- Anne Braun
- Published Date:
- September 1986
WAGE DETERMINATION AND INCOMES POLICY IN OPEN ECONOMIES
© International Monetary Fund 1986
Library of Congress Cataloging-in-Publication Data
Braun, Anne Romanis.
Wage determination and incomes policy in open economies.
1. Wages—Government policy—Europe. 2. Wage-price policy—Europe. I. International Monetary Fund.
HD5014.B7 1986 331.2’94 86-10414
This volume deals with the nature of wage determination and the problem of securing an economically appropriate development of money incomes in an open industrial economy under a fixed or a flexible exchange rate system. Several chapters focus on the scope for incomes policy as an adjunct to fiscal and monetary policy.
Throughout the volume, the industrial countries are defined as the 14 closely integrated economies of Austria, Belgium-Luxembourg, Canada, Denmark, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States. Finland and Australia are not included in the group because their export composition, and,’ in Australia’s case, the protected home market, set them outside the framework of the analysis. They are, however, referred to when their experience is of particular interest.
The book consists of four parts. Part I (Chapters 1–3) comprises a historical survey and an evaluation of industrial countries’ experience with incomes policy since World War II. Parts II and III supplement this account with studies of price and wage determination and the scope for incomes policy in practice and theory, and with case studies of wage bargaining institutions and incomes policies in seven countries during the 1970s and early 1980s. Conclusions concerning the experience with incomes policy are to be found in Chapters 2, 3, 4, and 10. Part IV presents an unorthodox account of the process of price and wage determination in the industrial economies and its apparent implications for economic management over the medium term.
In Part II, Chapter 4 comprises an account of the nature of cost inflation in industrial countries and of the role of incomes policy under fixed exchange rates in the 1960s. Chapter 5 examines the reasons for the growing ineffectiveness of national demand management and incomes policies and the progressive failure of the fixed exchange rate system during the late 1960s and early 1970s. Chapter 6 describes the revolution in economic theory during the 1970s. It compares the currently accepted view of wage and price determination based on general equilibrium theory—in which there can be little case for incomes policy—with Keynes’s account of wage bargaining, and with the description of the wage determination process in industrial countries in Chapter 4. Chapter 7 treats the related issue of the relation between demand expansion and real output growth under imperfect competition. Chapter 8 considers the case for indexation of wages in theory and practice, and includes a brief account of recent experience with an indexation-based incomes policy in Australia.
The case studies in Part III provide a closer look at the nature of wage bargaining and the recourse to incomes policy, illustrating the differing problems encountered under changeable exchange rates during the 1970s and the early 1980s. Chapter 9 comprises studies of four large economies—the United Kingdom, Japan, the Federal Republic of Germany, and Canada. Chapter 10 comprises studies of three small economies—Austria, the Netherlands, and Norway. The chapter closes with some general observations on the experience of these three countries, the United Kingdom, and Canada with incomes policy during this period.
In conclusion, Part IV sets out a summary account of the determination of prices and wages, of unemployment and concealed unemployment, and of productivity growth in open economies characterized by marked differences in the ease of entry to sectors of large-scale and small-scale production. It outlines the influence of the different wage bargaining characteristics of the 14 industrial economies within this framework and suggests how those differences came about. Part IV ends with a brief consideration of the policy implications of this view of the industrial world economy and its relevance to the current problems of the industrial countries.
Much of the book was written while I was working in the Research Department of the Fund. Several chapters have previously been published in Staff Papers and elsewhere or circulated as internal Fund papers. Chapters 6 and 9–11 were written especially for this volume. The opinions expressed throughout are those of the author and should not be interpreted to represent the views of the Fund.
I am indebted to J.J. Polak and the late J. Marcus Fleming for directing me to this extraordinarily interesting field of economies and permitting me to pursue that interest in numerous studies, and I am grateful to Sir E.H. Phelps Brown, Professor John Dunlop, Dr. J.E. Isaac, and Christopher Saunders for their expert help and encouragement.
In preparing these studies, I have benefited from access to Fund documents, and from the comments and expertise of many Fund colleagues. I cannot possibly mention all those who have helped me over the years, but I must express an especial debt to Marcus Fleming’s penetrating comments, and thanks for the assistance and comments I have received from Victor Argy, Eckhard Brehmer, Benedicte Christensen, Jouko Hauvonen, William Hemphill, Michael Kucynski, Harilaos Vittas, and the late William H. White, and for assistance from the late Martin Loftus, Anne Salda, and Barbara Perry of the Joint Library.
My special thanks are due to the Director of the External Relations Department, Azizali F. Mohammed, to Norman K. Humphreys, Chief Editor, who suggested this project, and to Esha Ray and Elin Knotter of the Editorial Division, for whom my admiration is unbounded. Esha Ray carried out the monumental task of preparing the text and footnotes of Chapters 1 through 10 with extraordinary thoroughness and efficiency, and bore the tribulations of updating with unfalling good humor, Elin Knotter finalized Chapters 9 and 10 and prepared Chapter 11 for publication with similar thoroughness and was responsible for seeing the entire text set up in print. I am grateful to Phyllis Lake and Lina Turnbull for typing my handwritten drafts. I am also indebted to the staff of the Fund’s Graphics Section for their work in the production of this book.