in the sand." More generally, David Card wonders whether striking workers are forcing employers to reveal how profitable they are. The firm, if indeed it is profitable, will come back with a higher wage offer, but only if it’s hand is forced. Otherwise the union does not know how much surplus can be grabbed because the firm will not have to reveal it. Or can workers, using institutions and morale, somehow precommit to a resistance curve? Such a precommitment is optimal ex ante (it reaps a greater share of the surplus by conferring a bargaining advantage) but not always best ex post because gains from trade can break down. That is my guess in this case.
Perhaps Dave Ribar has the wisest comment:
The only "good" news (if you can call it that) is that GM’s
manufacturing workforce has shrunk so much that many fewer workers are
involved than in the earlier UAW strikes.
About 73,000 workers have gone on strike. Here is the decline of General Motors.