The closure of schools and businesses in Colorado and across the nation is undoubtedly affecting people’s lives today, but do such strikes work? An economist with the University of Colorado Denver shares how actions like these affect the economy and drive change.
Michael Orlando teaches Corporate Finance and Political Risks in the CU Denver Business School’s J.P. Morgan Center for Commodities. He is a former Federal Reserve Research Economist. Orlando argues that judging the effectiveness of a general strike, such as the one observed across the United States on Friday, depends on the end goal.
CBS
Friday’s strikes indicate another layer added to marches and protests against immigration enforcement actions, encouraging people to reduce their spending.
Orlando told CBS Colorado, “Ultimately, I think one of the interesting things, or the important things to consider when you’re trying to aggregate this up and contemplate how it can work, is the difference between shiftable consumption and non-shiftable consumption. Specifically, service consumption versus goods consumption.”
In short, how much money people are spending on more permanent goods, like appliances, versus how much money a person spends on things that are temporary.
“If this happens, and I choose to participate by not buying my refrigerator now, I’m just going to buy it a few days later, right? And I’m not going to buy more refrigerators in my lifetime,” Orlando explained. “Durable goods tend to be shifted in time, and so it’s probably not a big impact.”
However, the purchase of services differs and affects the economy more significantly, he added. Once missed, the window is gone, and the purchase is often skipped.
“Seventy percent of the economy is consumption, and 70% of that consumption is services,” Orlando said. “If I shift my haircuts, or I shift my cups of coffee, it’s not like I go to Starbucks on Monday morning and drink three cups of coffee because I didn’t consume some.”
The purchase of services accounts for roughly 50% of the country’s gross domestic product. When people suddenly stop purchasing services, it can have lasting effects on the economy, Orlando stated.
“Kind of the way COVID put this divot in the economy that we have to suffer with forever. It just pushed all consumption off into the future,” he explained.
Orlando said strikes might affect small businesses more significantly, since they often operate with thinner profit margins. However, depending on the stance those businesses take, it could lead to an increase in customers in the long term.
“Think of it as kind of a branding moment. And that’s what’s so scary for the bigger retailers also, is they’re being asked to actually articulate where they stand on a particular issue that they would rather stay out of,” said Orlando.
To have a significant impact on the country’s GDP, Orlando said the strike would need to last longer.
“I could probably rationalize it would take something like a month of sustained activity, of roughly a third of the population cutting their consumption by 10%, to maybe take 10 basis points off of annual growth this year,” he said.
However, Orlando says that’s not the primary measure of success for a strike. He explained that they’re “signaling opportunities” that highlight consumer and voter demands. That affects producers, which in turn affect the stock market and 401 (k) plans, which can draw the attention of political decision-makers.
