Mateur Tunisia is home to a small factory that typifies Tunisia’s industrial base. The plant in Mateur is one of three owned by the German cable company Leoni, which has taken advantage of Tunisia’s low wages and relative stability to set up shop and employ up to 14,000 Tunisian workers. The plant produces components for fiber optic cables and is part of Leoni’s global supply chain.

Recently, however, an ongoing labor dispute between Leoni management and the UTT, Tunisia’s second largest trade union, threatened to close Leoni’s Mateur operation and throw 2,700 workers on to the streets. While negotiations have recently resumed, sparing the workers (for the moment), the precarity of the situation is indicative of wider unrest in the Tunisian labor market. It also represents the biggest risk to the current government.

While Tunisian unemployment and strikes have been well documented in the last year, little reporting has focused on the nature of the strikes and just what it means to Tunisian and multinational businesses operating in Tunisia.

Labor unrest was not unheard of under either Ben Ali or Bourguiba. In the 1950s, as Tunisia gained its independence, Habib Bourguiba relied on labor support. He later co-opted Tunisian syndicates, in an agreement that assured that the union had a place at the table, but in return unions bargained away worker rights. Ben Ali continued with this model, and while strikes, particularly in the mining sector, were periodic, there was never any regime-threatening labor unrest under the dictatorship.

Tunisian syndicalism took on a new form with the uprising in 2010/2011. Unions cast their support with the protesters – a key -ans often overlooked aspect to the uprising’s success. The subsequent period of transition from January 14 to the installation of a new government in December last year saw labor unrest increase dramatically. It seemed that any half-way organized union or guild went on strike. The airports, trains, utilities, and ministries all were affected by strikes. The police force, the enforcers of Ben Ali’s regime, were ironically some of the first to gain concessions from the government. Even workers in Tunis’s medina went on strike to protest the government’s feeble attempts to get tourists back in the souks.

While the government was in a position to acquiesce to demands from public sector (and state-owned enterprise) workers, private businesses were on their own to negotiate new contracts with their employees. While some firms were able to offer concessions to workers, a credit crunch from Tunisian banks and uncertainty in Europe narrowed the options for most businesses.

What was perhaps most critical was the “democratic” nature of the strikes. Many Tunisian workers went outside of their labor unions to protest employment practices. After a half-century of collaboration with the ancien regime, Tunisian workers felt that wages and benefits had been artificially kept low for too long. This represented a major change for business managers, who no longer knew with whom to negotiate.

The rules of the game shifted.

Some managers I’ve spoken to, who generally had good relations with their employees, were terrified that a rogue group could shut down their operations. They also believed that making concessions would not stop the problem, but only encourage more workers to use rogue strikes as a tool for negotiations.

It appears that this may have been the situation with Leoni, which stated, according to Tunisia Live, “this decision has been taken due to the impossibility of ensuring a normal continuation of operations at Mateur.”

Leoni is not the first foreign enterprise to consider ending operations in the country. Yazaki, a Japanese cable and wiring company, also ceased operations in southern Tunisia last year; negotiations are still underway this week between the Tunisian government and Yazaki to enable the return of normal operations.

Jeune Afrique reports that 170 foreign firms ended or partially ended operations in Tunisia last year. Tunisia experienced a 29 percent drop in foreign investment during the same period.

The social contract between capital and labor in Tunisia is broken. Tunisian unions feel the need to show their bona fides in the face of skeptical members, and managers do not feel that negotiations are being done in good faith. And the government has been reluctant to do anything about it.

As I’ve noted previously, Ennahdha has a generally neo-liberal economic worldview. They have promised greater globalization and are looking to further liberalize Tunisia’s economy. Some members of Ennahdha appear to hold extreme anti-labor views, with one radical member calling for protesters to be crucified. While foreign investors would be happy to see the situation stabilize, its unlikely that the death of their workers is in their interests.

Unions are skeptical of the government’s intentions. However, in this highly unionized workforce, the government cannot attract foreign investors without engaging the unions.

Meanwhile, the government is frantic to get Tunisian employed. A report today from the Financial Times states that the government is looking to negotiate greater Tunisian immigration to Europe:

Mr Dimassi (Tunisia’s Finance Minister, Ennahdha ) says the government has been trying to convince European authorities to allow for “organised immigration” to the European Union to take some of the pressure off.

Increased emigration may help, but it seems a rather dramatic solution for the most fundamental issue in post-revolutionary Tunisia.

The FT goes on to explain various formulas the government is considering to create greater employment. This is a bit like adding a prosthetic arm to a patient that is still hemorrhaging. You need to stop the bleeding first. The proposed solutions, increased aid to young graduates and more government jobs are exactly what the former regime did in the weeks preceding the revolution. Ben Ali promised hundreds of thousands of jobs – but the promise was empty – because the system was broken and needed reform.

In order for growth to resume and investment to return, Tunisia needs to have a compact with labor that assures union rights, while forming credible mechanisms to resolve negotiations. Without it, the government just has promises and debt. Ennahdha has so far proved unable to to negotiate this compact but its survival depends on it.