The huge hidden costs of strikes are missed

Written by YRK Reddy | Updated: Apr 15 2006, 05:30am hrs
Officials of State Bank of India (SBI) have reportedly said that the recent strike cost the bank enormously. Employees do not also exactly know if the sacrifice of salaries and infliction of an injury to the organisation will be paid back quickly by gains in pension and harder work. It is probable that neither have robust assumptions and numbers on the impact of their strategies and actions. The problem, of course, is not confined to Indian unions or organisations. There have been inadequate efforts, the world over, in estimating the true costs of strikes, including lock-outs.

Toyota estimated the cost of its January 2006 strike in Karnatakain protest against the dismissal of three workersat Rs 70 crore. In the case of the strike by the New York Transport Workers Union in December 2005, the official estimate was a loss of $400 million per day. The general strike this month by students and workers in France against the Youth Job Law has, according to industry leaders, cost the economy approximately $180 million. Such numbers are merely from a limited point of immediate production or financial loss. They underestimate the true impact by ignoring the ripple effects they stir and the intangible costs.

With each service and industry being unique, with its own network of stakeholders, supply chains, distribution logistics and the criticality of output to society, the impact of strikes varies drastically. The Global Report on Industrial Disruptions (1999, by Yaga Consulting) describes a framework for analysing the impact on employees, the organisation and related firms, such as those in the supply chain or distribution logistics, and on the economy.

The impact on employees is often believed to be positive, over the years, if the loss in earnings is taken as an investment and the difference between the final offer by the company and the actual settlement as the gain. In some studies in the UK, the pay-back period was estimated at around three years for the employees. However, such studies have not dealt with the potential long-term loss to employees arising from the adverse impact on the organisations business volumes, competitiveness, market share, customer loyalty, credibility and risk perception. Further, if the final offers of the employers had been deliberately restrictive, seeing the inevitability of a strike due to political reasons, the benefits calculated would indeed be illusory.

Strikes impact is usually estimated in terms of production and financial losses
But the costs go beyond this with stakeholders in an industry affected, too
Its something that both employers and employees need to realise
At the organisational level, the impact can be dynamic, depending on the nature of the product/service, how central it is to society or citizens, and whether it can be easily stored, substituted or deferred. For instance, in the case of a bank, substantial business would have temporarily shifted to its rivals and some customers may have migrated permanently. Share-holder value may also be affectedfor instance, a study in the US revealed that on an average, strikes resulted in a drop of stock value by 4.1%.

Apart from the obvious impact on suppliers and consumers, there would be an adverse effect on employees in downstream and upstream chains as well. Normally, much employment must have been affected among the indirect labour and those engaged by customers and supply chains during the recent strike, for which there is no compensation. The complexity calls for a social cost-benefit analysis, which is challenging but imperative. In the current world, strikes are no longer ring-fenced boxing between two individuals but more like a tremor.

At the economy level, the impact of strikes has been estimated between 0.25% of GNP in some years for the UK and at 1% of GNP in Canada. In the Global Report on Industrial Disruptions, there is an analysis pertaining to the 1990s that shows India as among the worst afflicted among countriesthe output foregone as a percentage of manufacturing GDP was estimated at 2.5%.

There are much cloak-and-dagger gyrations during negotiations and strikes, with moves, countermoves and politics occupying minds obsessively. Employers state their philosophy of corporate social responsibility and unions believe that they are important agents of social reform. Yet, neither appears to reckon the impact on society of their strategies and actions. There is need for greater diligence in understanding the full impact of their actions before they start inflicting pain not only on each other, but the multitude of hapless stakeholders in society.