Macroeconomic Impact on Labor Relations Boom-Bust Economic Cycle

Another important foundational theme that becomes apparent as we study the evolution of labor–management relations is the effect of the economic context in which that relationship takes place. Market economies tend to operate in cycles. Economic activity (production, employment, profits) increases during boom periods and decreases during downturns or recessions (bust periods). The balance of power in the conflict between employers and employees has been greatly influenced by these cycles.

 

Bust Periods

During periods of economic downturn or recession, employers have historically gained a significant advantage over employees and the unions they formed. Unemployment has played a big role in this relationship. During recessions, when the unemployment rate has been higher than normal, employers have been able to use the ready pool of excess labor to replace workers who demanded too high a price for their labor or went on strike. This is why employers had an advantage in the relationship.

 

Boom Periods

In contrast, employees were in a better position to push their wages higher during boom periods. During a boom period, when there was low unemployment and almost everyone had jobs, few workers were available to serve as replacements. Employees were aware of this and could press for pay increases and even go on strike without fearing that they would be replaced by workers willing to work for less. This gave them an advantage over employers.