Personal Debt Makes Workers Afraid to Strike

Since the late 1970s, strike action and union membership have been declining steadily in most Western democracies. New research finds that one key reason is the working class’s increasing dependence on credit.

The disciplining effects of personal indebtedness not only affect individual wage bargaining approaches but also disincentivize people from participating in industrial action. (krisanapong detraphiphat / Getty Images)

The resurgence of strike action in many major Western economies has been in the news over the last few months. Last November Neil Bradley, the executive vice president of the US Chamber of Commerce, stated explicitly on Fox News that “We cannot allow a national rail strike to occur.” The fact that a national rail strike was even rumored to be on the horizon was a sign of changing times.

But while strikes are indeed making a comeback in both the United States and the United Kingdom, analysts tend to overestimate the pace and strength of the current waves of industrial action. Unfortunately, their optimism overlooks how far we are from the actual peak of strike action of the late 1970s and early 1980s.

In order to revive workplace democracy, we need to understand why strike mobilization is a much harder task than it used to be — that is, what disincentivizes workers from supporting industrial action. In my recent article published in the Industrial Relations Journal, I explore which economic and political factors are associated with the steep decline in strike activity. My work focuses on strike duration, participation, and the number of strikes that took place in the United States, the UK, Japan, Korea, Sweden, and Norway from 1970 to 2018.

The key conclusion is that while inflation indeed induces strike activity, as we’re seeing now, the burden of personal debt offsets that increase. In fact, my research finds that personal debt has been suppressing major strikes over the last five decades.

Neoliberalism and Financialization

Margaret Thatcher’s and Ronald Reagan’s respective elections marked the beginning of what is commonly described as neoliberalism. Unlike laissez-faire liberalism, which assigns no role to the state at all, neoliberalism is the economic model whereby the state actively facilitates the expansion of private markets in all domains of the economy and intervenes to secure profitability for private investors.

What was the world like before neoliberalism? Following the end of World War II, the reconstruction of the economies involved in the war required the extensive use of labor. This made the labor market tighter in those countries, which empowered workers and sparked the rise of postwar trade unionism. At the same time, the Cold War generated fierce competition between the West and the Soviet republics, which pushed Western governments to expand their welfare states over the fear of revolutions. As a consequence, key features of public welfare provision in Western industrial democracies of this era often included free public health care, free higher education, and extensive social housing.

The intensification of economic problems emerging within the USSR since the late 1970s led Mikhail Gorbachev to implement perestroika, a set of economic restructuring reforms targeted to revive the Soviet economy. These included less strict involvement of the government in production and allowing the establishment of private businesses, which had been prohibited since the 1920s. Western politicians treated these reforms, and ultimately the fall of the USSR in 1991, as proof of the superiority of capitalism. The elimination of the threat of revolutions generated the ideological and policy shift to neoliberalism, since public welfare was no longer necessary to maintain social order.

In 1986 Reagan summed up the new ethos when he said, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” Under this emerging status quo, parallel processes started taking place. On the one hand, states across the world gradually started decreasing their spending on health care, education, and social housing. Simultaneously, they promoted private business investing, ultimately dominating these sectors. On the other hand, governments also facilitated the liberalization of the financial sector and the rise of private insurance in the absence of public safety nets.

The privatization of key services has been pushing prices for them higher and higher, and pushing ordinary people deeper and deeper into debt. Private health care costs are skyrocketing, access to higher education has become untenable for most working-class households, and the cost of renting or purchasing a decent residence has reached unsustainable levels. If people want access to these fundamental services, their only choice is often to borrow. It is no coincidence that over this period medical, student, and, particularly, mortgage debt has soared to record heights.

Debt, Discipline, and Class Struggle

To some extent, a significant proportion of middle-class households in high-income economies has been benefiting from this process. Since they often enjoy returns from investments in real estate or the stock market, which are boosted via the growth of household debt, upper-middle-class people are often against financial regulation. But what about the vast majority of indebted households and working-class people?

Debt service payments constitute the most important budget burden that working-class households face. Most importantly, this cost is linked to factors out of ordinary people’s control, and they have little room for negotiations with their creditors. One recent example is the unreasonable approach of the Federal Reserve and the European Central Bank to hike interest rates as a means of curbing the current supply-driver wave of inflation. The only real effect of this move is the steep rise in debt servicing costs for indebted households. For poorer households, getting indebted comes with a great deal of uncertainty.

It is becoming more and more well established that indebted workers show increasing discipline in their economic decisions and at their workplaces. Evidence shows that the rise of personal indebtedness is closely related to the continuous decline of the income share of wage earners across most economies, from continental Europe and Scandinavia to sub-Saharan Africa, Latin America, and the Middle East. That’s because in today’s liberalized labor markets, replacing a worker is straightforward and easy for most employers. Consequently, asking for a higher wage or demanding better conditions comes with the major risk of losing your job and defaulting on your debt. In this regard, it is reasonable to accept a low wage or worsening working conditions over the alternative of risking unemployment.

In my recent work, I show that the disciplining effects of personal indebtedness not only affect individual wage bargaining approaches but also disincentivize people from participating in industrial action. Participation in strikes, the number of strikes taking place, and the duration of strikes have been declining from their peak in the late 1970s and early 1980s. It is no coincidence that this decline began during the early stages of the financial sector’s shift to financing households rather than businesses.

Striking involves the short-term cost of losing money for the days you strike and also, in today’s economy, the medium-term risk of becoming redundant. In both cases, the risk of a personal default goes up, which is a major reason that working-class households have been avoiding participating in strikes for the past several decades.

Defending Workplace Democracy

The right to withdraw your labor is a fundamental human right. While in many economies this is legally established, external constraints like the fear of defaulting on your debt have been restraining people from exercising it for years.

Over the last few months, a resurgence of industrial action has been taking place in several countries. But despite strikes continuing, they remain much smaller in frequency and participation compared to the levels of the 1970s and the 1980s. The cost-of-living crisis is undoubtedly a major trigger behind this. Since inflation pushes poorer households into more debt, the risks associated with striking are becoming greater. The current increase in strike activity is imperiled by this reality. Whether anger over inflation can eclipse fear of personal default remains to be seen.

The short-term challenge ahead for workers and trade unions is to mobilize more people and sustain the current pace of industrial action. This is no straightforward task. Strategically designing strike campaigns that prioritize targeted disruption over indefinite action is one possible way to incentivize precarious workers to engage. Likewise, forming broader social coalitions with associations like debtors’ unions can help mobilize more people and defend democracy in the workplace and beyond.