Could the Magistau strike spread?
The oil workers’ strike in western Kazakhstan, which began in the spring, has heated up in the past several weeks. So far, the two companies facing the strike – Kazmunaigaz Exploration Production (KMGEP) and Karazhanbasmunai, half owned by KMGEP and half by the Chinese – have fired 1,400 workers. Last month, the workers’ lawyer was condemned to six years in prison, allegedly for promoting public unrest. A few weeks later, the teen daughter of a strike leader was found in a rural field, dead with injuries. Earlier that month, a union member in the area was also killed. The police have not identified killers in either case, according to news reports.
Some journalists speculate that the strike may spread to other industries. At first, this may seem unlikely. Unions may target the oil industry partly because people buy oil almost regardless of the price. In the short run, a 1% increase in the price of crude usually reduces the number of barrels demanded by a small fraction of a percent, according to John C. B. Cooper, whose elasticity estimates for 23 countries range from almost a tenth of a percent (South Korea) to virtually zero (China). Thus companies can pass on an industry-wide increase in wage costs to consumers without losing much business. But while this may describe the global oil industry, it is less likely to describe an oil firm. If the firm raises its price above that of the market, then it may lose substantial business to rivals. If it does continue to sell oil at the market price, the increase in its costs will eat away at its profits, which are not always as profligate as they are now. (In the late 90s, an oil barrel sold for as little as roughly $15 to $20, in 2011 dollars.) Ironically, a continuing loss of revenues may force the firm to lay off workers if it no longer has the option of cutting their wages.
The bitterness enveloping the strike suggests that neither the companies nor the union has handled it well. In principle, both sides to a labor dispute can gain – or, at least, avoid a loss -- by agreeing upon a trade-off of jobs for wages. In the oil strike, the companies’ intransigence seems based upon the assumption that a tenge gained by the union is a tenge lost to the firms. Perhaps it is, but the fact that the firms have replaced so many strikers indicates that they may have had enough flexibility in the level of employment to have offered the union an attractive trade-off.
Unions are an endangered species in the Commonwealth of Independent States. As transition economies move toward markets, they replace (albeit slowly) the old state-owned monopolies with many small firms. Since it costs more to organize 10,000 workers at 1,000 firms than 10,000 at one firm, the transition may tend to reduce the unions’ share of the labor force, all else being equal. Conceivably, this could attract foreign firms looking for new countries in which to set up shop. But the notoriety of the companies’ take-no-prisoners stance in the strike at hand seems more likely to dampen investors’ enthusiasm for Kazakhstan than to ignite it. – Leon Taylor, tayloralmaty@gmail.com
Good reading
Ronald G. Ehrenberg and Robert S. Smith. Modern labor economics: Theory and public policy. Boston: Pearson Education. Ninth edition. 2006. Chapter 13 analyzes the economic impact of unions, noting that many small firms cost more for unions to organize than a few big firms.
Clare Nuttall. Kazakhstan simmers as striking oil workers sacked. Business New Europe. September 13, 2011. Online.
Walter J. Wessels. Do unions contract for added employment? Industrial and Labor Relations Review 45 (1): 181-193. October 1991. Finds mixed evidence that unions negotiate for additional jobs in exchange for lower wages. www.jstor.org
References
John C. B. Cooper. Price elasticities of demand for crude oil: Estimates for 23 countries. OPEC Review. March 2003. Online.
Fox News. Kazakh Court Jails Labor Union Lawyer for 6 Years. September 8, 2011. http://www.foxnews.com
