Miss Romanis, Assistant Chief of the Current Studies Division, is a graduate of Cambridge University. She was formerly on the staff of the Oxford University Institute of Statistics; Ministry of Production, London; the Economic Directorate, Organization for European Economic Cooperation, Paris; and the Economic Survey Division, United Nations, New York. She has contributed several articles to economic journals.
See J.R. Hicks, “The Instability of Wages,” The Three Banks Review (Edinburgh), No. 31, September 1956, pp. 3–19.
This may have an important influence on the form of wage claims: additional paid holidays or a reduction in weekly hours may appear a more substantial gain than a 1 or 2 per cent increase in wage rates.
In the sense that, if the cost of living were rising by 1 or 2 per cent a year, the rank and file would be less inclined to strike and more prepared to compromise and accept a 6 per cent rise against a claim for an 8 per cent rise when the union was in a strong bargaining position, than to accept 3 per cent against a 4 per cent claim even when the union was in a weaker position.
Charles O. Hardy, “Prospects of Inflation in the Transition Period,” Prices, Wages, and Employment, Post-War Economic Studies, No. 4, Board of Governors of the Federal Reserve System (Washington, 1946), p. 24. See also Edward H. Chamberlin, “Labor Union Power and Cost-Inflation,” in Inflation, Proceedings of a Conference Held by the International Economic Association, edited by D.C. Hague (New York, 1962), p. 226.
This difference was clearly brought out in the study by the Organization for Economic Cooperation and Development, Wages and Labour Mobility, Economic Studies, Economic Policy Committee, Working Party 4 (Paris, 1965).
Or all employers of a particular occupational group in the case of craft unions.
Chamberlin, op. cit., p. 224.
Which may include the cost of raw materials, manufactured components, equipment, or services.
See Piero Sraffa, “The Laws of Returns Under Competitive Conditions,” The Economic Journal, Vol. XXXVI (1926), pp. 535–50.
For example, in a highly monopolistic industry, comprising a few firms exploiting a new product or technique (where it may be relatively easy to organize the workers, especially if there are heavy capital requirements or special factors anchoring production in a particular area), the union may be able to push wages above the going wage rate in other industries, somewhat reducing the exceptionally high monopoly profits of firms in the industry.
That is, unless the consequent price increase was so large as to have significant income effects or to influence the choice between spending and saving.
Regional considerations apparently have greater influence in wage determination in the United States and Canada than in many European countries, but this is in part the result of the lower degree of unionization.
In statistical studies, wage drift is usually defined as the difference between the actual rate of increase in earnings and the rate of increase which would have resulted from the provisions of the collective wage agreements concerning changes in time and piece rates, overtime rates, etc. Complications may arise in using this concept, however, when the growth of actual earnings is influenced by marked changes in the degree of utilization of labor. See Bent Hansen and Gösta Rehn, “On Wage Drift,” in 25 Economic Essays in Honour of Erik Lindahl (Stockholm, 1956), pp. 87–138. For a description of how wage drift arises and an analysis of its importance in various cases, see also E.H. Phelps Brown, “Wage Drift,” Economica, Vol. XXIX (1962), pp. 339–56, and G. Rehn, Wage Drift in Sweden, Trade Union Research Department, European Productivity Agency (Paris, 1959). The last is an English summary of Löneglidning; Rapport från expertgrupp tillsall at SAF och LO (Stockholm, 1957).
See Shirley W. Lerner, “Wage Drift, Wage Fixing and Drift Statistics,” The Manchester School of Economic and Social Studies, Vol. XXXIII (1965), pp. 155–77.
See National Incomes Commission, Agreements of November-December 1963 in the Engineering and Shipbuilding Industries, Report No. 4, Cmnd. 2583 (London, 1965); Phelps Brown, op. cit.; K.G.J.C. Knowles and D.J. Robertson, “Earnings in Engineering, 1926–1948,” Bulletin of the Oxford University Institute of Statistics, Vol. 13 (1951), pp. 179–200; and T.P. Hill and K.G.J.C. Knowles, “The Variability of Engineering Earnings,” ibid., Vol. 18 (1956), pp. 97–139.
See, for example, Denis Pym, “Is There a Future for Wage Incentive Schemes?” British Journal of Industrial Relations, Vol. II (1964), pp. 379–97.
See Martin P. Oettinger, “Nation-wide Job Evaluation in the Netherlands,” Industrial Relations (Berkeley), October 1964, pp. 45–59.
In Germany the trade unions themselves, led by the engineering and metalworking unions, are pressing for a revision of the traditional occupational classifications to make them more appropriate for modern industrial conditions. See Heinz Markmann (Senior Economist, Deutscher Gewerkschaftsbund), “Incomes Policy in Germany: A Trade Union View,” British Journal of Industrial Relations, Vol. II (1964), pp. 322–39, especially pp. 332–33.
It has been suggested that in the United Kingdom wage drift “has occurred sometimes on the initiative and generally without the active resistance of management,” and that wage drift “will be checked only as managers accept responsibility for their domestic wage structures, and move away from extemporization and its chain reactions towards, for instance, the negotiation and consistent application of works agreements” (Phelps Brown, op. cit., p. 353).
Under conditions of heavy and persistent unemployment, there may be some converse tendency to “negative wage drift,” in that collective agreements may be less effectively enforced; if employees are conscious of competing for jobs, pressure on costs may be reduced by the weaker attitude of workers toward the establishment of wage-fixing practices at the plant level (i.e., less insistence on payment of the rate for the job, “loose” piece rate fixing, and the like).
John Corina’s unpublished doctoral dissertation, Trade Unions and Wage Restraint, prepared at Nuffield College, Oxford, in 1962, clearly demonstrates the importance of this process in causing the collapse of the 1949–50 pay pause in the United Kingdom.
Increases in negotiated wages that exceed productivity gains are often regarded as evidence of cost-push. However, this view is an oversimplification, because when demand for labor is strong, increases in negotiated wages may merely serve to bring official rates more closely into line with wages already being paid by employers in the industry. This point was not made clear in the main text of The Problem of Rising Prices, by William Fellner, Milton Gilbert, Bent Hansen, Richard Kahn, Friedrich Lutz, and Pieter de Wolff, Organization for European Economic Cooperation, Paris, 1961 (hereafter cited as The Problem of Rising Prices). However, in the separate note on Wage Drift (p. 67), the OEEC experts conceded that indications of wages actually being paid, and hence of the current rate of drift, were often an important factor in wage negotiations, and advanced the view that “generally speaking the collective agreements have provided a large number of moving pegs to which the wages actually paid have remained tethered.” The analogy does not, of course, rule out the possibility that the pegs were moved precisely because the correspondence between wages actually being paid and official rates was becoming strained.
Phelps Brown, op. cit., p. 354. The individual employer “may even suspect that the general round of wage increases will generate sufficient demand to absorb an undiminished supply at higher prices” (Paul Streeten, “Wages, Prices and Productivity,” Kyklos (Basle), Vol. XV (1962), p. 725).
E. H. Phelps Brown, The Economics of Labor (New Haven and London, 1962), p. 174.
Jack Downie (late Chief Economist, Organization for Economic Cooperation and Development), “The Importance of Knowing What You Want,” in Part III, “What Can We Learn from European Experience?” of Unemployment and the American Economy [First Conference on Unemployment and the American Economy, Berkeley, California, 1963], edited by Arthur M. Ross (New York, 1964), p. 163.
Phelps Brown, loc. cit.
Profits per unit of output will rise by the same proportion as unit wage costs where oligopoly pricing is based on a percentage mark-up on costs.
As, for example, the OEEC experts imply (The Problem of Rising Prices, P. 69).
It is misleading to suggest that, if “collective bargaining results in wage increases greater than the supply and demand forces alone would have yielded” and in excess of the growth in productivity, this is the result of wage-push and not, in part, a consequence of the fact that the monopolistic power of certain producers enables them to pass on increased costs to the buyer (The Problem of Rising Prices, pp. 45–46).
“Excess demand” was defined by the OEEC experts as a “volume of aggregate demand which could not be met at existing prices without exerting undue pressure on productive resources [so that] capacity becomes strained, a general shortage of labor develops and prices and wages are bid up by buyers and employers competing for scarce resources” (The Problem of Rising Prices, p. 33).
See Lord Kahn’s evidence before the Radcliffe Committee: Committee on the Working of the Monetary System, Principal Memoranda of Evidence (London, 1960), Vol. 3, p. 142, especially pars. 35–37. Lord Kahn, a member of the OEEC expert group, disassociated himself from their analysis in terms of excess demand (The Problem of Rising Prices, footnote 1 on p. 33).
A.W. Phillips, “Employment, Inflation and Growth,” and “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957,” Economica, Vol. XXV (1958), pp. 283–99, and Vol. XXIX (1962), pp. 1–16.
Such as L.A. Dicks-Mireaux and J.C.R. Dow, “The Determinants of Wage Inflation, United Kingdom 1946–56,” Journal of the Royal Statistical Society, Vol. 122, pt. 2 (1959), pp. 145–83; Richard G. Lipsey, “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862–1957: A Further Analysis,” Economica, Vol. XXVII (1960), pp. 1–31; and L.R. Klein and R. J. Ball, “Some Econometrics of the Determination of Absolute Prices and Wages,” The Economic Journal, Vol. LXIX (1959), pp. 465–82. However, Rattan J. Bhatia did not find a significant relationship in his study, “Unemployment and the Rate of Change of Money Wages Rates in the United States, 1900–1958,” Economica, Vol. XXVIII (1961), pp. 286–96; and K.B. Griffin concluded that, with regard to the postwar U.S. data, “the notion of the Phillips curve can be subjected to any interpretation one desires!” (“A Note on Wages, Prices and Unemployment,” Bulletin of the Oxford University Institute of Statistics, Vol. 24 (1962), pp. 379–85).
F.W. Paish, “The Limits of Incomes Policies,” in Policy for Incomes? by F.W. Paish and Jossleyn Hennessy, Institute of Economic Affairs, Hobart Papers, No. 29 (London, 1966), pp. 11–46.
Pierre Massé, Rapport sur la politique des revenus établi à la suite de la Conférence des revenus (octobre 1963-janvier 1964), La Documentation Française, Recueils et Monographies, N° 47 (Paris, 1964), p. 7.
In such a case, the position of the authorities necessarily “contains an important element of bluff. [If] any government [tries] to give absolute priority to price stability [and] this involves heavy unemployment, it may not remain in office.”—Sir Donald MacDougall, “Inflation in the United Kingdom,” The Economic Record, Vol. XXXV (1959), p. 387.
This course of development has been well described in France—see Jean Marchai, “Les conditions de l’équilibre macroéconomique dans la stabilité des prix,” Revue Economique (Paris), N° 6 (1964), pp. 853–67—and in the United Kingdom—see J.C.R. Dow, The Management of the British Economy, National Institute of Economic and Social Research, Economic and Social Studies, XXII (London, 1964), and H.M. Treasury, Economic Report on 1964 (London, 1965), published as a supplement to Economic Trends, No. 137, March 1965.
Such behavior is not irrational if rejecting a wage claim exposes the concern to the risk of a prolonged strike and a substantial loss of profits which cannot be made up in the future, or to the possibility of a permanent reduction in its share of the market (Marchal, op. cit., p. 855; Massé, op. cit., p. 7).
See H.A. Turner and H. Zoeteweij, Prices, Wages, and Income Policies in Industrialised Market Economies, International Labor Office (Geneva, 1966), pp. 30–31.
This framework of exposition is similar to that used by Professor Duesenberry in a paper presented to the American Finance Association in December 1965: J. Duesenberry, “Domestic Policy Objectives and the Balance of Payments,” The Journal of Finance, May 1966, pp. 345–53.
The present growth rate in Germany is considerably lower owing to the low birth rate in the years immediately after the war.
Since expenditure on food does not rise in line with income as the standard of living rises, it is virtually impossible for agricultural incomes to rise as fast as those in manufacturing and services, at the same time as the relative prices of food and other consumer goods remain unchanged, unless the proportion of the population engaged in agriculture is declining.
Including the need to provide more jobs in other sectors to permit the absorption of manpower out of low-productivity employment in agriculture and services.
Even if unemployment is very low, there may be scope for expanding employment, as a result of an increasing population of working age, substantial immigration, or the possibility of reducing underemployment in backward sectors. It may be remarked that substantial immigration is more likely to be permitted in countries where the extent of unionization is not great.