Bargaining power depends on the strength of the strike threat. What factors determine the strength of a strike threat? Give at least one detailed example.

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M.P. Ossa | College Teacher | (Level 1) Distinguished Educator

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If we were to go by Ludwig Von Mises's theory on what he dubbed "bargaining monopoly" we would agree that the strength of a strike threat is whatever "monopolistic action" is done that benefits those who are doing the bargaining.

Most of the time the strength of the strike is based on what Mises's also refers to as "supply restriction". This means that the idea behind the strike is that the bargaining union members who are conducting the negotiation will likely threat to withhold a good or a service in exchange of their wishes being granted. Von Mises's would agree that this is done at the peril of the least fortunate workers who have not yet gained any tenure or true benefit from working in the organization. Therefore, some of this "supply restriction" will come out as callous and careless on the part of the bargaining leaders.

If we answer this from another point of view, we can use the Hicks Paradox. According to Hicks (1932), there is no systemic way to explain the powers within a strike, nor is there a formula to help extrapolate exactly what factor weighs more on a threat. This lack of certainty is what makes the solution usually come up after a warfare-type encounter. Hicks verbalizes these solutions as follows: 

 “Any means which enables either side to appreciate better the position of the other will make settlement easier; adequate knowledge will always make a settlement possible.”

This being said, we could argue that the factors that determine the strength of a threat include:

1. Legal repercussions-  Can someone in the company be legally prosecuted for not complying with a specific demand? Can the brand or company suffer legal restrictions due to non-compliance that will end up changing the dynamics of such organization as a whole?

2. Financial loss- Will the company lose its most important operational asset: the employees who work at the company? How will losing labor affect production. How will lower production affect profits

3. Human asset loss- How can quality assurance inspections be performed without the human resource of each corporation? This type of analysis cannot be performed by a machine at each and every level. Humans are also needed. Will the human factor be gone if bargaining is not achieved?

4. Stakeholder participation- Will the corporations that back up or support the current company stop the funding or support as a result of non-compliance with bargaining demands? For example, if some huge issue occurs with the bargaining unit members at the Naked Bar company, which manufactures energy bars, will its parent company PepsiCo retire it from its umbrella? That would be a huge setback to Naked Bar, who is comparably new and less stable in the market. 

Therefore, any "supply restriction" (freedom to operate, people to operate, money to operate, space to operate) can safely be considered a single most factor that will undoubtedly serve as a point of strength in a strike. 

Further, in the simplest terms, as described by John Kennan of the University of Wisconsin-Madison, the two most important factors that determine the strength of a strike threat (that is the factors that influence bargaining workers to threaten to engage in a strike, a stoppage of production) are (1) one side of the other (labor or management) having private information about the size of the profit surplus that is to be divided between labor and management/stockholders and (2) an increase in the probability that the negative effect from loss of production will outweigh the negative effect from increased sharing of the profit surplus. As Kennan explains, although labor's confidence in probability expectations is "misplaced," "strikes arise when the union is relatively confident that the employer can afford to pay a high wage," that is can share more equitably the profit surplus.

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