Reports
GLOBAL REPORT ON INDUSTRIAL DISRUPTIONS
IN MANUFACTURING SECTOR

INDEX

Section 1 - Introduction
Section II - Summary Report.
Section III - Global Differentials
Section IV - Global Trends
Section V - Economic Impact.
Section VI - Conclusions

Appendix 1 - Technical Note.
Appendix 2 - Tables of Frequency, Participation, Mandays lost, Duration measures And Economic Impact
References

SECTION-I    INTRODUCTION

1.1) Industrial competitiveness in a globalising economy is determined, among others, by cost advantages, quality, reliability, assumptions about the continuity in the flow of resources and the nature of infrastructure support. These are the foundations on which several other strategies for competitive advantage can be built upon. Successful focus strategies, product-market differentiation, dynamic management of product life cycles etc., are all dependent on the existence of an enabling industrial relations system, as a "hygiene factor". In fact, advanced techniques of human resource development may not add value to a dysfunctional environment and instead attract cynicism and prove cost-ineffective.

1.2) An economy whose industrial relations system implies strife, unpredictability and disruptions to on-going industrial activity, will obviously suffer a negative trade-off with its competitiveness in the global arena. This trade-off, which is both quantitative as well as qualitative, will be more apparent amongst nations which are intensely conflict prone than the middle ranking ones or those with little apparent strife. As all conflict is not necessarily dysfunctional or concentrated in core sectors, it is very well possible that certain profiles of industrial disruptions due to strikes and lockouts will have no negative trade-off with competitiveness. However, this is no comfort at all for those industry segments which are on the threshold of experiencing global competitiveness in home markets and do not have the competitive cushion/leadership to absorb the negative impact of high propensities of industrial disruptions. Obviously, global competitiveness of nations is far more complex than that portrayed by the annual reports made on the basis of several questionable assumptions - industrial relations is just one input in the complex web of determining factors. We also know that nations do not compete but the industries in them do. However, the industrial relations driven risks of each nation have an inextricable linkage with the competitiveness of its industries. Higher the propensity for disruption, greater should be the off-setting effort. Though there is pressure for a unitary approach for labour standards, obviously, there is hardly much scope for achieving commonality in the industrial relations conditions of different countries. In fact, the differences in the systems amongst nations and amongst industries may have a queer advantage in the long-run of creating scope for creative product/service competition.

1.3) Though, conflict is innate to industry and at times considered useful, there is always an attempt to keep it at the lowest levels possible and through varied intervention mechanisms. What type of industrial strife and at what levels and in what type of economic activity are acceptable is a matter of speculation. Intuitively, however, there is always a preference to belong to that group of nations which indicate low levels of industrial strife even while protecting the larger human rights.

1.4) Measurement of any dimension of industrial disruptions is replete with statistical issues and methodological concerns despite which an assessment becomes imperative in the context of both competitiveness in domestic and global markets as well as its possible trade-off with issues relative to human development.

1.5) Bankers, financiers, traders and insurers have traditionally relied on several common factors for risk weightages and hedging prepositions but have not loaded the propensities for industrial disruptions as a potential factor. An assessment, howsoever crude, will be useful from their view-points as well.

1.6) This report attempts to understand the range of differentials, trends and economic impact among nations in the manufacturing sector for the period of 1986-95. It compares about 32 countries across the globe using varied dimensions of industrial disruptions such as frequency, participation, mandays lost and duration after standardisation. The report adopts a pioneering methodology to estimate the economic impact in the countries under study using measures of foregone gross output, foregone value addition, foregone salaries and importantly, the estimated impact on manufacturing GDP. The report also compares, where appropriate, the position in the immediately preceding years (1980-86).

 

SECTION-I   SUMMARY TABLES

2.1) The Summary Report in this section would give a quick understanding of the ranks of countries under each of the five dimensions studied as well as the composite ranking. The other tables would indicate the comparative position of the countries studied in frequency of industrial disruptions per 1000 employees; mandays lost per 1000 employees; number of Employees participating per 1000, the average duration of each disruption and the economic impact. This is in respect of manufacturing sector and for the period 86 - 95.

2.2) It is necessary to caution the readers that the report does not encourage value judgements as to the responsibility for such disruptions, as the statistics include both employee as well as employer sponsored actions. Further, the methodological issues, the assumptions and the theoretical discussion on economic impact are to be kept in view. It is recommended that the Technical Note in Appendix-I is particularly studied.

SECTION-III    DIFFERENTIALS

3.1) The measures selected for estimating the international differentials are the frequency measure (industrial disruptions per 1000 employees), the loss measure (mandays lost per 1000 employees), the participation measure (employees involved per 1000) and the duration measure (given by dividing the mandays lost with the employees involved). As the manufacturing sector is the most unionised in several countries, and also as the employment statistics are known to be more authentic for this sector, the differentials have been analysed for the manufacturing sector only.

3.2) It is seen (Appendix-1) that the frequency of industrial disruptions varied from 0.0009 per 1000 employees in the case of United States to 2.6 in the case of Peru. Of the developed countries, Finland, Denmark, Australia and New Zealand have fairly high frequencies. While Canada was moderately high in its frequency, its neighbour the USA, was at the bottom. USA, Austria, Switzerland, France, Netherlands and Norway were the developed countries figuring lower than Japan in their frequencies. Egypt, Hong Kong, Malaysia and Thailand also ranked lower than Japan. India ranked 23 among the 33 countries. The UK ranked far lower than Israel and is just below Ireland. The noticeable bunches were in respect of New Zealand and Australia in the Oceana region; Hong Kong, Malaysia and Thailand in Asia, India and Sri Lanka in S.E Asia and Denmark and Finland in Europe.

3.3) In respect of the mandays lost for 1000 employees, Peru ranked the highest with India taking the second spot. New Zealand, Canada, Australia, Finland and Ireland were all in the upper half of the list with the US figuring in the second quartile. Japan ranked lower in this measure compared to the frequency measure.

3.4) The change in ranks between the frequency and loss measures can be explained by the number of employees involved and the average duration of the strikes. Indirectly, the measure of mandays lost per employee involved may be treated as an explanatory variable for shifts in the ranks in the former two measures.

3.5) The intensity of participation in industrial disruptions has varied under 1 to over 500 employees per thousand. Peru followed by Australia, Finland, Zambia, Denmark and India show the highest intensity. Hong Kong, Egypt, Austria, Switzerland, Malaysia and Japan show the lowest participation levels while most countries in Europe and America are middle ranking in the range of 7 to about 25 employees per thousand.

3.6) The top slots for average duration of disruptions were taken up by Panama, Austria and India. Though the U.S.A ranked the lowest in frequency, the duration measure has seen it in the fourth rank with Ecuador and Canada following. Thailand also ranked fairly high in the duration measure compared to its rank in the frequency measure. The duration in respect of Germany, Italy, France, Portugal are under 2 days while most number of European countries are under 6 days. The striking feature is that most countries have a duration of less than 5 days. As against figures of under 3 days for several countries India has a phenomenal figure of nearly 47 days.

3.7) The differentials observed in the three measures did not follow any geographical, developmental or other such logic though some lump was discernible especially in respect of the NICs in frequency. The lumping was, however, disturbed in the duration measure. Similarly, while New Zealand and Australia were close in the frequency measure, they went apart in the duration measure, while USA and Canada which were highly diverse in the frequency measure came together in the latter measure.

3.8) It is difficult to choose one measure as more representative of the industrial disruption over the others. If the mere occurrence of the event is of importance, then frequency should be given greater weightage. However, as economic impact has acquired importance in the face of developmental concerns and competitiveness, the mandays lost measure should be of greater relevance followed by the duration measure. It is known that short occurrences of disruptions with limited number of workers involved have very little impact the production compared to long duration disruptions with a large number of workers involved. Though this is better evident at the micro level studies of individual disruptions, the aggregate data on mandays lost along with duration probably reveals the comparative propensities among nations to incur economic sacrifice.

3.9) Explanations of international differentials have been rather limited, and mostly focused on a few developed countries. These can be broadly categorised as "Institutionalist", "Political" and "Economic" in approach. The Insititutionalist approach believes in the primacy of collective bargaining process and the connected institutional mechanisms/structures as being the explanation for the differentials. However, this approach can be faulted mainly because it ignores the political variables and the informal/unofficial relations which are important factors in several other countries.

3.10) The political approach considers the role of the state, power structure in the society, labour's nexus with political parties etc., as being the major explanatory factor. This approach served well in explaining the differentials in a relatively short period between two or three countries, where possibly the political factors were predominant.

3.11) The most popular approach for explaining the trends as well as differentials has been the economic one. Starting with the early studies regarding the association of business cycles and strikes, there have been several studies, in the seventies and eighties mostly examining the UK, the USA and Canadian data . A few of the studies had attempted at combining the political variables with the economic ones to explain the uncaptured variation. However, except for one, which covered the non-Communist OECD countries, these studies had analysed a single country or at the most a few of the developed countries.

3.12) Considering the diversity of nations in this study and their socio-economic, cultural and political settings, it would be imprudent to adopt any of the above approaches. On the other hand, whether it is for explaining a single country or a multitude of them, the levels of strikes and their variations must be seen as the outcome of interactive forces and the dynamic changes in the factors which comprise these forces. Drawing upon the explanations (direct and indirect) available from various studies, there appear to be five basic forces determining the strike activity in a country- these are Institutional, Structural, Social/behavioural, Political and Economic. Illustratively, the factors under each of these forces are:

Institutional
Inter-union situations
Employer`s internal power structure
Levels & Intensity of Bargaining Relations
Dispute resolution machinery & its effectiveness Union security

Structural
Structure of Organised sector
Degree of Concentration/dispersion
Size of firms/unions
Nature of Technology
Structure of unions
Structure of employers

Social/Behavioral
Concept of work, loyalty, nationalism
Social Acceptance of Strike activity
Ethnic/class cleavages
Level of social strife
Individualism vs unionism

Political Forces
History of Labour Movement
Existence of Labour Party
Political nexus of unions/employers
Extent of State intervention
Availability of social security
Responsiveness of judiciary

Economic
Level of unemployment
Growth of real wages
Rate of inflation
Level of profits
Growth of informal/tertiary sector
Llevel of savings
Investment Growth
Employment growth

3.13). The factors in each of these forces could be many, but a few of them obviously would be the more important ones at a particular period. The general level of work stoppages (industrial conflict) in a country is the out come of the basic configuration of forces and is unique from other countries. The variations in the factors determining these forces cause the short-term variations and cycles. There is a possibility of dramatic changes in the configuration of forces (Eastern Europe and CIS, for example), but it is expected that the configuration is relatively stable except for the variations influenced by the dynamism in the factors. It was for this reason that the relative rank positions within a measure are statistically stable among nations. It is indeed a moot point as to how the industrial disruptions can be contained/arrested, as changes in one set of forces may affect others - some bringing about synergetic impact while others inducing off-setting behaviours. Under conditions of economic crises many countries have tried to use the institutional mechanisms (for example, compulsory arbitration) or political forces (assuming greater powers by the State to ban disruptions) to contain industrial disruptions. They have indeed worked in the short run but the long term impact of such measures are yet to be grappled.

SECTION-IV    TRENDS

4.1) Do the industrial disruptions due to strikes and lock-outs decrease or increase over the years? Though there has not been any firm conclusion in recent years, there was a dramatic conclusion arrived at in the 60's that "strikes are withering away". The basis for this conclusion was a study of fifteen countries by Ross and Hartman who also ventured at possible reasons for industrial actions going out of fashion.

4.2) In summary, the first was the belief that the employers have adopted more conciliatory approach to labour and have truly internalised the welfare concept as against the traditional commodity concept. Secondly, it was their belief that the State has been increasing its role as an employer, planner and settler of disputes the net effect of which was to dampen the prospects of industrial disruptions. Thirdly, the unions were believed to have been realising the expensive nature of strikes and started exploring other less expensive alternatives to realize their objectives. Lastly, they also wondered if the workers also have been tending to abstain from the traditional methods, especially in the context of raising incomes and the increasing proportion of women and white-collar employees who , they believed, were less prone to strikes.

4.3) The above argument sounded logical but did not prove to be right both in methodological rigor as also the reality in the following years. The latter part of sixties and seventies were full of industrial disruptions and these years saw new heights. Thus, many tended to believe that there would probably be waves of such actions, a decline followed by severe increase. However, studies of several countries during the 80`s have revealed some possibilities of decline. A study of the period 1980-1987 indicated a decline in the averages of 27 out of 33 countries.

4.4) Earlier, the World Labour Report of 1985 recapitulated the Ross and Harman study while checking the trend. It commented " No basic trend can be detected either towards an increase in the number of disputes or towards the reduction predicted by Ross and Harman in 1960. If only the industrialised market economies are considered - and they are practically the only countries for which available statistics cover a long period - it does appear that the late 1940s were rather agitated, that there was then a comparatively calm period up to the end of the 1960s and that the years from 1968 to 1972 were particularly turbulent. Contrary to what might be expected, the crisis that started in 1973-74 did not immediately result in a sharp reduction in the number of working days lost. The number was lower than during the period 1968-72 but above the level of the 1950s and 1960s. Between 1973 and 1980 questions concerning security of employment gave rise to an increasing number of disputes, some of which have been particularly long and severe and at times assumed new forms such as the occupation of a plant. The reason is probably that inflation, the recession and unemployment have often affected the most vital interests of the parties and thus led them to adopt intransigent attitudes. However, during the past two or three years the number of working days lost has fallen appreciably in a good many countries. This may well be due to the prolonged crisis, although events are still too recent for a confident assertion on this matter".

4.5) The recent World Labour Report (1997-98) addressed the theme Industrial Relations in the context of democracy and social stability. Interestingly, the report indirectly points to several factors which seem to be contributing to the decline in union densities as well as to a refrain from industrial actions. In some ways it appears to reflect a modern view point of the Ross and Hartman argument such as the change to welfare concept, the increasing role of the State, the adoption of alternative methods of dispute resolution etc. The report believes that "The internationalization of the economy, whether as present fact or future potential, has a clear impact on industrial relations. It certainly seems to contribute, however indirectly, to the weakening of the trade union movement in several countries". The report notes the changing role of Government and the nature of social dialogue throughout the world even if unique to each country. It notes the changes in the enterprise level industrial relations everywhere driven by the " idea that cooperation between employers and workers helps increase output and productivity". It also notes, "These developments are not entirely free of paradox, however, when the desire to involve workers in the decision-making process happens to coincide with less job security for some of them. Hence the re-emergence, for this reason especially, of serious industrial conflicts in such countries as France, Germany and the Republic of Korea." The report further states that "..it is clear that (a) managers have effectively taken the initiative in reshaping industrial relations in the workplace; (b) almost, everywhere, individual firms are tending to exert greater influence in the conduct of industrial relations and in personnel management decisions, while obviously also responding to the specific demands of employees as they arise; and (c ) companies must more than ever, be seen in a supranational context.". The report has, however, refrained from analysing the trends or venturing with a prognosis on industrial actions.

4.6) The current study comes against the background of much ambivalence and indicates a trend of decline in several countries. Combined with the analysis of an earlier study covering the same countries for the period 80 -87, it is almost conclusive that the Ross and Hartman assertion which has been misplaced both on methodological grounds as also due to the subsequent events may after all be true now, whatever be the current reasons. The tenor and discussion of the recent World Labour Report lends support to the possibility of a general decline in industrial stoppages in most countries.

4.7) While this may be good news in general, it hardly brings joy to those countries which are severely prone to industrial disruptions. Further, such countries may experience backlashes of crises followed by peace and vice-versa far more easily than the others. The current study has used the four measures mentioned earlier in analysing the trends for the selected countries and restricting to manufacturing sector.

4.8) In respect of frequency, it is noticed that out of the 32 countries studied , 26 countries indicated negative growth; the remaining 6 countries with positive growth rates were Egypt (22%), Austria (16%), Sri Lanka (26%), Portugal (5%), Zambia (20%) and Denmark (8%). The declining trend in frequency was noticed in 27 out of 33 countries studied for the period 1980-1987 and this trend appears to be unabated for the current period of 1987-1996. Of the countries showing increasing frequency during the earlier period and the current only Denmark shows a continuous increase.

4.9) There is no specific geographical logic that could be attributed to the trends observed, except for the lumping of Hong Kong, Malaysia and Thailand; France, Netherlands and Norway ; Sri Lanka and India; Denmark and Finland. The Oceanic region of Fiji, New Zealand and Australia also appear fairly similar in the extent of frequency. The lumping may indicate a geographical logic combined with some proximity of economic policies as well but such an assertion would be misplaced as there are just as many indications of diversity too. 4.10) In respect of the participation measure, (workers involved in industrial disruptions per thousand employees) also, it is noticed that 21 countries out of 32 analysed indicated negative growth. The decline had been particularly pronounced in the case of Norway (-46%), Mauritius (-28%), New Zealand (-26%), Korea(-22%), U.K (-21%), Sweden (-20%), Ireland (-20%), Peru (-18%) , Finland (-17%) and Japan (-14%). Of the countries indicating positive growth in participation, Panama (32%), Zambia (23%), Egypt (21%) and Austria (20%) are outstanding with high rates.

4.11) The mandays lost measure indicates a similar predominance of decline, in 21 out of 32 countries. The number of countries which were experiencing a growth in mandays lost was higher than that observed for workers involved and Industrial disruptions measures. Among the countries in which the mandays lost had declined, the most outstanding were Norway (-47%), New Zealand (-35%), Sweden (-27%), France (-26%), Israel (-24%), Hong Kong (-24%), U.K. (-24%), Philippines (-22%), Mauritius (-22%), Peru (-21%), Ecuador (-17%) and Japan (-16%) . The highest growth had been in Zambia (36%) with Switzerland, Mexico and Germany following.

4.12) In respect of the duration 22 out of 33 countries have shown negative growths. Panama, Peru, Nigeria, Israel, France showing strong decline ranging from 24% to 11% . Those which have indicated positive growths in duration are Mauritius(19%), Finland(16%), Zambia(23%), Pakistan(5%),India(3%) with a few others following.

4.13) The patterns evident from the study of the four dimensions give strong evidence of Industrial disruptions continuing to decline during the 90s. However, extrapolations would be meaningless, despite statistically significant correlations in several countries, for two reasons. Firstly, the studies conducted so far, both international as well as national, proved that predictability was difficult in respect of individual countries, because the dynamic nature of the influencing factors in the respective countries seemed to reverse the trends periodically. Secondly, and in support of the above, the rates of decline in some countries were so high that, if the trends were to have continued, there should be no Industrial disruptions at all in these countries - this counters reason. (There could be a possible third reason as well in respect of some countries which have given only provisional / incomplete statistics for the more recent years thus artificially dampening the trends). Nevertheless, what could be asserted is the fact of a declining trend during the 80s & 90s in most parts of the globe.

4.14) That it is vain to predict the future of industrial conflict is probably captured well in the concluding observations on the subject by A.M. Ross himself almost four decade ago. "... neither is it possible, to foresee the exact character of the social and political developments which will occur as technology, power relations, concepts of equity, and methods of prosecuting conflict change... Tell me whether or not peace will be kept, economic stability maintained, and democratic values and institutions largely preserved, and I will make a prediction as to the future course of labour-management conflict. Otherwise I prefer to wait and see".

SECTION-V   ECONOMIC IMPACT

5.1) The net impact of industrial disruptions in economic terms is difficult to estimate in view of the overwhelming number of variables that need to be identified and quantified. This problem is compounded the moment a social-cost-benefit approach is adopted, as there are both cost and benefits associated with such actions, occurring not merely in the firms affected, but also at different points of remoteness to it. Before exploring the magnitude of economic impact in different countries for the period under reference, the complexity of the problem is necessary to be grasped.

5.2) The methodology adopted in this report which is unique, undertakes a theoretical description of possible impact from the perspective of the staff, the organisation, the public and the economy, finally measuring the impact in quantitative terms. The quantitative expression of damage due to industrial disruptions is in terms of estimated gross output foregone; estimated value addition foregone; estimated wages un-earned and finally, the estimated output foregone as the percentage of manufacturing GDP.

5.3) Impact on staff: The primary impact on the employees is determined by whether the remuneration for the disruption period is totally lost, partially lost or not lost at all, and the benefits out of the eventual settlement. The benefits may be one-off or spread over a period; in the latter case it should be appropriately discounted. On the other hand, if the disruption has been on the basis of a non-wage issue (for example dismissal of an employee, inter-union rivalry or sympathetic gesture), the benefits would be difficult to estimate except in psychological or sociological terms.

5.4) The direct cost to employees is by way of loss of remuneration (it normally would include all benefits, direct and indirect, including overtime), and the indirect cost is psychological/motivational. Apart from the employees themselves, members of their households are also known to be affected as they may be compelled to cut down expenditure and dig into their savings. It is also possible that part of the remuneration which is immediately lost, is made up subsequently by some sections through additional overtime earnings due to stepping up of production. It is known that in some organisations, the operating supervisors are under pressure to let workers make up the loss through overtime. Where there is strike pay through union funds, the workers may not be worse off to that extent, but the union would be. Similarly, if the management were to pay wages for even the disruption period, the striking workers would be better off but the company would be worse off. If the operations of the firm were continued during the disruption through additional efforts of managerial staff, the latter would be worse off to the extent of their additional efforts for which there was no compensation.

5.5) A survey conducted in Britain gave evidence of net gain to workmen on account of some disruptions if reckoned over a period of time. However, there was loss in most cases, immediately after the action. The estimation was based on the final offer of the employer and the actual settlement, reckoned over a period of time, and this was compared with the net loss to the employees. The study treated the loss in earnings as an investment and indicated a pay back period of three years in the case of the Chrysler Dispute 1973, one and half years in the case of the Dunlop strike in 1975, and over 3 years in the case of the Chamberlain industries dispute, 1977, for male workers.

5.6) Similarly, a study of a sample of disruptions in the Vancouver region in North America concluded that the net benefits has been positive for workers in most of the disruptions studied. However, such studies have not dealt with the vexing aspects of non-wage disputes and intangibles, and also used doubtful assumptions. For example, if the final offers of the employers had been deliberately restrictive, seeing the inevitability of strike, then the benefits calculated would be illusory.

5.7) If the disruption or the lockout is a failure, the impact on the respective parties would have to reckon the non-monetary impact also which may far outweigh any possible monetary gain. For instance, the organisation may take disciplinary action against some, or make them fulfill certain special conditions. The disruption failure would also affect the future bargaining power of the workers.

5.8) There are occasions, though rare, when managements instigate an illegal disruption (mostly because of high stock levels/low demand conditions) and in such instances, while there is loss of welfare to the staff, there is gain for the managements as they might save on payment of wages, partly or wholly.

5.9) The level of wage settlement and the conditions under which the settlement was arrived at, have an implication for the remuneration of the non-bargainable staff. If a settlement was arrived at consequent to a successful disruption, it is likely that the management was made to concede far more than its optimal level, and consequently, the normal revisions for the non-bargainable group may take either of two possible directions. If the wage relativity is sought to be maintained by the management, the non-bargainable group would be benefited by the strike-led settlement for the employees. On the other hand, if there is a financial constraint for the organisation, a higher settlement for the employees may induce a disturbance in relativity, as the increase for the non-bargainable group may be less than commensurate.

5.10) There is also the likelihood of impact on employment, especially if disruptions are seen as a long-term continued risk in the industry/firm. Organisations may shift the proportion of bargainable to non-bargainable categories in favour of the latter, engage contract labour, farm out activities and resort to labour saving strategies (automation), thus affecting the employment and progression potential for the bargainable groups.

5.11) Impact On the Organisation: The primary impact on the organisation would be the stoppage or reduction of production and/or services. (There are some cases where the production may be carried on under disruption conditions without any loss or reduction, but generally, this works during short duration disruptions than prolonged ones). A related cost to the production foregone is the cost of stopping and starting operations which could be fairly substantial in some process industries.

5.12) Further, if the production unit under disruption has enough market stocks to last the disruption, and if the stock levels can be brought back to the same level in due course, the cost may not be substantial. On the other hand, if the production loss has an impact on the market availability of the product, then the market behaviour would be important. If the product is not quickly substitutable with another product or brand, and the need is fully deferred by the consumers, then the production may well not have been lost, (especially if it can be made up subsequently) as the consumers would be waiting for the resumption of sales. Contrarily, if the product is deferrable from the consumers' viewpoint, or if there are good substitutes available, the production loss would be equivalent to foregone sales (take the case of a strike in fertilizer or pesticide units in agricultural season). An additional impact, for some units, would be when there are long drawn strikes under such conditions as above, which may result in a shift in brand loyalties, at least for some time (take the case of strikes in cigarette manufacturing companies). This would result in a loss greater than the immediate loss in production.

5.13) Concomitant with the loss of production, there would be an impact on the suppliers of raw materials and services. A firm which is not operating during the strike may have to suspend purchase of raw material, and the suppliers' behaviour towards the firm would be contingent on the availability of alternative customers and the cost of switching. It is possible that suppliers would prefer to have relationship with a firm which is predictable than one which is erratic, and it is appropriate to assume that a firm which is stricken by work-stoppages may either have to pay better terms as a trade-off, or go to less reliable suppliers. In addition, there could be some raw materials having short-shelf lives, and the cost of these losses must also be reckoned. In industries such as food processing, beverages and some pharmaceuticals, the impact of this loss could be significant, especially if the duration of the strike is long. If there is an environment of work stoppages, (for whatever reasons) efficient management of materials gets to be difficult and the concepts of just-in-time procurements would be very distant for practice.

5.14) Reckoning the price behaviour, a loss in production may not necessarily mean a commensurate reduction in profitability. Under close demand - supply conditions, a strike would evoke a possibility of fall in supply, and the behaviour of some manufacturers could be to increase the prices, and the net revenue earned may exceed the actual loss in production. (In some cases, the increase in prices is unofficial and may not be fully reflected in the books). Often, the retailers and distributors are the main instruments/arbitrators governing the price behaviour, and it is possible that the gains from such situations are more with them than the manufacturers. To an extent, this is visible during the initial stages of some strikes where the very information jacks up the prices of the concerned brands to the extent the consumer is price indifferent.

5.15) The other condition when a stoppage may, in fact, result in a benefit is for firms which are making losses and need external support or government subsidies (some public transport corporations typify this situation). Also, under conditions when a project or a major order cannot be completed for technical/managerial reasons, and a disincentive is implicit, a strike may help in providing shelter under the force majeure clauses. It must, however, be noted that firms which have net gains out of a work stoppage evoke dramatic interest in the light of the in-built paradox, but such cases would be rare and unrepresentative of the net cost to the society. On the other hand, as will be shown shortly, the society's loss could be much more than the net cost for the direct parties in the conflict.

5.16) From the finance point of view, frequent work stoppages due to strikes or lockouts, reduce the credibility or rating of the firm with the financing institutions unless it is a country wide industrial action. Also, the share prices may be sensitive to major industrial disruptions. ( A study of the changes in share prices due to strikes between 1962 and 1982 in the USA, revealed that on average strikes resulted in a drop of stockholders equity by 4.1% or about $72-87 million in 1980 prices) .

5.17) Further, if the strike disrupts repayment schedules, the cost of credit may escalate more than proportionately. Industrial actions are normally not taken into account while preparing the feasibility reports for ventures, and the cost of strikes are generally outside the reckoning of normal financing/ working capital management.

5.18) In the case of firms which operate under government instituted subsidy systems (fertilizers in India, for example) strikes may result in production/capacity utilisations below the specified norm, and the financial loss may, under some conditions, be higher than that attributable directly to the production forgone.

5.19) The impact of strikes is far more telling on the smaller firms than the larger firms because of the tenuous existence of most small units. In the case of those at the margin of survival, strikes may push the units to sickness/closure, though such eventuality should be rare considering that the workers would not be prepared for such a major sacrifice in employment.

5.20) The behavioural patterns in the organisations undergo a stress during the industrial disruptions and there are possible behavioural costs. For instance, substantial productive time may be lost by staff in discussing the possibilities of industrial action, strategies, counter-strategies, opinions etc., and there is no way of estimating the cost of this. Under such situations, the personnel and industrial relations managers are known to step up their fire-fighting activities, and relegate positive developmental interventions to the background. Normally, strikes induce a suspension or retardation in positive human resource development (flexible teams, quality projects, job rotation, multi-skill training, open appraisals, job redesign, etc.,)

5.21) Frequent disruptive situations would possibly affect oranisational ethos, breeding unorganised conflict such as absenteeism and indiscipline. Though there has been a controversy whether high degree of organised conflict implies lower level of unorganized conflict ("alternative" conflict), on balance, evidence from the UK appears to support the other argument that organised conflict is positively associated with unorganised conflict (" additive conflict").

5.22) Some reckon the settlement consequent to a disruption as an additional cost because the increase in wages, or an improvement in working conditions, will increase costs. This argument assumes that a firm has to forego a part of its profits on account of increased wage bill. If the firm can pass on the additional cost to the consumer, (the demand for the product being relatively price inelastic), or if the firm can reduce employment commensurately (there being such a possibility), the firm may not be worse off but there would be reduction in welfare elsewhere. However, there are at least two reasons why this argument may not be valid:

(a) all industrial actions are not on account of wage related demands, and

(b) it is not as though wages and other conditions would be stagnating in the absence of disruptions, because even under normal circumstances, pay rises are periodically effected. Consequently, the differential between what would have been an objective settlement vis-à-vis the one consequent to a precipitated action, is the point to be considered. This could be a net cost to the organisation if it were made to concede higher demands than otherwise.

5.23) Alongside such costs, there are some possible intangible and indirect benefits for the organization. It is believed that disruptions could serve as a relief valve for emotional build-up, strengthen unionism, and more importantly, generally serve as an agent of democratic social change. Further, productivity may improve shortly after a disruption, even if for a short period.

5.24) Impact on Related Firms and Public: The public is affected in different ways and at different degrees of remoteness from the concerned organisation. The effect on public (according to Chamberlain & Schilling) is determined by

(a) the cultural necessity ( how important or central is it to the community - say, water supply at one extreme versus cinema at the other)
(b) the level of stocks ( if the stocks are sufficient to last through the disruption, there should be no net impact), and
(c) how far the product is substitutable ( if they are sufficient alternatives to the product, and production capacity is available at the aggregate level, there should not be much impact). In a way, special restrictions or obligations imposed by Governments' in respect of essential services and crucial industries, must logically reflect the relative impact on the society (in the Government's view) consequent to which these restrictions are envisaged under law.

5.25) The public affected by disruptions are mostly other organisations, other workers and consumers. The organisations immediately affected could be those supplying the necessary goods and services, and those that buy the products or services of the affected firm. For instance, if there is a disruption in the thermal power generating organisation, all the companies supplying the important raw material (coal) and rendering services (railways, transport contractors, etc.) would be affected, because they are no longer in a position to render these, and consequently, they may have to reduce their levels of activity. A reduction in their activity would, in turn, affect adversely the suppliers of goods and services to these firms and so on. The ripple continues till some other adjustment (high demand/low stock level) renders the impact negligible for the supplier. On the other hand, if the product predicted by the struck firm is substitutable (take the case of the textile manufacturing firm), then it is possible that some of the suppliers would increase their supplies to other firms which have increased their operations, consequent to the resultant higher demand for their products.

5.26) It evolves, that competing firms manufacturing products substitutable to those of the affected firm would have a positive benefit, as also their suppliers who would benefit commensurately (economists' concept of cross elasticity of demand).

5.27) The impact on industrial/business consumers, would depend on the stock levels, and the estimation regarding the duration of the disruption in the producing firm. If the product is substitutable without financial sacrifice, there would not be any impact, but otherwise the impact could be severe, depending on its own stock levels.

5.28) The same would apply in respect of direct household consumers also. If the stock levels of the manufacturing firm, pipeline stocks in the distribution net work, and stock levels of the consumers themselves are sufficient, the impact would obviously be lesser. If the product or service is not easily substitutable, and if it is not deferrable, then the drop in welfare would be substantial. Even if there are substitutable products/services, the cost of such substitution may be high implying a worse situation. Similarly, there could be costs of deferring, though in rare cases deferring may bring in positive benefit (cigarettes, for example).

5.29) Employees in the firms supplying raw materials/services and consuming the product/services of the firm could be affected to the extent of reduction in employment opportunities through lay-off, retrenchment, overtime reduction, etc. iIf there are market restrictions on alternate supply or demand, as the case may be. For instance, a strike in 1960 by just 55 electricians at a component factory of the British Motor Corporation resulted in the lay-off of 24,000 workers, and halted car production at the Austin works at Long-bridge. Also, it was reported that in 1960 alone, 99,000 workers in UK were laid-off due to disputes in which they took no part. In India, the `97 strike by Air-Traffic Controllers has had down-stream effect on over-time and employment opportunities of casual/contract labour.

5.30) Impact on the Economy: The diverse nature of impact on different segments, different industrial groups and at different levels of remoteness from the firm makes an accurate estimation of the cost of industrial disruptions an impossibility. However, the general belief is that there would be a net loss in welfare.

5.31) Estimates of economic impact of industrial disruptions have been scant. A study of production losses in manufacturing in Canada in 1967 estimated the impact as 1% of GNP . In the case of Britain, an estimate of the impact of strikes in 1970 was 0.2% of GNP. Another estimate for 1972, the worst year in the decade, resulted in an output loss of about 0.25%. In some cases, estimates were made of a single strike on the economy. For example, it was estimated that a 58 day strike at General Motors, cost the US economy $7 billion in 1969 . A study of the 40 hour strike of Railways signal-men in USA in 1971 indicated a revenue loss of $ 12 million to $ 16 million, and secondary impact on agriculture of about $ 3 million apart from employment effects. More recently, the UPS disruption is supposed to have had a massive impact on the US economy with the loss of revenue to the company alone estimated at $650 million.

5.32) There are a few studies on the impact of strikes on output and productivity in select sectors, and they have suggested that the impact may be negligible, and often exaggerated. In general, the tenor of the discussions on the economic impact suggests a disposition amongst researchers to consider that the loss in GNP is not significant. Even so, J.W. Durcan et al cautioned against these "comforting numbers" giving three arguments - that the dislocative effects of industrial disruptions were seriously underestimated, that the psychological effects on managements were not reckoned, and that the global estimates ignored the concentration effects.

5.33) Accepting the impossibility of accurately determining the impact of industrial disruptions, a simple estimation procedure was adopted in the present study to give an indication of the loss in economic development, as also to make an international comparison of this loss. Due to data constraints, the estimation was limited to the manufacturing sector only. For obvious reasons, the average mandays lost was reckoned as the measure of disruptions. The figures of Average Wages per Worker, Average Value Added per Worker and Gross Output per Worker were collected (in $ terms and divided by 365 to arrive at the daily figures) from UNIDO publications for the manufacturing sector. These were multiplied by the average man-days lost to arrive at the average value added foregone, average wages foregone and average gross output foregone for each country for which data were available.

5.34) The gross output foregone was measured as a proportion of the manufacturing GDP as also the total GDP, to indicate the possible development foregone per annum during the period under review. Apart from the inherent problems associated with the reporting and compilation of such national level statistics, there are a few caveats.

5.35) Firstly, it is possible that some of the industrial disruptions did not actually result in any loss of production, value addition or wages. This would be true of the short duration ones, and those occurring at a time when the firm itself was unable to sell the products or carry on production due to other reasons. Further, in some cases, though there may be a loss in production at the unit level, its eventual impact at the industry level may be zero, especially if other firms have the capacity to make up for the loss, and if there was no other cost of such shift.

5.36) Secondly, the ripple effect of the industrial disruptions on its suppliers and consumers (especially of industrial products) was not reflected; and to that extent, the impact could be understated, as against the overstatement implicit in the earlier argument. (Estimation of the social costs and benefits were in any case neigh impossible).

5.37) Thirdly, each industry group has its own share in the GDP and this differs among nations. If industrial disruptions have been occurring most in those segments which do not contribute to GDP as much as the others, the economic loss assumed here would be an overstatement. The contrary condition is equally possible which would result in an understatement of the impact.

5.38) Fourthly, this analysis was limited to the manufacturing sector, and depending on the structure of the particular economy, the impact of all industrial disruptions activity would vary. Most countries indicate that the manufacturing and mining sectors have greater propensities for industrial disruptions in comparison to service sector. Consequently, the gross output foregone as a percentage of manufacturing GDP should not be extrapolated to suggest a loss in the same proportion in the other sectors.

5.39) As evident from the Annexure 11, India ($ 1236 millions) ranked the highest in the gross output foregone per annum followed by USA, Italy and Korea. Among Asian countries, Hong Kong, Sri Lanka and Malaysia had shown very little loss with less than $3 millions per annum. Japan and Philippines recorded a loss of $29 millions and $60 millions respectively. The African countries indicted fairly low levels of loss - less than $ 2 millions per annum. In the American continent, two countries posted losses in gross output, of under $7 millions per annum (Panama ($6.5 millions) & Ecquador ($15 millions). The United States, Canada and Mexico registered an average loss per annum of $1144, $485 and $185 millions respectively.

5.40) In Europe, Austria and Switzerland had shown a negligible loss of less than $0.25 millions per annum. Whereas, Italy ($730 millions) showed a high loss followed by United Kingdom ($186 millions), France ($85 millions)and Finland ($62 millions) per annum. In the Oceanic region, Australia and New Zealand recorded a loss of $135 millions and $53 millions per annum respectively.

5.41) In terms of value added foregone, United States ranked first ($529 millions) with Italy ($221 millions), India ($220 millions), Korea ($212 millions) and Canada ( $184 millions) following. Mexico and Peru had foregone around $ 80 millions per annum each. Amongst the least Egypt, Hong Kong, Austria, Malaysia, Fiji and Switzerland have recorded a loss of value addition of under $ 0.4 millions per annum.

5.42) In terms of average wages foregone also, United States ranked first ($ 235 millions) with Italy ($199 millions), India ($ 102 millions), Canada ($ 84 millions) following. Mexico and Peru had lost $ 16 millions and $ 14 millions respectively and several of the NICs had very little loss of wages.

5.43) In respect of the Gross output foregone as a % of manufacturing share of GDP, amongst the 22 countries for which the data could be analysed, it is noticed that India ranked first with a loss of 2.16% per annum and was followed by Peru (1.83%), Fiji (1.06%). For Japan, the loss was insignificant. Several other Asian countries such as Thailand, Sri Lanka had evidenced similarly lower impacts.

5.44) In the American region, Ecuador posted a loss of 0.56%, Mexico 0.35% per annum. In Oceanic region, Australia has a loss of 0.30%. In Europe, Austria suffered insignificant loss while Italy's loss was 0.32% per annum. Finland and France was just over 0.2% per annum while Sweden (0.15%), Denmark (0.05%), Netherlands (0.01%) recorded even lower values.

5.45) It is interesting to note that a similar analysis for an earlier period of 1980-86 indicated Philippines, India and Peru as the highest ranking in the gross output foregone as a percent of manufacturing GDP. In respect of the gross output foregone itself the top three rankers for this period were Italy, U.S.A and India. Though the inter-country ranking may have undergone some change between the two periods, there has not been any substantial shift on the whole.

Top Five

Gross Output foregone As a % of GDP - `80 -86 Gross Output Foregone As a % of GDP - `86-95 Gross Output Foregone - 80-86 Gross Output Foregone - 86-95
Philippines
Peru / India
Italy
New Zealand
Panama
Peru
India
Korea
Ecuador
Philippines
Italy
USA
India
Canada
UK
India
USA
Italy
Korea
Canada

 

Bottom Five

Gross Output foregone As a % of GDP - `80 -86 Gross Output Foregone As a % of GDP - `86-95 Gross Output Foregone - 80-86 Gross Output Foregone - 86-95
Switzerland
Malaysia
Mexico
Egypt
Netherlands
Switzerland
Austria
Hong Kong
Egypt
Japan
Switzerland
Egypt
Malaysia
Austria
Fiji
Egypt
Hong Kong
Austria
Switzerland
Malaysia

 

SECTION-VI   CONCLUSIONS

6.1) The eighties had experienced major developments on the ideological front, in globalisation and in competitiveness amidst economic difficulties, higher inflation, stagnation in employment and fiscal problems in several countries. The nineties have deepened the understanding and experience of globalisation with higher velocities of information , finance and technology flows, greater competitiveness in domestic markets due to liberalised economic policies and, further moves towards free-trade with the GATT agreements and the birth of WTO . All these, even as issues of human rights, human development and growing disparities in incomes, issues of fast changing competitiveness profiles and product market superiorities in different industry segments and glitches connected with economic reform process continue to daunt several countries, both developed and the developing. The newer concerns obviously reflect in attempts to bench-mark with others in several ways not merely as symbolic of the competitive spirit of the times but also because of the very need to be aware of other countries systems, experiences and their results. In this context an understanding of industrial disruptions amongst nations , a neglected area so far, becomes significant.

6.2) This study which compares the industrial disruptions in the manufacturing sector reveals that inter-country differentials, which may impinge on their over all competitiveness, are dramatically wide and also fairly stable over the years. For instance, in respect of frequency of disruptions per thousand employees the difference between the lowest and the highest is over 2800 times. Likewise, the difference in terms of mandays lost per thousand employees is nearly 10,000 times between Hong Kong which is the lowest to Peru, the highest. The countries which have shown high propensity for industrial disruptions are Peru, Finland, Denmark in terms of frequency measure; Peru, India, Panama in terms of mandays lost measure; Peru, Australia, Finland in terms of participation measure; Panama, Austria and India in terms of duration.

6.3) Such high propensities may not by themselves be affecting the attractiveness for foreign direct investments and trades in goods and services. However, where high levels of industrial disruptions are concurrent with relatively low levels of quality/value-additions and possibilities of product/service substitutabilities across nations, advantages gained, if at all, will continue to be tenuous. Though, it is a matter of speculation as to what levels of industrial disruption are acceptable, commonsense would probably indicate that benchmarking with the average amongst a referral group of nations would be sensible.

6.4) At the same time, the ILO has been reporting the reducing densities of unionism in several countries. The reasons would obviously be of speculative nature of which two cannot be ignored. The first one is the pressures of international competitiveness and economic difficulties which prompt the State and the public to exert direct regulatory pressures as also indirect nationalist sentiments to keep industrial strife under check, which in some ways could have an impact on unionism. Secondly, there has been an admitted weakening of ideological appeal in the labour movement, at least till recently. These, as well as other possible sociological and demographical changes have certainly impacted on the profile of trends in industrial disruptions. Either because of the reducing intensity of unionism or any other sets of factors, the trend in industrial disruptions has been one of decline in several countries.

6.5) This decline has not been sudden as a previous period of 1980-87 also indicated a decline in 27 out of 33 countries. Though, the more recent years in some countries indicate provisional figures only, it is certain that the decline in most countries will hold even on the revised numbers in future. However, the decline is not to be taken as a conclusive proof that industrial relations are improving in all countries or that industrial strife has found a different method of expression. History has proved that industrial disruptions have their own cycles of booms and busts - a backlash of severe actions following a relative quietitude. Given this caveat, it is obvious that 28 countries out of 33 countries had shown a decline in frequency measure , 21 out of 33 in participation measure, 22 out of 33 in mandays lost measure, 21 out of 32 countries in duration measure.

6.6) The important contribution of this report which is the estimation of economic impact is far from accurate considering the methodological and theoretical issues mentioned. Despite this, it is obvious that the extent of gross output foregone as a % of manufacturing GDP would indicate the foregone development possibilities . In respect of the more developed countries such an impact may hardly affect human well-being or human development. On the other hand, countries which are ranked relatively low in both economic and human development context would find such a loss would have a significant bearing on progress. The estimated loss in respect of the top three ranking countries are 2.16%, 1.83% & 1.06 % for India, Peru and Fiji respectively.

6.7) It is a moot point whether there would have been sufficient demand for all goods and services, if they functioned fully without industrial disruptions. It is again obvious that higher productivities or low capital to output ratios are a logical strategy for any country, industry or firm than creating further capacities.

6.8) Without exercising any preference for one dimension of the phenomenon of industrial disruption over the other, weightages have been allocated equally amongst frequency, participation, mandays lost, duration and impact on GDP. It is concluded that the top five countries which are most afflicted by disruptions are Peru, India, Equator, New Zealand and Sri Lanka.

Appendix 1
TECHNICAL NOTE

a) Industrial disruptions in this study refer to strikes & lockouts in the manufacturing sector as reported by official agencies to the International Labour Organisation. As it is difficult to demarcate between those initiated by employees from those on account of employers, no value judgment need be made on the responsibility for such disruptions. However, it is noted that offensive lockouts by employers are negligible in most countries.

b) In a few countries, statistics for the most recent year are provisional/incomplete. In such a situation, the trends for these countries will show an exaggerated decline.

c) The methods of reporting, compiling and reckoning strikes & lockouts vary amongst nations and there is no way of making the methods uniform.

d) It is noted that there is a general tendency for under-reporting the statistics both on account of excluding certain types of industrial disruptions (strikes on account of religious/political reasons, strikes involving lesser than a few employees, those that last for lesser than a day etc., in some countries), as also the tendency to avoid reporting minor disruptions as observed in some countries. There is no way of knowing which country has greater propensity to under-report vis-à-vis the others.

e) There are several approaches/preferences in measuring industrial disruptions. However, there is no value judgment made in this study as to the relative importance of one dimension of industrial disruption over the other. All dimensions i.e., frequency, participation, mandays lost, duration and economic impact are treated on an equal footing.

f) Where the employment figures are not available for a particular year for any country, the figure for previous year was reckoned.

g) The source of statistics on strikes/lockouts and employment in the manufacturing sector is the ILO's Year Book of Labour Statistics.

h) While calculating the economic impact, data has been collected from the INDUSTRIAL DEVELOPMENT - Global Report, published by UNIDO. The methodology used in constructing the economic impact is an indirect method of using the value addition, gross output, wages and manufacturing GDP from this report and treating the same with the mandays foregone derived from the ILO publication. The limitation of the statistics in both sources as reported will obviously be relevant to this study.

i) The figures for value addition, gross output, wages and GDP have been reckoned as of 1990 as roughly equivalent to the average for the period under consideration.

j) In ranking the countries in terms of industrial disruptions, the study has followed a methodology by which

1) five measures or dimensions were picked-up i.e., the frequency, the participation, the mandays lost, the duration and the value of gross output foregone as a proportion of manufacturing GDP;
2) no preference has been exercised of one measure over the rest and hence, all have been deemed as equally important;
3) to arrive at the score, weightage has been given under each dimension in such a way that the most affected country would be given the highest score equivalent to its rank. ( ie, Peru would get a score of 32 for frequency and USA 1). 4) On assigning the weightages against each measure for the relevant countries, the total score has been added for each of such countries and this score determines the relative global rankings.

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