Patrice Laroche, IAE Nancy School of Management
In France, more than 1.2 million people (2.8 million, according to trade unions) took to the streets against proposed pension reform on Tuesday, exceeding crowds galvanised by the first national day of strike on 19 January.
How might these strikes impact the economy and businesses, already beset by high inflation and low growth?
From a historical perspective, research shows that while industrial action may inflict short-term losses on the economy, it bears little influence on long-term growth. It is worth noting the number of strike days per 1,000 employees has fallen drastically since 1970, with growth tending to follow a pattern of its own, as shown below:
Overall, industrial action takes a toll on the economy only in the period during which it unfolds, and losses are quickly recuperated in the following months. From a macro-economic viewpoint, the impact will in fact depend on the action’s scale and duration.
For example, the November 1995 strikes against the austerity package known as the plan Juppé and its pension reform chipped away 0.2 points of GDP growth at the national level over the fourth quarter, even though the social movement lasted three weeks.
Demonstrations in November 2007 against the reform for specialised retirement regimes, whereby certain workers get bigger pensions and to retire earlier than others, brought out more people in the streets than in 1995 but lasted only 10 days. They similarly cut the country’s GDP by 0.2 points, a loss that would be fully absorbed afterwards.
We therefore see that while household consumption and productivity may slump at the time of the strike, these impacts do not last over time.
Foreign investors still present
Contrary to what one might think, walkouts have little effect on France’s attractiveness to foreign investors. Long-term data on strikes and foreign direct investment (FDI) flows shows incoming capital is not proportionally lower than that observed in countries even 10 or 20 times less prone to strikes such as Germany or Spain.
Take the 2010 strikes against the pension reform led by Éric Woerth, which saw a turnout of over 1 million people. Data by the Organisation for Economic Co-operation and Development (OECD) shows they did not precipitate a decline in foreign direct investment. On the contrary. FDI in France was the equivalent of $14 billion in 2010, and just a year after the strikes, inflows more than doubled to almost $32 billion, and then rose again to $34 billion in 2012.
Where strikes do hurt are businesses, which more likely to suffer losses, especially when they’re directly affected – for example, in the transport or industrial sectors.
First, walkouts impact firms’ production and therefore economic performance. Transport companies regularly experience strikes that directly affect their economic results. Thus in October 2018, strikes in France’s rail and air sectors reduced the volume of market output in transport by almost 2% and in particular passenger transport (-6.5%).
More specifically, the 15-day strike at Air France cost the airline almost 335 million euros. In addition, strikes can also disrupt facilities such as fuel depots, rail hubs and even ports, blocking supply routes and indirectly affecting all businesses.
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According to the French National Institute of Statistics and Economic Studies (INSEE), strikes in refineries last October caused industrial production to fall by 2.1%, and every economic sector contracted in parallel. In addition to the industrial sector, strikes in transportation (SNCF, RATP, Air France, etc.) often weaken all tourism-related activities such as the hotel and restaurant industry, or crafts and trade.
Finally, company output may be impacted by changes in working practices or wages made in response to strikers’ demands. This is the case when a labour action results in agreements financing personnel costs that are not always compensated by productivity gains.
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In a context marked by high inflation, we have seen a rise in wage demands in a number of companies for several months. For example, last October the General Confederation of Labour (CGT) called for a strike at Geodis, a logistics and shipping firm that is part of SNCF, the national railway company. The union’s demands included a 4% wage increase and a year-end bonus. After approximately a month, an agreement was reached and the strike was called off.
Workers have tended to resort to strikes less frequently in recent years, however, and their effects are certainly less marked than before. Several explanations have been put forward, including stagnating union membership rates, the transformation of the world of work in the wake of deindustrialisation and the rise of the “gig economy”, mounting unemployment, as well as employees’ reluctance to suffer the financial cost of striking. Other potential factors include remote working, which does away with the inconvenience of transport and de facto reduces the impact of the strike on public opinion.
The political scientist Tristan Haute has nevertheless nuanced this idea by revealing that remote workers participate as much as the others in collective actions despite their increased social isolation on a day-to-day basis.
Does strike action make you more productive?
Industrial actions can also point to a lack of cooperation. Strikes tend to reflect low worker satisfaction within a company, which can manifest itself through low morale, high absenteeism or refusals to cooperate voluntarily with the employer. From this perspective, strike action can result in a boost to labour productivity by resolving certain conflicts and thereby improving employee morale and cooperation.
By contrast to temporary (absenteeism, self-sabotage, indiscipline, etc.) or permanent (resignations) “exit” options, research shows employees who have a say in their workplace enjoy higher levels of job satisfaction and investment.
The economist Jérémy Tanguy notes that in France, strikes have a non-linear impact on labour productivity: social movements have a positive effect at first and then decrease, or even become negative, after a certain number of strikes in the company (which he estimates at five per year). According to the researcher:
“This positive effect of a moderate frequency of strikes on labour productivity can be interpreted through their role in providing a mechanism for collective expression, which is supposed to be beneficial for the cooperation and effort of employees in the company.”
These initial results in the French context, which are rare in the scientific literature, now need to be studied in greater depth and analysed over a longer period of time.
In the end, strikes have limited effects on economic growth because the lost activity is quickly made up in the months following the work stoppages. The situation is different at the micro level where some companies may suffer serious economic losses. However, contrary to popular belief, the consequences of strikes on company productivity are not systematically negative.
Patrice Laroche, Professeur des Universités en sciences de gestion, IAE Nancy School of Management
This article is republished from The Conversation under a Creative Commons license. Read the original article.