When Unions “Mattered”: The Impact of Strikes on Financial Markets, 1925–1937

Abstract

This examination of the Stock Market's responsiveness to strikes looks specifically at strike actions that labor historians generally view as the major ones occurring in the United States in the years 1925-37. The authors find that strikes had large, negative effects on industry stock value. Longer strikes, violent strikes, strikes in which unions "won," industry-wide strikes, strikes that led to union recognition, and strikes that led to large wage increases were associated with larger negative share price reactions than were other strikes. Much of the "news" generated by the typical strike seems to have been registered by the Stock Market very early in the strike. However, there were also some fairly large stock price reactions to news that could be fully revealed only at the end of a strike. This paper is an examination of the impact of important strikes on industry stock returns at a time when unions were rapidly evolving. We focus on the economic consequences of strikes during the interwar period as reflected in the behavior of the stock market. Our point of departure is the identification of strikes that, in contrast with most present-day strikes, were primarily an attempt by workers to change the "terms of trade" between workers and their employers. Using standard event-study methods, we evaluate the

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