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What are the effects of strikes on the economy?

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Striking AEFO teachers demonstrate in front of the French College in Toronto. (Archive image)

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Federal civil servants, BC port longshoremen, Greater Toronto Metro grocery store workers and now employees of the public sector in Quebec: strikes have continued since the beginning of the year in the country.

Each time, fears of seeing these labor conflicts undermine the Canadian economy are felt. Scarecrow or real threat? Overview of a question without simple answers.

In many cases, economists first focus on the direct effects of a strike on production and consumption in the country.

Douglas Porter, chief economist of the Bank of Montreal (BMO), presents the example of the 155,000 federal civil servants who walked off the job last April. In one analysis, he argued that 0.6% of the Canadian workforce went on strike, which could cause GDP to plunge by 1%.

In an interview, he explains that the salaries of civil servants often offer a good approximation of their contribution to the economy. The economic loss would basically be very similar [to their] salary, Mr. Porter estimates.

In addition to the reduction in production, Mario Seccareccia, professor emeritus at Department of Economics at the University of Ottawa, highlights the effects that strikes can have on consumption.

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Members of the Alliance of Public Service of Canada went on strike for 13 days. They ultimately obtained cumulative salary increases of 12.6% over four years. (Archive photo)

Ottawa merchants probably saw their turnover decrease during the April walkout, he notes. Striking employees have also potentially reduced their expenses.

These so-called direct effects on the economy become more pronounced as strikes are getting longer, say the experts we met.

Since the strike by federal civil servants ultimately only lasted about two weeks, Mr. Porter, for example, significantly revised downwards his assessment of its economic impact. We think it reduced GDP by a tenth of a percent, he argues.

For Jimmy Jean, vice president and economist in head of the Desjardins Movement, the duration of public sector strikes in Quebec will be the main determinant of their effects on the economy.

At the moment, there are people who [are] teleworking, who can cope with it. But if it lasts longer, that's where it causes more disruption to worker productivity, he explains.

According to BMO's Mr. Porter, several sectors are able to make up for production losses in the months following a labor dispute.

To this end, he believes that the recent strike by auto workers in the United States will have little effect on the industry's performance this year.

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The United Auto Workers launched a simultaneous strike earlier this year at the three auto giants, Ford , General Motors and Stellantis. (File photo)

[Automakers] will probably sell almost the same number of vehicles in North America this year. Even if [these strikes] are highly publicized and have a significant immediate economic impact, the losses can be recovered in the weeks to come, he judges.

This catch-up, often facilitated by working overtime, is nevertheless not always possible. This would particularly be the case for strikes in the public sector, according to Mr. Porter.

Economists are also concerned about the multiplier effect of strikes.

There are sectors that are more strategic than others. If you have a strike at the local [grocery store], it's probably not a big deal except for one neighborhood, Seccareccia says.

Thus, the impacts of the labor dispute in 27 Metro grocery stores in the Greater Toronto Area were probably concentrated on the company itself, which attributed a loss of $36.3 million, and on its suppliers.

According to Mr. Jean, this multiplier effect is most felt during labor disputes that affect essential parts suppliers in an industry and transportation infrastructure, as was the case for the longshore strike in British Columbia and that of St. Lawrence Seaway employees.

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Ships were stopped for a few days during the Seaway strike of the Saint Lawrence. (Archive photo)

These particularly economically damaging labor conflicts can even affect Canada's reputation abroad.

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Before x27;opening a factory in a new region, companies also evaluate the stability of labor relations there.

If an economy has the reputation of experiencing numerous union actions, this is probably not positive, argues the BMO economist.

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Some automakers whose employees are not unionized have given them wage increases equivalent to those negotiated by the UAW. (File photo)

If [companies] need production to be continuous, not to be affected by this type of stoppage, [they] will go elsewhere, he explains.

The retired professor points out, however, that strikes are much less frequent today than they were in the 1970s.

The number of hours not worked due to a labor dispute was proportionately 20 times higher in 1976 than in 2021.

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High inflation in recent months has reversed this downward trend. Already in September, 2023 was the year with the most non-working days due to labor conflict in the last decade.

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These strikes, driven by the workers' desire to obtain better working conditions and higher wages, would not, however, have not just harmful effects on the economy.

According to Mr. Porter, the country's economic health depends in part on a certain balance of power employers and employees.

Perhaps it can be argued that the pendulum swung a little too far away from unions in the 1990s and 2000s, he observes.

During this period, business owners saw their wealth grow faster than that of workers, Jean notes. The strikes which allowed some unionized employees to receive substantial salary increases this year contribute to a certain rebalancing, according to him.

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