The Influence of General Strikes against Government on Stock Market Behavior
| Published date | 01 February 2020 |
| Author | Brendan John Lambe,Tomasz Piotr Wisniewski,Alexandra Dias |
| Date | 01 February 2020 |
| DOI | http://doi.org/10.1111/sjpe.12224 |
THE INFLUENCE OF GENERAL
STRIKES AGAINST GOVERNMENT ON
STOCK MARKET BEHAVIOR
Tomasz Piotr Wisniewski*, Brendan John Lambe** and Alexandra Dias***
ABSTRACT
Using a sample of 76 countries, this paper examines the impact of major strikes
against government and its policies on stock market behavior. An occurrence of
a general strike is detrimental to the value of equities, as documented by the ce-
teris paribus 6.11% fall in dollar-denominated stock market indices of the
affected countries. This event is also accompanied by a statistically significant
increase in risk, as measured by the standard deviation of returns and Value-at-
Risk metrics. Taken together, these results imply that general strikes have seri-
ous ramifications for stock market investors.
II
NTRODUCTION
Extant academic literature recognizes that developments on the political stage
may be reflected in stock market valuations and volatility. A number of
authors traced the link between equity pricing and important events, such as
issuances of policy-related communiqu
es (Wisniewski and Moro, 2014), inter-
national political crises and wars (Berkman et al., 2011), revolutions (Ace-
moglu et al., 2014), coup d’
etats (Bautista, 2003; Dube et al., 2011), or
assassinations of key public figures (Zussman and Zussman, 2006). Surpris-
ingly, the existing scholarship neglects to elucidate the impact of another
important event, which has the capacity to generate political tension and cre-
ate economic uncertainty. When discontent within the workforce grows to
critical levels, it materializes in the form of a general strike which transcends
regional and firm-level considerations. Such strike action would typically
involve mass walkouts of workers across a multitude of employers organized
in protest against government impositions.
A number of authors point out that the rate with which strikes against indi-
vidual employers occur in Western Europe has decreased sharply over the last
couple of decades, while at the same time the incidence of general strikes has
risen (Kelly and Hamann, 2010; Vandaele, 2011; Gall, 2013). The distinction
*The Open University
**De Montfort University, Alfaisal University
***University of York
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12224, Vol. 67, No. 1, February 2020
©2019 Scottish Economic Society.
72
between the economic and general strikes is important, as the latter mobilizes
workers to mount pressure on the government, rather than employers. While
the industrial relations literature abounds with rationalizations for economic
strikes, the theoretical frameworks that have been developed in this field are
not well equipped to deal with politically motivated mass walkouts (Hamann
et al., 2013a). To compound this problem, academic scholarship on general
strikes is currently in an incipient state. Considering that the national work
stoppages have potentially far-reaching economic and societal consequences,
further inquiry into this area is warranted.
The research that has been done to date focused primarily on the incidence
of general strikes and the motivations that drive the unions to stage opposi-
tion to government plans and reforms (Vandaele, 2011; Gall, 2013; Hamann
et al., 2013a). A number of papers considered the determinants of union suc-
cess, which can be measured according to the concessions granted by the gov-
ernment (Johnson, 2000; Hamann et al., 2013b; Nowak and Gallas, 2014).
Implications for policy-makers were further highlighted by Hamann et al.
(2013c) who documented the vote share losses of incumbents in the presence
of general strikes. This is unsurprising considering the substantial efforts
exerted by the unions to engage voters, generate news stories, and expose the
alleged incompetency of the government. To counter the resultant electoral
losses, a country’s leadership that faces popular protests is more likely to align
fiscal policy with the election cycle. More specifically, Klomp and de Haan
(2013) showed that affected governments increase their spending and deficits
in the pre-election year in order to temporarily stimulate the economy and, as
a consequence, boost popular support.
While some clarity may have emerged with respect to the outcomes encoun-
tered by workers and governments, the literature remains silent with regards
to the ramifications faced by employers. It is this void in the body of knowl-
edge that our paper intends to fill. Even if the general strikes are not strictly
directed against companies, their value may be adversely affected for several
reasons. First, the unproductive periods impose costs in terms of lower levels
of output and profits. Although general strikes are typically short in duration,
the large number of employees involved has a bearing on the total number of
days not worked (Gall, 2013). Second, such manifestations of popular dissent
signal to the market the workforce’s frustration with the government and its
policies. In the case where policy-makers are responsive to the demands being
made, a general strike may also signal the weakening position of capital provi-
ders and other sources of power within the productive process. Corporations
may also be forced into a position of carrying the burden of government con-
cessions and the costs of social pacts that are agreed in the aftermath of a
general strike. Third, in instances where the future response of the government
is not known with certainty, additional investment risk is created. Such risk
will raise the time-varying discount rates leading to lower stock valuations
and increased market volatility. Fourth, conceding to workers’ demands may
lead to a deterioration in a government’s financial position, which will exert
STRIKES AGAINST GOVERNMENT 73
Scottish Journal of Political Economy
©2019 Scottish Economic Society
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