What do indebted employees do? Financialisation and the decline of industrial action

• Published date: 01 January 2023
• Author: Giorgos Gouzoulis
• Date: 01 January 2023
• DOI: http://doi.org/10.1111/irj.12391

DOI: 10.1111/irj.12391

ORIGINAL ARTICLE

What do indebted employees do?

Financialisation and the decline of industrial

action

Giorgos Gouzoulis

Business School, University of Bristol,

Bristol, UK

Correspondence

Giorgos Gouzoulis, Business School,

University of Bristol, Bristol, UK.

Email: g.gouzoulis@bristol.ac.uk

Abstract

While isolated episodes of work stoppages keep

occurring, aggregate industrial action rates have been

on the decline over the last five decades. Attempts to

explain this trend centre on the short‐term effects of

the business cycle and the long‐term impacts of labour

market liberalisation, deindustrialisation and globali-

sation. This paper argues that household indebtedness

is a missing piece of the puzzle. Since indebted

employees tend to become self‐disciplined at the

workplace on the fear of losing their job and defaulting,

this paper argues that the post‐1970 rise of household

financialisation is associated with the decline of strike

activity. The econometric evidence reported provides

strong support to this argument for the cases of Japan,

Korea, Sweden, the United States and the United

Kingdom over the period 1970–2018.

1|INTRODUCTION

Industrial action has been historically one of the main levers of pressure for employees to

demand economic, political and social change from employers and the government. For

example, on the economic side, the establishment of the 8‐h workday in the late 19th/early

20th century is an achievement of mass strikes, while, in the political arena, mass strikes also

contributed to the fall of the apartheid in South Africa. In terms of the post‐war period, the

Ind. Relat. 2023;54:71–94. wileyonlinelibrary.com/journal/irj

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This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2023 The Authors. Industrial Relations Journal published by Brian Towers (BRITOW) and John Wiley & Sons Ltd.

early/mid‐1970s was a period of significant labour unrest in the context of the stagflation crisis

(Glyn & Sutcliffe, 1972; Hyman, 1972), which achieved several victories in terms of pay and

working conditions for the employees.

However, despite since the early 1980s workers' share of national income is declining and

workplace conditions are worsening across most advanced economies, major nationwide work

stoppages have also been declining dramatically (Godard, 2011; Kelly, 2015). The literature on

the determinants of strike action presents several competing and complementary explanations

regarding the driving forces behind this stylised fact. These range from the effects of inflation

and the decline of the associational power of workers to deindustrialisation and the disciplining

effects of outsourcing (Ashenfelter & Johnson, 1969; Brandl & Traxler, 2010; Goerke &

Madsen, 2004; Kaufman, 1982; Piazza, 2005; Scheuer, 2006; Tracy, 1986; Tuman, 2019).

This paper argues that the financialisation of households is an important overlooked

missing piece of the declining strike activity ‘puzzle’. The term ‘financialisation’broadly

describes the increasing dependence of nonfinancial actors on financial institutions and

instruments, which, in turn, affects their behaviour and strategies. In particular, since the

1970s, the financial sector has been increasingly financing households rather than nonfinancial

corporations, with household debt ratios increasing rapidly across the globe and mortgages

being the vast majority of new credit (Bezemer et al., 2021).

Recent studies show that rising dependence on private credit has made indebted workers

more self‐disciplined and risk‐averse at the workplace on the fear of losing their job and

defaulting. Related evidence demonstrates that household indebtedness undermines wage

demands and, accordingly, that the increasing share of household debt has contributed to

reductions in the labour income share and the increase in involuntary atypical work

(Gouzoulis, 2021,2022; Gouzoulis et al., 2021,2022; Wood, 2017). Building on the concept of

debt‐induced self‐discipline, this paper argues that since strike action involves a loss of income

and a risk of dismissal, indebted workers are less likely to strike. Due to the widespread

distribution of household debt across income all groups (including the strike‐prone, working‐

class households), the aggregate rise in household debt is likely to be associated with the

decline in strike participation, duration and volume.

To explore this idea, this paper focuses on Japan, Korea, Sweden, Norway, the United States

and the United Kingdom over the period 1970–2018 using annual data from a variety of sources

including ILOSTAT, World Bank, IMF, UNCTAD and Visser (2019). Estimations based on the

Unrestricted Error‐Correction Model (UECM) demonstrate a robust association between rising

household debt ratios and the reduction in strike activity rates in Japan, Korea, Sweden, the

United States and the United Kingdom. Most importantly, household debt is found to be the

most consistent explanatory variable across countries, in contrast to proxies for other well‐

established drivers of strikes.

2|TRENDS AND DRIVERS OF STRIKE ACTIVITY

While the 1970s was a period of labour unrest across sectors and national economies, since the

early 1980s strike participation, strike duration and the number/volume of strikes at the

economy level have reached their lowest point. Despite the main focus of the literature being

the Anglo‐Saxon experience, this stylised fact can also be observed across regions and

continents. To get a sense of relevant cross‐country trends, Figure 1reports strike duration,

participation and volume at the economy/country‐level for the post‐1970 period for Korea,

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