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What is the Hicks Paradox?

The Hicks Paradox refers to the irrational nature of strikes, since strikes cause both parties to suffer before anyone's demands can be met.

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The Hicks Paradox refers to a situation in which a strike occurs that is detrimental to both parties involved. It is important to remember the labor typically strikes when there is a disagreement between management and labor over conditions for work or the pay received for this work. In a competitive labor market, striking workers can easily be replaced with other workers who agree to accept the conditions set forth by management. As a result, strikes rarely occur in competitive markets.

However, in non-competitive labor markets, workers can strike in order to pressure management to meet their demands. All the same, it would likely be more beneficial for management and labor to reach an agreement without the need for a strike. Such resolutions are always in both parties' best interest since it avoids lost revenue and wages. However, strikes still occur. This is what has become referred to as the Hicks Paradox. In his 1932 work, The Theory of Wages, John Richard Hicks observed that one side will often force a strike to occur if they seek to obtain information from the other side about how much they are willing to give in to the other's demands. However, there is a certain degree of irrationality to such strikes, as they still cause both sides to suffer before anything can be gained. Hence, these strikes have a paradoxical nature to them.

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