“The effects of chilean labor reform of 2017 on strikeactivity”

Abstract

Labor unions is a widely studied topic in economics. One less studied but related topic is labor strikes, the most notorious manifestation of labor conflict and unrest. The definition may not be unique depending on the country legislation but in general terms a labor strike consists of a deliberate production stoppage by a organized group of workers and its most important economic issue are the effects (i.e. costs) that they produce not only for the participants of a collective negotiation but to third parties that have nothing to do with it (Armstrong and Águila, 2005). Because of this, strikes are nonoptimal from a Pareto perspective (Kennan, 1980), altough they are widely accepted in labor legislations as a right and underpinned by international institutions as the International Labour Organization (OIT) (whose conventions have been ratified by Chile). The latter recognizes the right to strike as one of the essential means that workers and its organizations have to promote and defend its economic and social interests (International Labour Organization, 2006). So strikes are usually not forbidden by governments. Nevertheless, collective bargaining legislation is enacted to improve the efficiency of negotiations and to reduce possible costs originated from strikes (Cramton et al., 1999). Then, is important to evaluate whenever specific labor laws have their intended effects on collective negotiation outcomes, including strike activity. A portion of strike literature have focused on this (i.e. Budd, 1996; Campolieti et al., 2014; Cramton et al., 1999; Gunderson et al., 1989). But this kind of literature (and strikes literature in general) suffers an external validity problem. In practice, United States and Canada are countries that concentrate almost all the attention of the studies of this topic. Conclusions about labor legislation effects on strike outcomes barely could be extrapolated to other countries, especially developing countries like Chile. In Chile a Labor Reform was enacted during 2016 and implemented in April 2017. It modernized the chilean collective bargaining system which was considered outdated at that moment. Despite the magnitude of the changes it introduced can be questioned, it represented (or intended to) one of the biggest changes in this matter, especially considering the introduction of strikers replacement bans during a strike (also called no-scab law) and also the possibility of pacting the extension of negotiation benefits to nonunionized workers given the union approval, with the objetive of strengthening unions during collective bargaining. This law could be a significant source of shift in strike activity that can be studied.