Bargaining Theory, Inflation, and Cyclical Strike Activity in Manufacturing

Abstract

This paper presents a theoretical and empirical analysis of cyclical movements in strike activity. The first part of the paper develops a bargaining model that demonstrates the crucial role of limited information as a cause of strikes. This model is believed to be an improvement over others because it allows for maximizing behavior on the part of both the union and the firm and it explicitly incorporates the interdependency that exists between the concessions of one side and the demands of the other. The second part of the paper uses this model to show how inflation may cause a systematic cyclical movement in strike activity. This analysis is developed for both the case of rational price expectations and that of adaptive price expectations. In the final section of the paper a series of fourteen hypotheses, developed either from the author's model or from previous studies, is tested through a regression analysis of strike data for American manufacturing over the 1954–75 period. The results show, among other things, that inflation has been responsible for much of the increase in strike rates experienced in manufacturing in the 1970s.