The trade union cycle
DOI:
https://doi.org/10.52195/pm.v8i1.266Abstract
The current economic crisis has shaken the positions of labour unions within the EU. The underlying trend of globalization that also weakens Western trade unions was reinforced by the recession.
The power of trade unions typically tends to grow during eco-nomic booms and to fall during economic recessions. In order to explain this trend we first have to understand the phenomenon of the business cycle.1 Artificial booms are triggered by the credit expansion of the banking system. Artificially low interest rates induce entrepreneurs to start more and longer investment projects than cannot be sustained by the available amount of real savings. There is a distortion between the behaviour of savers and that of investors. Entrepreneurs start more projects than savers are willing to sustain. Particularly, capital-intensive sectors are expanded during the boom due to the artificially low interest rates.
Resources are shifted into these expanding sectors. At some point it becomes obvious that the boom is only financed by newly created money and is not sustained by real savings. The erroneously started investment projects have to be liquidated or restructured. Factors of production have to be shifted into the sectors where consumers really want them.
In the recent cycle there was an overexpansion of highly capital-intensive sectors such as the construction sector and the automotive sector that attracted factors of production including workers. Workers are employed in jobs that produce goods that consumers do not want as urgently as other goods. Thus, the workers must be transferred into sectors that are in line with consumer preferences for the economy to recover.
In order to achieve this, it is of the utmost importance for factor markets to be flexible. If factor markets are not flexible, factors of production such as labour will remain unemployed. Thereby, consumption is reduced, harming other companies that have to reduce costs and release workers, making the recession longer and harder than necessary.
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