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Businesses wield their debt as a weapon against labor. Here’s how it works and how to fight it.

Ever wondered why our ever-growing economy seems to always teeter on the brink of collapse? One of the reasons is that businesses use debt as a way to get the upper hand in labor negotiations. They purposefully drown the company in debt and push it closer to bankruptcy so that when the workers try to negotiate a better deal, the corporate says “Sorry, we're broke”. When a company has debt, it needs to use its future profits to pay it off. That leaves less money for workers and also increases the risk of bankruptcy, which is mildly inconvenient for CEOs and shareholders, but awful for workers since their entire livelihood is on the line. This debt tactic is efficient in both weakening the negotiating position of unions and preventing unions from forming altogether. Of course, in rare cases when the unions get first dibs in case of bankruptcy, this debt…


Ever wondered why our ever-growing economy seems to always teeter on the brink of collapse?
One of the reasons is that businesses use debt as a way to get the upper hand in labor negotiations. They purposefully drown the company in debt and push it closer to bankruptcy so that when the workers try to negotiate a better deal, the corporate says “Sorry, we're broke”.

When a company has debt, it needs to use its future profits to pay it off. That leaves less money for workers and also increases the risk of bankruptcy, which is mildly inconvenient for CEOs and shareholders, but awful for workers since their entire livelihood is on the line. This debt tactic is efficient in both weakening the negotiating position of unions and preventing unions from forming altogether. Of course, in rare cases when the unions get first dibs in case of bankruptcy, this debt strategy doesn't work as well and isn't used.

Real-world data backs this up. In the US, there's a robust correlation between company debt and unionization rates. When laws are passed that hurt unions, US companies tend to reduce their debt. Interestingly, in countries with good job security laws where companies can't as easily threaten the workers with bankruptcy, company debt tends to be lower overall.

So yeah, it's clear corporations are using debt as another tool in their box to try and keep workers down. If you ever get to forming a union, try to put in a clause that makes you a senior claimant in bankruptcy.

Here is a good paper on this issue:

https://www.eief.it/files/2010/02/0226-alessio-saretto_jm-paper.pdf

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