Compulsory Arbitration as a Form of Incomes Policy: The Australian Case
  • 1 0000000404811396 Monetary Fund

The role of arbitration tribunals in settling industrial disputes and fixing the terms of employment by legally binding rulings is a distinctive feature of the Australian and New Zealand economies. Centralized wage decisions give the Commonwealth arbitration authority the power to influence the movement of wages and salaries in general, and hence make it necessary for the authority to pursue a “national wages policy” (Corden, 1968). This aspect of the Australian system is of particular interest in the 1970s, when widespread cost Inflation has focused attention on “incomes policy.” It has been said by Phelps Brown (1971, p. 23) that “The Australian system was in no wise designed to be an instrument of national incomes policy, but in fact it is one.”


The role of arbitration tribunals in settling industrial disputes and fixing the terms of employment by legally binding rulings is a distinctive feature of the Australian and New Zealand economies. Centralized wage decisions give the Commonwealth arbitration authority the power to influence the movement of wages and salaries in general, and hence make it necessary for the authority to pursue a “national wages policy” (Corden, 1968). This aspect of the Australian system is of particular interest in the 1970s, when widespread cost Inflation has focused attention on “incomes policy.” It has been said by Phelps Brown (1971, p. 23) that “The Australian system was in no wise designed to be an instrument of national incomes policy, but in fact it is one.”

The role of arbitration tribunals in settling industrial disputes and fixing the terms of employment by legally binding rulings is a distinctive feature of the Australian and New Zealand economies. Centralized wage decisions give the Commonwealth arbitration authority the power to influence the movement of wages and salaries in general, and hence make it necessary for the authority to pursue a “national wages policy” (Corden, 1968). This aspect of the Australian system is of particular interest in the 1970s, when widespread cost Inflation has focused attention on “incomes policy.” It has been said by Phelps Brown (1971, p. 23) that “The Australian system was in no wise designed to be an instrument of national incomes policy, but in fact it is one.”

Section I of this paper describes the characteristics of the arbitration system, its origins, the institutions and their functions, and the form of wage decisions along with the sanctions for their enforcement. Section II outlines the gradual evolution of national wage decisions, concentrating on the period after World War II, when the Conciliation and Arbitration Commission was faced with the problem of devising a mode of wage determination appropriate for full employment conditions. Section III examines the movement of wages since World War II as evidence of the results of compulsory arbitration. Section IV considers the effectiveness of the arbitration system as a form of incomes policy, the lessons to be drawn from the Australian experience, and the applicability of such a system in other countries.

I. Characteristics of the Arbitration System 1

origins of the system

Compulsory arbitration was established in Australia under conditions of chronic unemployment during and after the prolonged drought of the 1890s, when collective bargaining had ceased to function effectively and industrial unrest was widespread. Arbitration was seen as a means of eliminating extreme poverty and of avoiding violence. It was introduced under two rather different circumstances. First, in small-scale industries where labor had never been successfully organized, the disclosure of conditions of “sweated labor” led to public outcry, resulting in the establishment of Wages Boards corresponding to those set up for particular industries in the United Kingdom. Second, in the hitherto strongly unionized sectors, where protracted and unsuccessful strikes had so weakened the unions that they were no longer able to negotiate firm wage settlements with employers, the idea of compulsory arbitration was accepted as a “new province of law and order” to replace the “barbarous expedients” of strikes and lockouts. Thus, by the start of the twentieth century, a government was elected with a mandate to set up an industrial court modeled on that already established in New Zealand. The Commonwealth Court of Conciliation and Arbitration came into existence in 1904.

At first the employers were hostile to the arbitration system, regarding it as a means of limiting their management prerogatives and economic power. The new law forced employers to recognize the trade unions registered under the Act and empowered the unions to make claims on behalf of all employees in an industry. The unions were now able to take an employer to court, however unwilling he might be to negotiate; and once the Court of Conciliation and Arbitration had made an award (that is, a ruling on wages to be paid or other terms of employment) the union could get it legally enforced (Sykes, 1971). The new law thus fostered the rapid growth of unions (Buckley, 1971). The fact that compulsory arbitration was established in order to strengthen the wage earners’ bargaining position is an important reason for labor’s traditional support of the system.

Initially the Court was involved in fixing a minimum wage in the cases brought to it by the unions. The “basic wage,” which was set to cover the minimum needs of a family of five,2 was applied to unskilled male workers in many fields, so that it became the accepted wage for unskilled work. Eventually the basic wage constituted both a floor under the entire wage structure and a major component of all award rates. The strong unions of skilled and semiskilled workers in the metal-working and engineering trades played a leading part in the development during the 1920s of a superstructure of margins for skill, based largely on historical differentials. During this period the granting of margins became a means of bringing award wages into line with actual rates of pay.

The Court acquired a key function in regulating the general level of wages and the structure of wage differentials through its decisions on the “basic wage” and “margins.” In 1966 these two elements were consolidated into the “total wage,” which thus became the legal minimum rate for the job. A national minimum wage, representing the lowest wage payable per standard workweek in any employment, was introduced at the same time.

The arbitration system includes both Commonwealth and state tribunals. Up to 1956 the Commonwealth Court of Conciliation and Arbitration carried out both arbitral and judicial functions. A new body—the Commonwealth Industrial Court—was set up in 1956 to administer the judicial provisions of the Conciliation and Arbitration Act, and the Court of Conciliation and Arbitration was renamed the Conciliation and Arbitration Commission.3 In 1968 the wages of 85 per cent of all employees were directly affected by the rulings of the Commission or of the tribunals set up to regulate and arbitrate industrial wages and conditions of work in each of the states, or by agreements concluded under their aegis. The decisions of the Commission apply to about 40 per cent of all employees. However, its rulings are usually followed by the state authorities and therefore influence the movement of most wages and salaries.

The Commission consists of the president, seven presidential members (who must have legal qualifications), and sixteen nonpresidential commissioners drawn from officials of the unions, employers’ associations, industrial managements, and government departments concerned with labor affairs (who need not be lawyers).4 Judges and commissioners are appointed by the Government as vacancies occur. The current president, who was appointed in 1956, has a lifetime appointment. Each commissioner has responsibility for a particular branch of industry. There are also four conciliators, who assist the Commission without arbitral powers. An appeal from a decision of any commissioner must be handled by a commission of three, including two presidential members. Major decisions affecting the general level of wages, hours of work, and annual leave are dealt with in presidential sessions and by at least three presidential members (Grunfeld, 1971).5

The Commission is empowered “to prevent or settle industrial disputes by conciliation or arbitration.” Under the federal constitution this power relates only to disputes extending into more than one state, but the more important cases fulfill this requirement or can be made to do so (Phelps Brown, 1971). Either party to a dispute may bring the case before the Commission, or the Commission may intervene of its own volition. Unlike the state tribunals, which can act even if no dispute exists and can extend their decisions to all parties under their jurisdictions, the Commonwealth authorities can intervene only if a “dispute” exists, must confine their rulings to the issues of that dispute, and can make the rulings binding only on the parties involved. Despite this, the powers of the Commission have become much more extensive than was originally intended, and the states have expressed concern at the continuing drift of control to the Commonwealth authority.

A commissioner has the authority to call the disputing parties to a compulsory conference presided over by himself or a conciliator and, if necessary, he can dictate a settlement of the dispute in the form of an award. His powers include the right to take evidence on oath, to call for documents, to make on-the-spot investigations, and to order a secret ballot to ascertain employees’ views (Grunfeld, 1971). Prearbitral negotiations are often useful in narrowing down the area of dispute, and they frequently produce an agreement which avoids arbitration. In such cases the settlement is “rubber stamped” by the Commission (or state body) as a “consent award.” If neither party decides to notify the tribunal and the tribunal does not exercise its right to intervene, an agreement can be kept outside the arbitration system6 (Yerbury and Isaac, 1971).

Once an award relating to wages, hours of work, or fringe benefits is made, it constitutes the legally binding minimum for that work; but there is nothing to prevent negotiations for higher wages or special conditions giving rise to “over-award” payments.7 Thus, collective bargaining influences the earnings of a considerable proportion of employees who are covered by arbitration awards. As over-award settlements frequently give rise to claims for similar absolute or relative increases in award wages, the dynamic influence of collective bargaining is quite disproportionate to the number of workers covered or to the share of wages actually determined outside the arbitration system.

sanctions for enforcement

Since the decisions of the Commonwealth Commission and the state tribunals are legally binding, breaches of awards are punishable by law. In practice, the binding character of the award has operated principally against the employer, because the rate awarded becomes the legal minimum for the job but the union is not debarred from negotiating for payment of a higher rate (Phelps Brown, 1971). The prohibition of strikes against awards under the Commonwealth arbitration law was repealed by a Labor Government in 1930. Penalties for strike action were, however, provided for under the “bans clause” procedure, which permitted the inclusion in an award of a clause forbidding any “ban” or restriction on the performance of work covered in the award. Until 1951 no effective sanctions were attached to such a clause.8 But, following numerous strikes and large wage increases at the time of the Korean conflict, a federal regulation was introduced to make it possible for an employer to apply to the Court for a legal injunction against a strike. If the Court made an order and normal working was not resumed, the union or workers involved became liable to large fines and costs. Thereafter, the bans clause was generally included in awards at the request of employers in industries subject to strikes (Sykes, 1971).

During the 1950s the new sanction was used very sparingly. Strikes were in the main confined to the highly organized sectors experiencing a severe shortage of skilled workers—notably metals, engineering, and construction. In these sectors, employers often agreed to over-award payments in order either to acquire and retain labor or in order to secure higher productivity. If an over-award claim was rejected, the union could submit the dispute to arbitration. As over-award payments grew in importance during the early 1960s, however, the arbitration authorities strengthened the employer’s hand by ruling in 1964 that it would be inappropriate for the Commission, having made an assessment of the award rate for a particular trade in a “work-value” inquiry, to exercise its arbitral powers in a dispute relating to an over-award claim unless both parties requested it to do so.9 This decision meant that if the existing award contained a bans clause, the union could be subject to heavy penalties for any strike relating to an over-award claim which the employer was prepared to resist.

The number of injunctions and of fines imposed because of strikes increased very considerably in the later 1960s, until the wholesale use of the bans clause procedure in early 1968 provided the unions with an opportunity for a confrontation on the issue of sanctions. In the outcome the penal sanctions proved to be unenforceable and the survival of the arbitration system seemed to be threatened by the conflict with the unions. Bans clause procedures were eased by the Commission in September 1969, and less powerful sanctions became law under an interim Act passed in 1970 (Mills, 1971).

II. The Evolution of National Wage Decisions

Australia’s experience with coordinated wage fixing since World War II is of interest for other countries seeking to develop incomes policy as a means of mitigating cost inflation at a high level of employment. The postwar record merits detailed study as an illustration of how the arbitration system has actually operated and what strains have arisen under differing circumstances. Earlier experience is also touched on, because the concepts and traditions developed in the 1920s and 1930s were still embodied in the postwar working of the system and because the experience of the 1930s represents an extraordinary instance of the use of compulsory arbitration to implement an incomes policy, even though it occurred under conditions of exceptionally heavy unemployment.

Three main periods may be distinguished in the arbitration authority’s experience of regulating the movement of wages in general. Up to 1931 its national wage decisions remained essentially an instrument for avoiding unrest and improving industrial relations. During the second period, covering the 1930s and World War II, national wage decisions became an instrument of national economic policy and a means of securing restraint at times of crisis. After the war, the arbitration authority was faced with the problem of developing national wage deci-occurred under conditions of exceptionally heavy unemployment.

developments from 1922 until the end of world war ii

From 1922 until 1953 the basic wage was adjusted quarterly for changes in retail prices, and until 1931 the arbitration authorities intervened only infrequently to change its real value. The pay of the great majority of wage earners was adjusted upward (or downward) for changes in the purchasing power of the basic wage component. Thus each wage earner received a fixed minimum real wage, plus additional purchasing power if he qualified for a margin, fixed in money terms and not adjusted for price changes.

The automatic adjustment of the basic wage had a number of side effects, some favorable, others less so. In general, it tended to promote appropriate movements in wages and prices relative to those abroad, so long as import prices were not moving very differently from export prices and neither was subject to extreme short-term fluctuations. But it meant that an autonomous inflationary (or deflationary) stimulus produced a chain reaction upon domestic costs and prices. The goal of the system was not price stability but near stability of real wages and flexibility of money wages and prices. The indexation of a large component of wages more or less eliminated the issue of compensation for price increases from wage claims and avoided the danger of unduly inflationary price expectations giving rise to large wage claims.10 However, in periods of rapidly rising prices, the automatic adjustment of the basic wage—but not of margins—had the unfortunate effect of narrowing differentials and hence provoking claims for increases in margins by the most highly organized groups of workers.

The determination of margins awards usually involved the principle of “comparative wage justice”—that is to say, the idea that the relative pay (or work value, in Australian parlance) of different jobs should correspond to their relative requirements in skill, training, responsibility, effort, and the like.11 The principle that all workers doing similar work under similar conditions should receive the same rate of pay was generally accepted, at least in theory; this, of course, implied that margins should not reflect the differing “capacity to pay” or profitability of particular enterprises or branches of industry. In practice, however, the structure of margins that developed was determined by the economic circumstances of particular industries so long as considerable unemployment prevailed; the varying prosperity of different industries effectively limited the possibility of uniform changes in wages implied by the concept of comparative wage justice.

By the 1920s the wage structure comprised a basic money wage and a superstructure of wage differentials determined by the economic circumstances and strength of union bargaining power in particular industries. Award wages above the basic wage were in effect determined by much the same considerations as would have been the case if collective bargaining had applied. With considerable unemployment usually prevailing, employers had little incentive to offer over-award payments, and award wages closely determined actual earnings.

Throughout the 1920s the essential function of the arbitration tribunals remained that of determining specific wages in order to avoid or settle industrial disputes; but when export prices collapsed in 1930, and the employers sought a reduction of the basic wage in real terms, the Court was faced with the task of formulating a national wages policy: “A task commensurate in importance to deciding the exchange rate or the stance of fiscal or monetary policy” (Isaac, 1963).

The experience of the 1930s is described in a well-known article by Reddaway (1938) and need only be briefly summarized here. In January 1931 the Court ruled that, as an emergency measure, all wages under its jurisdiction should be cut by 10 per cent. In 1934, when the economic situation improved following a rise in export prices, the Court was faced with the choice of restoring the Harvester standard of “normal needs” in determining the basic wage (see footnote 2) or of abrogating that standard and declaring that henceforth the basic wage would be set with reference to the “economic capacity” of the economy. This would have involved the need to specify how “economic capacity” was to be assessed.

The Court, in fact, avoided the issue by an equivocal judgment intended to placate both the employers and labor (Hawke, 1956). Industrialists received an assurance that the level of the basic wage would depend “on the productive capacity of the economy as a whole.” The capacity of industry to pay the highest possible basic wage could only be approximated, but one way of assessing the capacity to pay was to ascertain the wages actually being paid to “well situated” laborers. The unions were granted a restoral of the basic wage to almost the same real value as in 1931, and the restoral in full of margins for skill. The principle of relating minimum wage rates to normal needs was reaffirmed by the decision that the basic wage would continue to be automatically adjusted for price changes. It was not until 1937 that the unions applied for and received an increase in wages on the grounds of increased capacity to pay.12

Writing in 1938, Reddaway concluded that the policy of reducing wages had made a very substantial contribution to the solution of the external difficulties. In a perfectly logical world the situation might have been met by exchange depreciation and a smaller cut in money wages, but at the time the case for exchange depreciation was not recognized. Developments during the 1930s established the principle that, although its statutory function was limited to the prevention and settlement of industrial disputes, the Court must give attention to considerations of national economic policy and that the “capacity to pay” of the economy must in certain circumstances be the decisive factor in basic wage decisions.13 The widespread belief that the arbitration system had contributed to the prosperity and freedom from industrial unrest of the 1920s, and that it had facilitated the recovery of employment after the depression of the 1930s, gave the Court great prestige, and after World War II it was expected to continue to play a key role in the economy. The Court’s authority was enhanced by the Government’s delegation to it of wartime emergency powers to set maximum as well as minimum wage rates.14

the postwar period: national wage decisions under full employment

The evolution of national wage decisions since World War II divides into three stages. The periods 1945–52, 1953–65, and 1966 to date can be characterized as follows :

(1) Return to the prewar procedures and concepts, until experience at the time of the Korean conflict demonstrated that the system was inappropriate for conditions of full employment and for a highly inflationary world situation.

(2) Modification of the traditional system by the abandonment of automatic indexation and the adoption of a procedure for comprehensive rather than piecemeal changes in margins. The logical conclusion of these changes was the elimination of the basic wage and margins and the fixing of total wages after 1966.

(3) Increasing stresses within the system, following an unsuccessful attempt to improve the relative structure of award wages in different industries and to reduce the scope for over-award increases by bringing award wages more closely into line with actual wages in the metal trades sector, until by 1970/71 the system was functioning as a form of “quasi-collective bargaining.”

The prewar system under postwar conditions, 1946–52

The power of the Court to set maximum rates lapsed soon after the war, and it was left without legal powers to limit wages. Faced with severe unrest in 1945/46, the Court sought to meet pent-up wage demands by an interim increase in the basic wage in real terms in 1946 and by reducing standard working hours in 1948.15 The sharp rise in the basic wage, due to this increase and to automatic adjustment for a steep rise in retail prices after mid-1947, led to a marked narrowing of differentials, which provoked claims for large increases in margins, granted in 1947 and 1948. The basic wage case was finally concluded in mid-1950 at a time of renewed industrial unrest, strong demand in the labor market, and rocketing world prices. The Court took the position that inflation was mainly due to factors other than wage increases and that a large increase in wages was needed to ensure that wage earners shared in the growth of business receipts. It therefore raised the basic wage by more than 14 per cent. Soon afterward, the Government intervened to make it possible for the employer to secure an injunction against a striking union (see above, Sanctions for enforcement).

Experience from 1950 through 1952 demonstrated the difficulty of maintaining the automatic adjustment of wages for price changes in the context of extremely marked fluctuations in the terms of trade. Export prices fell steeply in 1951/52, while import prices and retail prices were still increasing. Overall demand was reduced by falling incomes in the export sector and by a restrictive budget introduced to curb the balance of payments deficit. Enterprises were subjected to an intensifying profits squeeze by the need to pay rising wages while demand was declining. In 1952 the employers requested the immediate suspension of the automatic adjustment, a reduction in the level of the basic wage, and an increase in hours of work—even more stringent measures of wage restraint than those adopted in 1931. The Court refused the last two claims but agreed to the abolition of the automatic adjustment on the grounds that it had contributed to the rapid increase in prices. In explaining its decision the Court stated that all the evidence in the case had supported the “now well established principle that the basic wage should be the highest that the capacity of the community as a whole could sustain. The arguments of both employers and employees in the case had been directed toward a basic wage based on the capacity of industry to pay, and no evidence had been produced that the basic wage was inadequate to provide a reasonable standard of living to employees dependent upon it.” The further the Court withdrew from relating the basic wage to the fulfillment of any particular standard of needs, the weaker became the justification “for automatically adjusting the nominal value of the wage during the currency of an award” (Official Year Book of the Commonwealth of Australia, 1956, pp. 184–85).

Coordinated wage decisions in search of a policy, 1953–65

In the early 1950s the regulatory functions of the arbitration system were reinforced by the provision for legal sanctions against strikes, by the abolition of the automatic adjustment of the basic wage, and by the adoption of a procedure for granting simultaneous and uniform changes in margins under all awards in a very important decision in 1954.

Prior to 1954, the Court had not made any general ruling in respect of margins. In 1953, when differentials had been narrowed by the automatic adjustment of the basic wage for steeply rising prices in 1950–52,16 the unions claimed that all margins under the Metal Trades Award should be increased. The employers counterclaimed that margins for skilled workers should remain unchanged but that margins for semiskilled and unskilled workers should be reduced. The case was first adjourned on the grounds that the economic situation and the existing high level of labor costs did not permit a comprehensive increase. About a year later, the Court ruled that all margins should be set at the equivalent of two and a half times their 1937 level. This produced a marked increase in margins for skilled work, while the margins for less skilled workers were unchanged. Thus the decision represented a compromise between the claim of the unions for a uniform increase and the claim of the employers for a restoral of wider differentials by means of discriminatory reductions in wages. The Court expressly stated that its decision was to be taken as general guidance to all arbitration authorities and applied in other industries.

The 1954 decision was important both as an instance of the tendency to interpret comparative wage justice as implying that all award wages should increase in line over time and as a precedent that an increase in margins under the Metal Trades Award should be considered grounds for similar increases in margins in other sectors. While a change in this direction would probably have come about eventually under conditions of full employment, the decision may have led to a greater rigidity of the structure of award wages than would otherwise have existed in the 1950s and early 1960s. Furthermore, the freezing of the wage structure at something very like the pattern of 1937 was economically unjustified, since there was little reason to suppose that the value-productivity in different occupations and industries had remained the same as it was twenty years before, given the great changes in technology, in price relationships, and in the employment situation that had since taken place.

The increased rigidity of the wage structure under conditions of full employment ruled out the possibility of relating margins to the capacity to pay of particular industries through work value inquiries—as had been the practice before the war. Consequently, the judges were faced with the problem of allocating the “capacity to pay” between increasing the basic wage and increasing margins. However, this sensitive issue did not arise for several years, as there was no basic wage claim until 1956 and the general level of margins was not raised until 1959.

During the late 1950s and early 1960s the system showed a tendency to generate its own inflationary momentum. A rise in the basic wage caused a narrowing of differentials, resulting in over-award increases to restore relative rates of pay, and these in turn led to a claim for a general rise in margins. The resultant increase in average wages was likely to induce a rise in prices and another rise in the basic wage, starting the whole process over again. In 1959 a 6 per cent increase in the basic wage was followed by a large increase in margins later in the same year, underlining the need to consider the overall capacity to sustain wage increases of either type at the same time and causing the employers to press for adoption of the total wage concept. In 1965, the Commission held a joint inquiry into both the basic wage and the margins.

The 1961 decision that major reviews of the basic wage would henceforth be held at intervals of three or four years 17 introduced a further element of rigidity into the system and tended to encourage the growth of over-award payments, since during the interval industry’s willingness to pay higher wages was increasing with rising productivity. Award wages scarcely increased in 1962/63, when there were no decisions concerning the basic wage or margins in general, and award wages did not rise commensurately with the marked improvement in economic conditions in 1963/64, when the sharp increase in export prices would seem to have provided a suitable context for a general increase in wages. Wage drift was exceptionally heavy in both years, and the growth of over-award payments constituted a problem that had an important influence on the policies adopted over the next few years.

It seems clear that, under coordinated wage fixing, frequent small changes in wages are preferable to large changes at infrequent intervals; these are in themselves more likely to set off inflationary price expectations and pricing behavior and may also entail the building up of pressures within the system, or the granting of wage increases outside the system, during the intervals between decisions. Also, as the experience of the early 1960s illustrated, infrequent decisions may make it difficult to adjust wage developments to swiftly changing external conditions. Frequent wage changes may require the adoption of more or less automatic criteria for adjustments.

The procedure for making uniform changes in margins involved the Commission in routinely making far-reaching decisions of economic policy, a task for which it was largely unqualified and which it was to some extent unwilling to carry out. The arbitration judges continued to view their task as being to adjudicate between the disputing parties rather than to implement a national policy for wages consistent with other economic objectives. Thus the determination of capacity to pay remained a matter for ad hoc judgments on the basis of the evidence submitted by the parties concerned.18 However, when automatic adjustment was abandoned, it had been specifically laid down that the evidence in basic wage cases should be related to the “broader aspects of the economy” as indicated by employment, investment, production and productivity, overseas trade, overseas balances, competitive position of secondary industry, and retail trade.”

The question of the criteria to be employed in assessing the capacity to pay of the economy as a whole—and specifically the case for a guideline that all wages and salaries should rise in line with the growth in average per capita productivity—evoked growing interest among economists and businessmen from about 1959, although it was not until 1963 that overall productivity data began to be published. Up to 1965 capacity was in practice assessed mainly in the light of the state of economic activity prevailing or recently experienced (Boehm, 1971).

Different criteria were advocated by different groups. The employers pressed for a productivity-based guideline. The unions consistently claimed increases based on productivity growth and past change in prices. Academic and official economists, notably Downing (1960), Hancock (1960), Karmel (1959 and 1965), and Russell (1965), supported the concept of effective productivity gearing, that is, of allowing wages and salaries to rise in line with productivity growth adjusted for the change in export prices.

The concept of a pure productivity-based guideline was inappropriate for a world-wide situation of rising prices, and the union proposal for complete compensation for past price increases would have perpetuated any inflationary episode. While the “effective productivity” concept provided a valid notion of how the level of wages should be adjusted in the medium-to-long run, its application as a more or less automatic rule of short-term policy would probably have been unsatisfactory. For one thing, since the concept involved linking wages directly with export prices (a most unstable feature of the economy), it was likely to lead to the kind of difficulties experienced under the automatic cost of living adjustment in times of rapidly rising world prices. Also, like other criteria proposed, the productivity guideline involved linking wage changes with developments in the recent past which might not always be representative of the conditions to be foreseen in the near future.

By 1966, the need for a major change in procedures and principles had been reinforced by several circumstances. The rate of price increase had accelerated sharply in 1964, under the influence of an upturn in export prices, and industrial unrest was increasing (Charts 1 and 2). The Commission’s policies had been severely criticized in the Vernon Report dealing with aspects of the long-term growth of the economy (Report of the Committee of Economic Enquiry (1965), Vol. 1, pp. 122–47). In addition, the Commission had been involved in an important case regarding the interpretation of capacity to pay in a highly profitable enterprise.

Chart 1.
Chart 1.

Australia: Export and Import Price Indices, 1949–72, and Annual Increases in Consumer Prices, 1949/50–1972/73

Citation: IMF Staff Papers 1974, 001; 10.5089/9781451956375.024.A007

The Vernon Report suggested that the Commission had become a de facto instrument for incomes policy, even though its statutory duty was to settle disputes and urged that greater attention should be paid to ensuring price stability. “Capacity to pay” should be interpreted as capacity to pay higher wages without inflationary consequences, and the Commission should devote particular attention to the prospective growth of national productivity, in order to assess the effect of increases in award wages on prices. The Report exposed both the Commission’s lack of a clear concept of capacity to pay and the inflationary implications of its view that the payment of over-award wages should be taken to indicate the capacity to pay higher award wages.19 The recommendations were an important factor in causing the Commission (and also the Federal Government in its submission to the Commission) to relate wage increases to the concept of effective productivity after 1966 and to attempt to appraise the full effect of its decisions on the economy.

The Vernon Report also stressed the need for a widening of wage differentials in order to encourage the acquisition of skills, and suggested that claims for margins for particular skills should be judged on their merits and should not be granted quasi-automatically in line with increases in other margins.20

A discussion of the case for more divergent relative wage movements in the 1964 Annual Report of the Commission had important repercussions. The President of the Commission advanced the view that in future the arbitration authorities should be increasingly occupied with conciliation and arbitration undertaken at the request of the parties concerned in disputes about over-award payments. He recognized that this could lead to “distortions in the pay of workers gaining over-award payments as against those who receive the minimum payments (that is, award rates) prescribed by the Commission.” But he suggested, “perhaps disparities are to some extent inevitable between those employed in particularly prosperous industries or undertakings and those not so well placed. They may in some cases even be desirable on economic grounds.”

Not unnaturally the unions read this passage as an invitation to test the Commission’s attitude to a wage claim based on the exceptional profitability of an individual enterprise or industry. Such a claim was made in the 1965 General Motors-Holden case.21 Although the claim was refused on the grounds of comparative wage justice, the desirability of altering that key principle was discussed at length in the ruling.

These major issues were reflected in far-reaching reforms of the system, adopted not altogether successfully, in the late 1960s.

The attempt at a wages policy and its repercussions, 1966–71

In 1966 the Commission announced its intention to abolish the basic wage and margins and to make total wage awards in future. These changes were deferred until 1967, pending consideration of the existing structure of margins which would be reflected in the total award wages of different occupations. The employers were thus to achieve their goal of a unified national wage hearing while the unions were to receive one last margins award—the disastrous 1967 metal trades work value ruling.22

The stated intention of the work value review was to establish a “realistic and justifiable” structure of total wages; that is, to bring award wages more into line with actual earnings in that sector. The Commission may have been influenced in this direction by the argument that the persistence of heavy over-award payments and shortages of labor indicated that award wages were too low to ensure an adequate supply of skilled manpower. But it seems clear that the difficulty of justifying the decision in the General Motors-Holden case was also an important factor, creating the feeling that some action was needed to placate the unions. Most significantly, a deliberate effort was made to break the link between increases granted under the Metal Trades Award and those for other occupations. It was specifically laid down that the awards were not to set a pattern for other industries. Nevertheless, they did.

The ruling greatly widened the range of award wages, at the same time raising the entire structure of award wages for the sector.23 The crucial feature of the award, which aroused the resentment of employers and unions alike, was the stipulation that the increases should absorb existing over-award payments. Past experience had shown that this objective was unlikely to be realized, and when the unions staged numerous strikes against absorption, the employers responded by widespread recourse to penal sanctions. The unions for their part resolved to destroy the system of sanctions by outright refusal to comply (Isaac and Ford, 1966). While proceedings relating to strike penalties were still going on in the Industrial Court, the Commission was obliged to back down on absorption in February 1968.

Although the increases awarded in national wage cases in 1967, 1968, and 1969 only slightly exceeded the growth in productivity, award wages continued to increase rapidly as a consequence of the Metal Trades Award and the flow-on to other industries. In 1969 the employers pressed for the restriction of work value reviews to a limited amount of reclassification, claiming that “the fruits of productivity should be distributed in national wage cases.” The Commission accepted this view and announced that henceforth major changes in wages would be confined to the annual national wage award, under which total wages for each job classification in each industry would be raised by uniform amounts or percentages.24 Specific rulings concerning the relative level of pay for particular jobs would still be given, when warranted by the circumstances, but commissioners were instructed to restrict reviews to cases where there had been a change in work value factors (such as the skill, exertion, or length of training required), not to consider arguments relating to rates obtained elsewhere, and only rarely to adjust relativities because of the likelihood of inducing a flow-on of wage increases to other sectors.

The need to resolve the conflict with the unions which threatened the very existence of the arbitration system led to an easing of the penalties against strikes in September 1969. The employer, instead of being able to seek an injunction simply on proof of a stoppage, now had first to obtain from the Commission a certificate that conciliation had failed. Thus the commissioner was empowered to determine the merits of the case and in effect make a ruling to maintain or alter the existing award. Only if the union refused to comply with that decision would the Commission grant the employer the right to apply to the Industrial Court for penalties against the union. The amount chargeable in fines was also greatly reduced.

In theory, the new procedure was to allow the Commission to distinguish between stoppages that were rejections of an existing award and those concerning questions of interpretation or new issues (Phelps Brown, 1971). However, no guidelines for drawing such a distinction were laid down, and during 1970/71 the commissioners almost never treated a stoppage as a contravention of an existing award. Employers complained that the Commission was interpreting the new section of the act as though it imposed on them a statutory duty to settle industrial disputes by arbitration, even though conduct contrary to the existing award was being engaged in (Edwards, November 1971). In practice the new system gave the employees scope to seek a change in an existing award at any time. It deprived the employers of their protection against stoppages and gave them a stronger incentive to conclude agreements outside the arbitration system. This tendency was reflected in a much faster rise in earnings than in award wages during 1970, when the 3 per cent national wage award and 5.2 per cent increase in award rates were associated with a 9 per cent rise in earnings.

Industrial unrest and the climate of diminishing authority for the tribunals refocused attention on the arbitration system’s original role in lessening industrial strife, while the Commission’s new responsibilities under the 1970 Act also led to increasing emphasis on conciliation. The 1969 instructions on work value rulings were ignored in several important cases.25

In the 1970 Oil Industry case, the Commission itself intervened to seek a voluntary settlement when a strike of maintenance workers threatened to disrupt industrial production. When no agreement was reached, the unions asked and the employers agreed that the dispute should be referred to the full Commission for arbitration. The unions then raised the same issue as in the General Motors-Holden decision. On this occasion, the Commission gave a ruling which represented a significant abandonment of the principle of comparative wage justice, stating that the capacity to pay of a specific enterprise or industry could be taken into consideration if both parties consented to the consideration of the capacity to pay criterion or if it had been the practice to consider capacity to pay in the collective bargaining that had led to earlier wage settlements (Nieuwenhuysen, 1970, p. 13).

When the 1970 national wage case came up, the previous award had accounted for less than one third of the actual rise in earnings experienced during the year and there was a widespread tendency to dismiss the national award as a mere irrelevancy (Edwards, November 1970). The Commission had two unpleasant options. It could (as it was expected to do by the Government and the press) again award a small increase, in which case it could claim not to have added to inflationary pressure, though it could not hope to reduce it.26 However, by awarding a small increase the Commission would risk damaging its own authority, based on the public’s acceptance of it as an instrument for ensuring greater equity than would otherwise exist, by the all too obvious inconsistency between the national award and the rulings which its arbitrators were giving in special cases. Alternatively, the Commission could award a more realistic increase, at the danger of enhancing the prospective rate of wage increase and of laying itself open to blame for causing inflation. It chose the latter course and awarded a 6 per cent increase in all award rates except the minimum wage.

The decision appeared to recognize the contention of the unions that both productivity and the rate of price increase should be taken into account, since there was a reference to the 2.2 per cent increase in productivity over the preceding year and the 3.8 per cent rise in the consumer price index from September 1969 to September 1970. The Commission also referred to the 5.5 per cent increase in real gross national product forecast for 1970/71. But a factor which probably influenced the Commission’s decision to award a large increase was the granting by the Public Service Board (an autonomous body responsible to the Cabinet) of a 6.6 per cent increase in wage rates for blue collar workers to match over-award payments in private industry and to keep wages consistent with those in outside employment (Edwards, July 1970). The Board, which is the largest single employer in Australia, with nearly 10 per cent of the work force under its more or less direct control, has acquired a steadily growing influence upon wage determination throughout the economy—an influence which has not always been consistent with the national arbitration awards.

The 1970 national wage award produced a sharp rise in award wages and average earnings at the beginning of 1971, and the acceleration of wage increases continued as a result of an increase of about 10 per cent awarded in the Metal Trades case in July and its subsequent flow-on to other sectors. Employers in the metal trades were particularly affected by the collapse of the penal sanctions associated with the bans clause traditionally inserted in their awards; and in 1969 and 1970 they found themselves exposed to a rash of strikes directed at individual concerns, which were aimed at securing over-award increases from first one and then another concern. Early in 1971 the Metal Trades Employers’ Association apparently concluded that employers in other sectors were buying industrial peace with wage increases, leaving their members at a disadvantage. The association therefore decided to abandon the traditional practice of referring the union’s wage claim to arbitration, and to undertake direct negotiations instead, with the object of trading wage concessions for freedom from stoppages (Hancock, October 1971).27 Following negotiations behind closed doors, the employers and unions requested the commissioner for the industry to make a consent award for a rise of approximately 10 per cent. Since the claim did not go to the Commission as usual, the Commonwealth Government was precluded from stating its opposition to such a large increase.

The Government seized the opportunity to state its position when the carpenters’ union claimed a comparable increase in September. But it was soon clear that the Metal Trades Award had been widely followed by similar increases. Subsequently, even larger increases (of 15 per cent and more) were awarded to senior officials in federal government service, to the armed forces, and to some top trade union officials. These large awards received much publicity. A survey of executive salaries in the private sector revealed that an attempt by many companies to hold the line on executive pay in 1970 and early 1971 had collapsed because of pressures generated by the increases in public sector salaries and blue collar wages.

In November the Australian Council of Trade Unions (ACTU) filed a claim for very large increases in the 1971 national wage case.28 When the ACTU sought a postponement of its minimum wage claim, the Commission rejected its request for two separate hearings and postponed the national wage case hearings until February 1972. In May 1972 it awarded an increase of $2.00 in award wages, representing a rise of less than 3 per cent, and raised the minimum wage by $4.70.

In the meantime, the Government’s proposals for reform of the arbitration system were published at the end of 1971. They represented an attempt to reverse the forces that had modified the system of conciliation and arbitration over the last few years and closely followed the employers’ views on most vital issues,29 setting the stage for a major confrontation with the unions in 1972, an election year.

The Liberal Party/Country Party Government was defeated in the elections and the Labor Government took office in December 1972. The new Government immediately announced its intention of establishing a body to review prices in key sectors, of reviewing tariff policy, and of strengthening measures to promote competition. Pending the establishment of the prices review body, the Government set up an inquiry into a proposed increase in steel prices, leading to a recommendation against the increase in February 1973.

Early in 1973 the Government presented a bill to end the Commission’s legal powers to ban strikes, and modify the law affecting trade unions, notably by removing the restrictions on amalgamations. On this occasion, the Minister of Labor stated the Government’s intention to promote freely negotiated voluntary wage settlements and provide that such agreements be certified and given the full force of an award under the Conciliation and Arbitration Act (Bentley, 1973, p. 264). The Government also announced its intention to set up a special committee of inquiry to study the whole institutional framework of industrial relations. The bill was rejected by the upper house, and its fate remains undecided at the time of writing.

This account of postwar experience would be incomplete without a reference to the good record with respect to price stability, high employment, and relative freedom from unrest up to 1969. With unemployment averaging only 1.5 per cent in 1960–69, consumer prices rose by 2.3 per cent a year—a lower rate of increase than that achieved by the United States, Canada, or West Germany; and strikes averaged 0.40 day per worker a year compared with 1.00 in the United States (Table 1).30 Until recently, strikes constituted a means of protest against what workers considered inadequate wage awards but were rarely pushed to the point of causing economic disruption. In more than two thirds of the strikes, workers returned to work at their former wage after a brief stoppage. In certain sectors, notably mining, a high proportion of strikes represent protests against the strength of management’s prerogatives with respect to hiring and firing and discipline—which remain far greater in Australia than in most other highly unionized countries (Eltis, 1971).

Table 1.

Industrial Disputes in Australia and Other Countries, 1960–69

(Days lost per thousand workers)

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Source: U.K. Department of Productivity Gazette (November 1969 and February 1971). Data relate to workers in manufacturing, construction, and transportation.

Excluding 1968.

III. The Development of Wages Since World War II

Before attempting to draw some conclusions concerning the effects of compulsory arbitration, it will be useful to glance at the general development of wages since World War II, illustrated in Charts 1, 2 and 3, below.

Chart 2.
Chart 2.

Australia: Strikes, Unemployment, and Wage Increases, 1949/50–1972/73

Citation: IMF Staff Papers 1974, 001; 10.5089/9781451956375.024.A007

Chart 3.
Chart 3.

Australia: Wage Increases and Indicator of Autonomous Factors; Wage Drift, 1949/50–1972/73

Citation: IMF Staff Papers 1974, 001; 10.5089/9781451956375.024.A007

The wages data include series showing the weighted average of minimum weekly wage rates determined by awards and the average weekly earnings of all male workers. The latter includes overtime payments, over-award and piece-rate payments, and allowances; it covers salaries as well as wages and is influenced by changes in the structure of employment and composition of the labor force. All of these sources of changes in earnings, over and above changes in awards, are reflected in wage drift, which is usually taken to be the difference between the percentage rates of increase in the two series (Hancock, 1966; C. I. Higgins, 1971; and Nieuwenhuysen and Norman, 1971).

Owing to the trend to increasing shares in total employment of higher paid salaried positions and of high wage industries, the rate of increase in average earnings tends to exceed the rise in award wages even when other forms of pay are rising in line with award wages.31 When the level of activity declines, the increase in earnings is cut down by reductions in overtime pay and the effects of short-time work and there is slight or even negative drift (for example, from 1951/52 to 1952/53, 1955/56 to 1956/57, and 1960/61 to 1961/62).

The movement of award wages is more sensitive to variations in economic conditions than the study of national wage decisions alone might suggest.32 This comes about because the rate of increase in award wages also reflects the outcome of specific cases brought to arbitration and consent awards conceded by employers without arbitration. So long as the bans clause procedure was regarded as an effective deterrent to strikes, employers had an incentive to register negotiated settlements as an award; and there was a growing tendency to do so when strikes increased during the early 1960s. The inducement was weakened by the collapse of penal sanctions in 1969/70. When arbitration decisions became more permissive following the “showdown” with the unions, employers became less inclined to go to arbitration and the importance of the consent element in changes in award wages again increased.

At first glance, the changes in earnings and award rates shown in the lower part of Chart 2 might seem to illustrate an accelerating “wage push,” gaining force from the early 1960s—the marked acceleration of the rate of increase during the 1960s and through 1970/71 apparently having been induced by larger and larger wage increases awarded through the arbitration system.33 It would be misleading, however, to draw this conclusion without taking into account the more rapid growth of productivity and faster rise in import prices in recent years than during the early 1960s.

A measure of the strength of autonomous factors influencing the rate of wage increase given in column D of Table 2 shows that the forces making for wage increases have been substantially stronger in recent years than at any time since the Korean conflict. The figures show the sum of the trend growth of productivity over two periods (up to and after 1963/64), plus the rise in world prices as indicated by the movement of Australian import prices between the two preceding calendar years, plus an allowance for the effect of the different movement of Australian export prices over the same time span. Changes in export prices affect the climate for wage decisions in several ways: by influencing the cost of living, by changing the level of incomes and demand in the rural and mining sectors, and by causing swings in the balance of payments and reserve movements which stimulate (or discourage) capital inflows, monetary expansion, and high government spending. Since wages and domestic prices are more flexible upward than downward, a marked deterioration in the terms of trade will have less effect on wages than an improvement of the same magnitude: hence, the allowance in column D of Table 2 represents one third of each percentage improvement in the terms of trade but only one twentieth of each deterioration as a negative factor.

Table 2.

Wage Increases and Autonomous Influences, 1949/50–1972/73

(Percentage increase over preceding year)

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Sources: Data in Columns A and F from Keith Hancock, “Wage Policy and Inflation: Australia’s Experience Under Compulsory Arbitration,” Australian Economic Review (Fourth Quarter, 1971), pp. 9–14; 1970/73 data from Australian Economic Review; changes in import prices and terms of trade derived from data in International Monetary Fund, International Financial Statistics, various issues; trend growth rates of productivity for 1955/56–1963/64 (1.7 per cent) and for 1964/65–1969/70 (3.1 per cent) derived from data given in the national wage case, 1970.

Changes between successive calendar years—that is, preceding wage changes by six months.

Effect assumed is one third of the percentage improvement in terms of trade or one twentieth of deterioration in terms of trade between successive calendar years.

Percentage change in earnings, less percentage change in award rates.

Figures for first three quarters only.

The movement of award wages between successive 12-month periods ending in June appears to have been responsive to the influence of autonomous factors as measured by this indicator. For about a decade after the abolition of the automatic adjustment of the basic wage in 1953, the change in award wages paralleled the indicator. But when the falling trend of export prices was reversed in 1963 and productivity growth accelerated, the rate of increase in award wages did not keep up with the indicator.34

In a small, open economy such as the Australian, if the authorities maintain close to full employment and a fixed exchange rate, the movement of domestic wages and costs cannot be insulated from the influence of world price movements for any extended period without provoking an eventual readjustment, probably occasioned by a mounting imbalance of the external payments accounts. Thus the movement of the indicator given in Table 2 may be taken to represent a conservative estimate of a tenable rate of increase in wages. Seen in this light, the rate of increase in award wages seems to have been essentially satisfactory during the decade after the abandonment of the automatic cost of living adjustment.35

wage developments in the 1960s and 1970s

The development of wages during the 1960s and early 1970s can be seen as a sequence of a perhaps unduly small rise in award wages during 1962/63 and 1963/64, associated with heavy wage drift, followed a few years later by the unsuccessful attempt to raise the level of award wages relative to actual earnings and so absorb into award wages the substantial over-award payments that arose in part from the earlier heavy wage drift. In 1967/68 and 1968/69, when the increases under the 1967 metal trades decision and the subsequent flow-on to other sectors took effect, the rise in award wages considerably exceeded that indicated by the strength of autonomous factors and was responsible for a quite dramatic rise in the rate of increase in average earnings relative to that indicator, wage drift being slight (see Charts 2 and 3 and Table 3).

Reacting to mounting criticism by the employers and the Government, the arbitrators enforced a reduction in the rate of increase in award wages in 1969/70, while the autonomous forces making for wage increases were strengthened by faster rising import prices. The increase in earnings continued to accelerate, with exceptional wage drift occurring in the context of the collapse of the penal sanctions against strikes and severe industrial unrest. Employers became less inclined than they were before to go to arbitration or to register settlements as awards. Consequently, earnings moved more sharply out of line with award rates than in any recent year, and the continuance of the arbitration system appeared to be threatened. The large national wage award of December 1970, the intervention of the Commission in the Oil Industry case on its own initiative, and the change in its approach described earlier constituted a dramatic response to this situation. As a result the relative movement of award wages and earnings during 1970/71 was very different from that in 1969/70. During the four quarters ended June 1971, award rates and earnings rose almost in line, award rates rising nearly twice as fast as provided by the national wage agreement. Award wages and earnings also rose almost in line from 1970/71 to 1971/72, when earnings drift was limited by reductions in overtime associated with the decline in activity and by the growing tendency for negotiated settlements to take place under the aegis of the arbitration system. A marked reduction in the rate of increase of award wages from 1971/72 to 1972/73 was associated with renewed drift (see Chart 3).

Table 3 compares wage developments during 1966/67 to 1971/72 with earlier experience. It shows that the increase in weekly earnings was on average 3.3 per cent higher during these years than during the early 1960s. The influence of autonomous factors and the slightly greater secular drift assumed accounted for about two thirds of the acceleration; the remainder was due to larger increases in award wages, in part offset by lower drift. Table 3 shows that this latter “excess” increase in earnings occurred in the four years 1967/68 to 1970/71, and it seems to support the interpretation that the excess increase was mainly a consequence of the nonenforcement of the 1967 metal trades decision and the collapse of penal sanctions. The unusually large increases in award wages in 1967/68 and 1968/69 were the direct result of the decision, while the unusually heavy drift of 1969/70 reflected the granting of increases on a similar scale to government employees and salary earners, as well as nonaward wage movements facilitated by the collapse of penal sanctions. The large 1970 national wage award and the continuing heavy wage drift in that year must also be seen in the context of the abnormal situation created by the collapse of penal sanctions. However, by 1971/72 and 1972/73 the faster rise in earnings than that during the early 1960s could be attributed almost entirely to autonomous economic forces.

Table 3.

Comparison of Wage Developments in 1966/67 to 1972/73 with Earlier Years

(Percentage increase over preceding year)

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Sources: See Table 2. See also footnotes to Table 2.

Figures given in column D of Table 2, plus allowance for secular drift of 0.8 in 1954–66, 1.0 in more recent years.

Wage drift shown in Table 2, less allowance for secular drift.

Change in award wages less influence of autonomous factors (Column E in Table 2).

Figures for first three quarters only.

findings of recent econometric studies

Since an earlier version of this study was circulated in 1972, it has become accepted that the movement of award wages must be regarded as largely endogenous. Until recently little work had been done on assessing the factors influencing award wages, and there was a widespread tendency to treat awards, implicitly or explicitly, as an exogenous factor determining changes in earnings. As Jonson and Mahar (1972) point out, this often led to the conclusion that judgments of the Commission could or should be manipulated as an instrument of economic policy. Opinion shifted after several econometric studies had traced the relation between price and pressure of demand or productivity variables and the size of changes in award wages. It is now accepted that in Australia the widely observed influence of prices upon earnings has operated mainly through movements in award rates (C. I. Higgins, 1973).

The exceptional wage developments of recent years, as described here, are reflected in the findings of recent econometric studies, which show a marked structural change after 1963 in equations explaining increases in earnings by changes in award wages and the direct influence of other variables, as well as in equations explaining the movement of award wages. While the analysts have pointed out the smaller apparent influence of economic variables over this period, they have not attributed this to a swamping of the normal effect of economic forces by the impact of the extraordinary situation created by the 1967 metal trades decision and the collapse of penal sanctions.36

Over a longer period, C. I. Higgins (1973) and Jonson and Mahar (1973) have found that the size of awards in basic wage cases can be related to the rise in consumer prices and to the increase in productivity since the previous case, and have found a similar, though less marked, influence of prices on Metal Trades Awards. In an earlier study, in which the productivity variable was not included, C. I. Higgins (1971) concluded that, over the period 1956 to 1970, about two thirds of the variation in award wages arose from the variation in the size of these major national awards, 13 per cent was directly due to changes in consumer prices, and 6 per cent was directly due to pressure of demand variables, leaving 13 per cent unexplained. Since a considerable part of the variation in major awards was itself attributable to the movement in consumer prices and the pressure of demand, he suggested that price changes might account for 60 per cent and pressure of demand for a further 15 per cent of the variation in the rate of increase in award wages (somewhat less if productivity growth and other factors not included in the analysis were to be positively correlated with price changes).

Higgins also found that about 56 per cent of the variation in the rate of change of average weekly earnings was due to variations in the rate of change of award wages expressed as a percentage of earnings and 25 per cent was due to the pressure of demand variables, leaving 19 per cent unattributed. Altogether, because of the effects of the pressure of demand on major awards and on the movement of award wages over and above the changes in major award cases, about one third of the variation in the rate of increase in earnings was attributable to the changes in pressure of demand. Award changes were reflected in earnings with significant lags; absolute increases in awards were more than fully reflected in earnings changes, although the percentage increases in earnings were smaller because of the greater absolute value of average earnings than of average award wages.

autonomous influences on wage developments

The studies referred to shed some light on how the apparent responsiveness of award wages to autonomous factors, postulated here, comes about.

As has been seen, the movement of award wages comprises the predominant effect of major national awards plus the effect of other changes in award wages, both influenced by the recent movement of consumer prices and the current level of activity. If major awards reflect the rate of increase in consumer prices since the last decision, their size will be related to the changes over this period in import prices, export prices, and the movement of domestic prices—the latter mainly reflecting other changes in award wages and the movement of earnings relative to award wages, both influenced by the pressure of demand. Thus the movement of consumer prices itself will be largely explained by external price movements and the pressure of demand. The movement of award wages will be influenced by those factors through the change in consumer prices and also directly by the pressure of demand.

Now one can see how the movement of award wages is influenced by autonomous changes in export and import prices. When export prices are changing (as in the period up to 1965/66), the induced changes in the pressure of aggregate demand influence the rate of increase in award wages and earnings, both directly and indirectly through their effect on the rate of increase in consumer prices. When import prices are increasing (as in the late 1960s and early 1970s), this affects the rate of wage increase by its direct effect on consumer prices and by its indirect effects on increasing the capacity to pay of import competing industries or of industries whose prices are set in conformity with world market prices. The pressure of aggregate demand will exert less influence on the rate of wage increase than in the preceding case.

IV. The Australian Compulsory Arbitration System as a Form of Incomes Policy

The question whether compulsory arbitration in Australia has served as a form of incomes policy since the war needs to be seen in an overall perspective. In general it would appear that the Commission’s own view that its primary function is to serve as an instrument of industrial relations is correct. It is arguable that, in attempting to convert the Commission into a recognized instrument for achieving a non-inflationary development of wages, the Government, employers, and economists were distorting a valuable institution which should have been used within the broader framework of an incomes policy instead of being virtually the sole instrument of such a policy.

Between the end of the Korean conflict and the mid-1960s, the arbitration system contributed to the moderation of wage increases, but in subsequent years the system functioned less satisfactorily and may even have tended to enhance the acceleration of wage increases caused by autonomous factors.

restraints imposed by the system

Several important influences served to restrain wage increases during the 1950s and early 1960s. The exceptionally high level of domestic labor costs relative to those abroad, which resulted from the automatic adjustment of wages for the explosive increase in consumer prices at the time of the Korean conflict, imposed a constraint. Falling farm prices and incomes moderated wage pressure by keeping down the cost of living and limiting demand in the rural sector. Net immigration was responsible for raising the number of persons of working age by some 1 per cent a year over this period; this was a factor tending to ease the strength of wage pressure by contributing a greater degree of flexibility to the labor market than would otherwise have existed with the high employment prevailing (Downing, 1971) and also by rendering it difficult for the unions to organize labor in some sectors. On the other hand, immigration contributed to the high level of aggregate demand by enhancing the demand for construction and public services.

Despite these favorable conditions, it appears that the arbitration system also helped to limit wage pressures in several ways:

(1) By creating a general consensus on the existence of some “justified” rate of increase in wages.

(2) By limiting the development of powerful unions for the purpose of collective bargaining, except in a few sectors (Isaac, 1971b).37

(3) By imposing an “institutional drag” upon wage settlements, at times taking deliberate advantage of the power to delay awards.

(4) By limiting the use of strikes as an instrument for securing wage increases from individual employers, through the existence of legal sanctions against strikes.

The whole procedure of wage determination by means of national basic wage and margins cases, and by means of arbitration in specific disputes, almost certainly exercised a greater degree of constraint on the scale of particular wage increases than would have applied under collective bargaining.38 At the same high level of employment, in the absence of compulsory arbitration there would probably have been more unrest and a faster increase in wages and prices in strongly unionized sectors than that which actually occurred, coupled with a tendency for real wages to decline in other lower wage sectors. Such a tendency might in turn have generated political pressures for the raising of low wage incomes.

Australian experience indicates the importance and the limitations of penal sanctions. The establishment of the bans clause procedure in 1951 gave the Commission some power to act as a compulsory wage-fixing authority during the 1950s and early 1960s, despite the fact that award wages were minimum and not maximum rates for the job, since the penalties for strikes limited the willingness of the unions to strike for over-award increases when the employers resisted their claims. Subsequent experience, however, demonstrated that, in a democratic environment, sanctions cannot be used to enforce a decision which unions or employers are united in opposing. The principal usefulness of sanctions in connection with incomes policy is, perhaps, as a weapon against particular unions or employers who contravene a generally accepted code of behavior with respect to wage decisions.

While compulsory arbitration served to moderate wage pressures, it was nevertheless a valuable feature of the system that the movement of arbitration wages was not strongly insulated from market forces. This came about partly because of the influence of over-award payments in stimulating claims for increases in award wages. The arbitration authorities were rightly concerned that award wages should not fall too far out of line with actual wages, since this would have led to increasing reliance on collective bargaining rather than arbitration and since it would have been unfair to those groups which were wholly dependent on award wages. This attitude amounted to recognition that the power of the system to prevent wages from rising was limited when the unions could secure higher wages outside the system, but it served to prevent the buildup of market forces which has sometimes occasioned the complete abandonment of restraint under more rigid systems of wage control.

The Australian case confirms the impression (which any observer of centralized wage determination must derive from a study of the institutions and procedures applied in the Scandinavian countries, the Netherlands, and elsewhere) that it is exceedingly difficult to appraise the advantages of different forms of centralized wage determination, because their effectiveness depends to a large extent on the political talents of the administrators. One can see only that certain situations may encourage a fruitful attitude of compromise or that the apparent opportunities for personal influence, rates of remuneration, and so on may or may not encourage the entry, or the development on the job, of exceptional talents within the wage-determining organizations. The existence of close and continuous personal contacts, on an almost day-to-day basis, between a relatively few individuals with considerable authority in the employers’ organizations, unions, and government departments concerned is undoubtedly of the greatest importance. Problems can then be discussed before they become major issues; the individuals know each other sufficiently well to interpret each other’s reactions correctly; and they acquire an understanding of the difficulties and attitudes of the other parties. Informally, at least, the issues can be discussed in practical terms rather than in political slogans. Such close personal relations are obviously easier to achieve in a small than in a large economy.

The work of the Commission should be viewed as a continuous process of arbitrating between the employers and the unions, with the Commission tending to support either the one or the other group when its position is difficult. The survival of the system weighed more heavily with the judges than the avoidance of inflation; they were fully aware that the Commission’s powers were circumscribed by the risk of withdrawal of one or other side from the system. Partial withdrawals have, in fact, occurred in recent years—in developments such as the widespread recourse of employees to unofficial or official strikes at the plant level in support of over-award claims, with the employers conceding increases for the sake of continued production under boom conditions, or the metal trades employers’ decision to opt out of the system in 1971. However, it would seem worth considerable effort to preserve those existing institutions in the wage-fixing sphere that command a strong measure of public support. Australian experience illustrates that it may be possible to adapt an existing institution to perform a completely different function, when it would be extraordinarily difficult to set up a new institution for that purpose in the absence of widespread support for its establishment.

problems of implementing incomes policy

The history of compulsory arbitration since World War II prompts some reflections on the nature of the problem of implementing an anti-inflationary incomes policy under full employment conditions.

Two basic propositions need to be borne in mind.

(1) In a changing economic environment there will be a tendency for money incomes to rise more rapidly at certain points in the system than at other points.

(2) Under a democratic government, it will be impossible to maintain any form of incomes policy restraining the rise in money incomes unless the policy is generally regarded as equitable. The most easily accepted notion of equity is that per capita incomes should rise in line.

In practice this notion of equity has the greatest force where direct comparison of rates of change is possible—for example, as between workers in the same factory, between wage settlements for different industries, or between pay increases granted to various groups of employees such as industrial workers, civil servants, municipal workers, the armed forces, and so on. This explains the great importance attached to the principle of comparative wage justice in the Australian system.

It is generally more difficult to compare the rates of change or relative levels of wages and salaries and other forms of income, such as profits and income from self-employment, because far less information is available concerning the latter. Besides this, profits, farm incomes, and the like are expected to fluctuate more than wages and salaries, and profit rates vary as between concerns. Nevertheless, considerations of equity are powerful here too. The vague concept of capacity to pay represents a strong requirement in Australian public opinion that the arbitration system should ensure an equitable development of wages and salaries versus other forms of income; and a belief that this implies that the share of wages and salaries in the national income should at least be maintained over a period of years.

When a very high rate of profit is known to be earned by the typical concern in an industry, or by a single very large enterprise (such as General Motors-Holden), this raises conflicting notions of equity. Wage and salary earners in the industry naturally take the high rate of profit to indicate that the capacity to pay higher wages exists, and that their earnings are inequitably low relative to those of the owners of the concern. If the arbitration system grants a substantial wage increase in these circumstances, based on a vertical comparison between wages and profits within the industry, this disturbs the horizontal relativities between wages in this industry and those elsewhere; it also sets in motion pressures for commensurate wage increases in other sectors. On the other hand, if the arbitrators withhold a large wage increase on the grounds of comparative wage justice for other workers, the employees concerned are likely to negotiate wage increases outside the arbitration system, producing evident inequity between employees who are or who are not able to secure over-award increases, and encouraging the spread of collective bargaining in place of arbitration procedures.

Thus the arbitration authorities (or incomes policymakers) face a continual series of challenges arising from the need to reconcile the tendency for incomes to rise more rapidly at certain points in the system than elsewhere, with the necessity of satisfying the public’s concept of an equitable development of incomes. Policymakers must be continually seeking an economically feasible and politically tolerable compromise. The force of the concept of comparative wage justice virtually compels any incomes policy authority to adopt a uniform guideline for wage increases (possibly with somewhat more favorable treatment of the lowest paid workers). But if it is to survive, an arbitration system or incomes policy will have to accommodate powerful pressures making for “above-norm” increases in wages in particular sectors, which would otherwise be satisfied outside the arbitration system or in contravention of the incomes policy. This means that success in achieving a moderate rate of wage increase under a system of coordinated wage fixing will be conditional upon limiting the tendencies making for above-norm increases in certain sectors and as far as possible avoiding situations encouraging rapid wage increases in particular sectors of the economy.

One implication of this is that a noninflationary development of wages and salaries is unlikely to be achieved under centralized wage determination if there are sharp reversals of economic policy aimed at securing a rapid recovery of employment in recessions by stimulating particular sectors, notably the construction sector. The successful maintenance of an incomes policy over a period of years may only be possible within the framework of a wider coordinated economic policy aiming consistently at certain goals, including the achievement of a reasonable degree of price stability.

Two areas of special concern in seeking to limit above-norm wage increases are (1) sectors of unusually rapid productivity growth within the economy, and (2) the impact of external price increases.

Industries of rapid productivity growth are often characterized by large-scale units of production, capital intensity, difficulty of entry for new producers, and high rates of investment based on high gross profit rates inclusive of depreciation. These same characteristics make for substantial bargaining power of labor and encourage the development of strong unions. When higher-than-average productivity growth occurs through the discrete application of new techniques or the commissioning of new capital, it requires changes in the methods of operation and a work force willing to adopt new methods. In these circumstances there will be a powerful incentive to grant above-norm increases, in order to secure the gains in productivity, or to avoid the risk of losses occasioned by shutdowns in highly capital-intensive industries. For the enterprise, “productivity bargaining” presents a means of achieving cost reductions by promoting higher productivity and better industrial relations. The problem of preventing such arrangements from stimulating similar large wage increases elsewhere in the economy has not been successfully resolved in any incomes policy to date. Nevertheless, it would appear that the gearing of some above-norm wage increases to changes in work practices is a necessary feature of any system of wage determination; and that any lasting incomes policy must seek to find a practicable compromise between the wish to restrain the rise of money incomes in general and the need to permit above-average increases in earnings as a means of securing cost reductions through improvements in productivity.

Newly established, capital-intensive industries pose a particular problem in this context. In Australia, one factor making it difficult in recent years to maintain an undifferentiated rise in all wages more or less in line with the growth of productivity has been the high rate of return in industries such as automobile, engineering, and oil, where the price level was set by international prices plus tariffs while the level of pay remained lower than that of similar workers in the United States or Europe. The high rate of return in such industries was the result of deliberate government policy to provide inducements for the establishment of new industries in order to foster greater self-sufficiency of the economy. However, it inevitably follows that Wage restraint tends to be lax, and the bargaining position of labor in these sectors is exceptionally favorable.

As a remedy, it has been proposed that industries or enterprises which grant wage increases in excess of the norm should be subject to selective price surveillance or control. The Commission should perhaps be enabled to refer wage claims relating to specific industries to an independent organization for investigation if any important issue of national interest were raised. Such an independent body could consider and report on the economic position, past productivity performance and prospective gains, pricing behavior and scope for price reductions in the industry, and, if necessary, could suggest methods of enforcing greater wage and/or price discipline by government action. A body similar to the U. K. National Prices and Incomes Board might play a useful role, in conjunction with compulsory arbitration.

The Commission has been severely criticized for the fuzziness of its concept of capacity to pay. However, the judges seem to have been more aware than their critics that the movement of wages in an open economy at close to full employment is likely to be strongly conditioned by external factors because the capacity to pay of business in general will be changing, even if domestic economic policies and the rise in productivity remain unchanged.

In discussions of national wage awards, needless confusion has been caused by the failure to differentiate clearly between the capacity of business to support an increase in money wages and the economists’ concept of the capacity of the economy to support an increase in real wages (permitting money wages to rise without causing a price increase). In an open economy the arbitration authorities or incomes policymakers must expect that there will, at times, be powerful forces originating abroad, making for price and wage increases in export or import competing sectors (Swan, 1960). Insofar as these pressures are not mitigated by economic policy, the arbitration system or incomes policy has to accommodate them or collapse. When external prices and wages are rising, the incomes policymakers have to decide not only the maximum rate of increase in prices and wages that should be tolerated, but also the minimum rate of increase that is feasible in the prospective external conditions.

Under fixed exchange rates, and within a given institutional framework,39 in the absence of incomes policy there will be some natural rate of change in average money wages (occasioned by pressures for pay increases from specific groups of employees) corresponding to each level of aggregate demand and set of external conditions affecting world prices. When full employment is maintained and labor is organized, the natural rate of wage increase will be positive; and it will usually exceed the trend growth of productivity if export or import prices are rising, or if the balance of payments on current account improves sharply when world prices are stable. It may be possible to keep the rate of wage increase below the natural rate by incomes policy. However, the more ambitious is the goal with respect to the difference between the natural rate and the rate of increase that it is hoped to achieve, the more coercive the incomes policy will need to be with respect to mandatory price and wage controls and sanctions, and the more necessary it will be found to attempt to reduce the natural rate by changing the institutional conditions—for example, by legislation and other measures to foster greater competition and limit monopoly power of firms and unions; by compelling enterprises to divulge details of profits, wages paid, and pricing policy; and by intervening in the detailed operations of specific sectors.

Rising prices make it more difficult to secure cooperation in a system of compulsory arbitration, as the willingness of employees to forego strike action in support of wage claims is decreased when enterprises are freely raising prices. It may therefore be an essential condition for securing benefits for a compulsory arbitration system, in the form of good industrial relations and moderation of wage pressures, that the system should be shielded from the impact of strong inflationary forces from abroad.

application of the system in other countries

In concluding, it is worth considering briefly whether the Australian system of compulsory arbitration could be adopted with advantage by other countries.

It is clearly necessary in this context to distinguish between countries in which collective bargaining is strongly developed and those in which wage determination procedures are still largely undeveloped. The Australian system originated in circumstances not dissimilar from those existing in a number of less industrialized countries today, and Australian experience supports the view that compulsory arbitration may be a highly useful device in a country undergoing industrial development. In a less developed country, where labor is not yet strongly organized in most sectors, and where the judiciate or the civil service is generally respected (an important qualification), the establishment of an arbitration system on the Australian model could be important as a means of avoiding an increasingly inequitable distribution of income, as between groups of workers in a position to capitalize on their market power by organization and those unable to do so (notably the self-employed or unemployed and employees of small-scale industry). As Turner (1965, pp. 69–70) has pointed out, the early stages of the development of collective bargaining are often accompanied by violent disturbances, with disruptive effects on the economy; and collective bargaining in a key major sector may produce such pressure on the general level of wages that it creates a strong inflationary tendency throughout the economy. The government may not choose to be directly involved in the thorny issue of wage determination, and it may lack sufficient trained administrators to undertake detailed responsibility for wage determination outside the public sector. An independent tribunal can, however, make detailed decisions on the basis of testimony presented by the employers’ and workers’ representatives, who will be fairly expert concerning conditions and problems in their particular industries, and so it can gradually acquire a general knowledge of the wage problems of the economy. Turner also refers to the advantages of a system of a basic minimum wage and margins as a means of establishing a favorable structure of relative wages such as to provide the necessary incentives to newly entered and inexperienced industrial wage earners to improve their individual capacity and efficiency.

The establishment of compulsory arbitration in industrialized countries is more problematical. Wage developments in Australia since the extension of collective bargaining, and labor’s increasing power to secure over-award payments at the local level, do not suggest that the establishment of compulsory arbitration alone would ensure any marked easing of wage pressures at close to full employment in countries where the unions and the workers on the shop floor are already strongly organized as bargaining units. Nevertheless, a permanent independent arbitration tribunal could play a certain role among the institutions of an economy in the circumstances just described. Even if its decisions were in the main accommodative, such a body would be better placed to achieve a consistent set of wage decisions and to promote the gradual development of less strongly sectional influences upon wage determination than would a series of ad hoc tribunals commonly resorted to as a means of settling major disputes. Such bodies are often either ignorant of, or determined to disregard, decisions in earlier cases. The advantages of having some permanent independent institution to adjudicate on particular wage decisions, and perhaps to set the general policy on wages in the light of advice from the Government, have been stressed as a means of avoiding political difficulties occasioned by the Government’s direct involvement in incomes policy and of lessening the danger of the unjustified relaxation of restraint before elections.

Reference was made at the beginning of this section to the benefits derived from the system of compulsory arbitration as an instrument of industrial relations. The influence of the compulsory arbitration system in restraining inflationary forces by lessening social frictions cannot be measured. To the extent that such a system can limit the tendency for the various social groups to compete against each other in the scale and timing of their pay claims and the tendency for businesses to become more inclined to raise prices in the expectation of rising costs and rising money demand, it can contribute substantially to making the economy less prone to accelerating price inflation. Over and above this direct gain it can contribute greatly to political stability and economic efficiency by avoiding the socially abrasive climate which is the greatest real cost of such an inflationary situation.


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Dual Exchange Markets and Other Remedies for Disruptive Capital Flows 1

J. Marcus Fleming

In this paper, various policy instruments at the disposal of national governments for dealing with the problem of disruptive international capital flows or, more generally, the problem of temporary and reversible payments imbalances, are passed in review. The instruments examined include (1) separate (dual) exchange markets for capital and current transactions, (2) taxes and subsidies affecting capital transactions or income from capital, (3) official intervention in forward exchange markets, (4) monetary or interest rate policies (including the fiscal-monetary mix), (5) official financing or use of reserves, and (6) floating unitary exchange rates and wider margins. Attention is focused on the device of dual exchange markets, which is evaluated in comparison with each of the other approaches from the standpoint of allocative effects, scope, enforceability, flexibility, and so on. Dual markets, if conducted on appropriate lines, are found to compare favorably on the whole with most of the other policies, with the possible exception of floating unitary rates. The paper closes with a suggestion for a system of dual exchange markets with floating rates (subject to appropriate official intervention) on both markets.

Fund Transactions and Reserve Creation, 1951–73 1

Vittorio Barattieri and Franco Batzella

This paper analyzes the extent to which transactions with the International Monetary Fund’s General Account have contributed to the growth of international reserves during the period 1951–73. For this analysis, the authors have used the framework described by J. Marcus Fleming in 1964.

The liquidity effects of transactions between participants in the Fund’s Special Drawing Account are also briefly investigated.

Gross reserve creation through Fund transactions arises from increases in unconditional liquidity of members whose currencies are drawn by others, as well as from loans extended to the Fund. In the first approximation, net reserve creation is determined by subtracting members’ payments to the Fund of gold and special drawing rights from total reserve positions in the Fund. A more accurate estimate of net reserve creation is obtained by taking into account the net variations in foreign exchange that occur in connection with Fund operations—that is, by estimating the net amount of currencies that remain in the international monetary system (or that are absorbed from it) after drawings (repurchases) from the Fund, net of conversions and swap repayments.

The paper attempts to estimate the year-end level of cumulative net reserve creation from 1951 to 1973, as well as its annual variations. Somewhat surprisingly, the analysis of the data does not indicate a close relationship between changes in Fund-generated liquidity and changes in other international reserve assets, except for the last four years of the period examined. Beginning in 1970, the effects of Fund transactions tended to counterbalance, however slightly, the enormous increase in world liquidity from other sources.

The Evolution of Monetary Instruments and Policy in Spain 1

Christopher Browne and Leo Van Houtven

Developments in the Spanish credit system and in the conduct of monetary policy over the past 20 years fall into three distinct periods: the 1950s, the 1960s, and the period since 1969. During the 1950s, the authorities lacked the instruments to control the liquidity of the credit system, and they gave priority to meeting the financing needs of the public sector. Following the implementation of the 1959 stabilization program, the banking reform of 1962 provided the authorities with instruments for liquidity control, but these were not effectively utilized in the period up to 1969 because priority was given to meeting the needs of the rapidly growing private sector. In both periods, monetary management contributed to the repeated emergence of balance of payments difficulties, strong upward pressures on prices, and wide cyclical swings in economic activity.

Since 1969, the authorities have increasingly turned their attention to gaining effective control over the liquidity of the economy through the use of additional monetary policy instruments. The new system was put to its first major test in 1973, when the authorities aimed for a slowing down of monetary expansion—after the unusually high rates recorded in the two preceding years, when they had pursued an accommodating policy to promote the reactivation of the economy. In the first half of 1973, the authorities acted to reduce the liquidity of the banks by a variety of measures. Three-month Treasury bills were issued, compliance by the banks with the minimum cash ratio was required on a daily basis, and rediscount lines at the Bank of Spain were reduced. However, the rate of monetary expansion remained excessive, in part because of a substantial inflow of foreign funds, reflecting the large balance of payments surplus. Nevertheless, by mid-year the authorities appeared to be in a position, for the first time in many years, to slow the pace of credit expansion through indirect liquidity control.

The banking reform of 1962 introduced measures to increase and widen the range of financial institutions, including abolition of longstanding restrictions on the establishment of new banks and bank branches. At the same time, however, the reform strengthened the policy of preferential credit to priority sectors, which was already widespread in the 1950s, and increased the compartmentalization of the credit system—for example, by requiring private banks to qualify either as commercial banks or as industrial banks and by reforming the operations of the official credit institutions. The granting of preferential credit expanded sharply in the first half of the 1960s and by 1966 affected more than one third of credit to the private sector. However, since 1969 important steps have been taken to induce greater competition among financial intermediaries and to increase the role of market forces in the collection and allocation of financial resources.

Price Expectations and Actual Price Behavior in Germany 1

Adalbert Knöbl

The hypothesis that price expectations exercise at least a partially independent influence on actual price behavior is empirically tested. The method used, which differs from earlier analyses, quantifies data from qualitative price surveys to derive an explicit time series of price expectations.

In brief, the analysis shows that there is empirical evidence that price expectations influence the actual rate of inflation and that price expectations depend to a large degree on past experience, on past rates of inflation, and demand pressures. The analysis suggests, therefore, that the actual rate of inflation at any point in time depends on three principal factors: (1) cost pressures, (2) demand pressures, (3) the rate of inflation experienced in the recent past through its effect on formation of current price expectations.

These conclusions, if valid, have important policy implications. In a situation of accelerating inflation it may be very difficult to moderate the pace of inflation by means of demand management policies applied in conventional degree. It is unlikely to be sufficient for such policies to bring pressures on capacity down to some medium-term norm, because the analysis suggests that it is necessary not only to eliminate excess demand pressure but also to take action to offset the inflationary pressure built up as a result of recorded past price performance. In other words, demand management policy must be sufficient inter alia to break rising price expectations. This approach implies that a “break” in such expectations can be achieved by demand management policies only at the cost of an unusually high degree of restrictiveness and associated cost in unemployment.

However, the analysis suggests that, when price expectations have been broken by such policies and the contemporary rate of inflation is thus acceptably moderate, it would be possible for unemployment to return to its earlier lower level and for demand management policies to be restored to the earlier single role of avoidance of excess demand pressure. Thus, very tight demand management policies in the short term may be a means of improving the unemployment-inflation trade-off in the medium term.

It is pointed out, however, that an alternative approach for breaking built-up price expectations would be the implementation of prices and incomes policies, possibly involving a wage-price freeze. Arguably, such an approach could mitigate the degree of severity of the restrictive demand management policies that would be required if inflationary expectations were to be broken by such measures alone, while it may offer a broadly similar prospect for an improvement in the unemployment-inflation trade-off in the medium term.

Incomes and Labor Market Policies in Sweden, 1945–70 1

Ekhard Brehmer and Maxwell R. Bradford

In the period immediately after World War II Sweden relied on incomes policy measures, including direct control of prices, but did not adopt adequately restrictive demand management policies. This strategy did not succeed in reconciling the policy objectives of price stability, full employment, and economic growth. To achieve this end in an optimal manner, the mix of economic policy was deliberately shifted during the 1950s to active monetary and fiscal policies and has been extended since the late 1950s to active labor market policies.

Originally designed to assist demand management policies, labor market policies have subsequently become an instrument of structural policy, used independently of cyclical conditions, and an especially important element of the Swedish Government’s efforts to reconcile price stability, rapid growth, and full employment. However, in the 1950s and 1960s the Government did not attempt to interfere with the wage bargaining process, mainly because of opposition by labor and management. The unions have aimed to obtain uniform average contractual wage increases regardless of the level of productivity in industrial firms or branches. Combined with more or less efficient demand management policies and international competition (limiting the rise in international prices in most postwar years), both the union policy of wage solidarity and the active labor market policy of the Government were instrumental in promoting the desired restructuring of the Swedish economy. This restructuring successfully enhanced the efficiency of Sweden’s export sector, although the accelerated shutdowns of import-competing firms in the 1960s contributed to an increase in Sweden’s import propensity.

The “new” policy mix has been more successful in the 1950s and 1960s in preventing recessions than in combating inflationary tendencies, partly because of the continued determination of the Government to sustain full employment and a high degree of social welfare. In addition, it has been difficult to contain the upward pressure on prices in conditions of full employment because of structural factors that are beyond the control of demand management. Such factors arise from the fact that sectors exposed to international competition and with relatively high productivity growth have served as wage leaders which passed on uniform wage increases to the “sheltered” sector far in excess of the latter’s productivity gains.

The main obstacles to the adoption of an effective incomes policy by the Government have been the wide productivity differences between economic sectors and the lack of control over wage drift by the labor market organizations.

Capacity Taxation: The Pakistan Experiment 1

Sijbren Cnossen

The underutilization of existing capital stock is a disturbing phenomenon in developing countries. Faced with this situation, Pakistan introduced a new tax in 1966 that was called a capacity tax. By taxing capacity output instead of actual production, the Government believed that the resulting decline in average tax rates as production expanded would stimulate output. In addition, administrative procedures would be simplified, particularly because the capacity tax obviated the need for the cumbersome production controls in effect under the excise system.

The capacity tax was levied on five industries in lieu of the excise duties previously charged. Annual production capacities were mainly computed from past and comparative physical production data, although machine ratings were also used. The tax liability could be adjusted with the installation of additional machinery or removal of old equipment. Abatements were granted if production had to be halted for reasons beyond a manufacturer’s control or in case of widespread industrial setbacks; a refund scheme was in effect for exports, and allowances were provided to stimulate regional industrialization.

As borne out by Pakistan’s experience, measuring capacity properly is a complicated exercise. No matter how much expertise and ingenuity are applied, inherently arbitrary elements remain. On the other hand, a capacity tax interferes less with the utilization of capacity than a conventional form of excise tax that relies on production controls. A capacity tax might be employed to facilitate the transition of an extended excise system to a sales tax relying on documentary verification, and it is a useful proxy for the excise or sales tax liability of small manufacturing units that do not keep adequate accounts.

The incentive effects of a capacity tax are uncertain, although to the extent that it raises the price of capital, a capacity tax may induce entrepreneurs to use existing capital stock more fully. The industries subject to capacity tax in Pakistan were already operating at high utilization rates, because they relied on abundant indigenous raw materials. For other industries in Pakistan it may be surmised that the removal of constraints on the supply of raw materials, if possible, would have solved much of the basic policy conundrum.

It seems appropriate to emphasize that if a government’s objective is to increase production, an essential requirement is the provision of a suitable macroeconomic framework for carrying on business activities. Disincentives and imperfections that hinder an efficient functioning of the market mechanism should be removed before incentives to increase production are added to the government’s tax policy arsenal; even then, their potentially beneficial effects should be carefully weighed against the costs of the uncertainties and administrative complications that inevitably follow their introduction.

Compulsory Arbitration as a Form of Incomes Policy: The Australian Case 1

Anne Romanis Braun

The role of arbitration tribunals in settling industrial disputes and fixing the terms of employment by legally binding rulings is a distinctive feature of the Australian economy. A centralized system of wage decisions gradually developed out of the arbitration procedures established as a substitute for collective bargaining during a period of chronic unemployment and unrest around the turn of the century. Centralized decisions gave the Commonwealth arbitration authority power to influence the movement of wages and salaries in general, and required consideration of a national wages policy. Australian experience in this respect is of considerable interest for other countries considering implementation of an “incomes policy.”

Arbitration was established in 1904 as a means of preventing poverty and unrest by legal determination and enforcement of minimum wage rates; strikes were prohibited until 1930. The “basic wage,” set to cover the needs of a family, became the going wage for unskilled work, and “margins” were granted for different skills and for different conditions of work. The basic wage was automatically adjusted for changes in prices from 1922 to 1953. During the slump of the 1930s, the Court enforced a general reduction in wages, and is credited with having lessened the impact on employment and activity.

Since World War II the arbitration authorities have sought to develop procedures appropriate to full employment conditions. In the early 1950s the regulatory function of the system was strengthened by the abolition of automatic adjustment, by uniform increases in margins, and by provision of sanctions against strikes. For a decade, the system helped to moderate wage pressures, but difficulties began to develop in the 1960s when more favorable external conditions were associated with increasing wage drift. Major issues, such as the criteria for determining the scale of wage increases, the advantages and disadvantages of automatic adjustment for changes in the cost of living, and the problem of limiting drift, are discussed in their historical context. High profits in particular industries, favoring large wage increases under specific arbitration decisions or in over-award settlements, posed the choice between permitting similar large increases elsewhere with inflationary consequences or contravening “comparative wage justice” and undermining employees’ support for arbitration. Following an unsuccessful attempt to absorb “over-award” payments into award wages in 1967 and the collapse of sanctions against strikes in 1968/69, the system has functioned as “quasi-collective bargaining.”

A study of wage movements since 1953 suggests that the rate of increase in award wages has generally been responsive to the influence of world price changes and productivity growth, but that developments within the arbitration system in 1967–69 were partly responsible for the faster rise of wages after 1967.

The paper concludes that compulsory arbitration should be seen as a valuable instrument of industrial relations, which can have important indirect effects in reducing inflationary wage pressures within the broader framework of an incomes policy. Compulsory arbitration may be particularly applicable in countries commencing their industrial development.


Doubles marchés et autres remèdes aux mouvements perturbateurs de capitaux 1

J. Marcus Fleming

Dans la présente étude, l’auteur passe en revue les divers instruments de politique dont disposent les gouvernements nationaux pour traiter le problème des mouvements internationaux perturbateurs de capitaux, ou, de façon plus générale, le problème des déséquilibres temporaires et réversibles des paiements. Les instruments examinés sont les suivants : 1) établissement d’un double marché des changes, l’un pour les opérations courantes et l’autre pour les mouvements de capitaux; 2) taxes et subventions influençant les transactions en capital ou les revenus des capitaux; 3) intervention officielle sur les marchés des changes à terme; 4) politique monétaire ou en matière de taux d’intérêt (y compris le couplage des politiques fiscales et monétaires); 5) financement officiel ou utilisation des réserves et 6) taux de change flottants unitaires et élargissement des marges. L’étude s’intéresse tout particulièrement à la technique du double marché des changes et en évalue les avantages par rapport à chacune des autres, du point de vue de leurs effets de répartition, de leur portée, de la facilité à les appliquer, de leur souplesse, etc. L’auteur constate que la technique des doubles marchés, si elle est correctement appliquée, présente, au total, des avantages considérables sur la plupart des autres méthodes, à l’exception, peut-être, des taux flottants unitaires. Il conclut en proposant l’adoption d’un système de doubles marchés des changes assortis de taux flottants (sous réserve d’interventions officielles appropriées).

Les transactions du Fonds et la création de réserves, 1951–73 1

Vittorio Barattieri et Franco Batzella

La présente étude examine dans quelle mesure les transactions effectuées avec le Compte Général du Fonds Monétaire International ont contribué à l’accroissement des réserves internationales entre 1951 et 1973. Les auteurs ont utilisé pour leur analyse la méthode indiquée par J. Marcus Fleming en 1964.

En outre, les auteurs examinent brièvement l’effet exercé sur la liquidité par les transactions entre les participants au Compte de Tirage Spécial.

La création brute de réserves par suite de transactions du Fonds résulte des augmentations de la liquidité inconditionnelle de pays membres sur la monnaie desquels d’autres membres effectuent des tirages, ainsi que de prêts consentis au Fonds. On peut arriver à une première approximation de la création nette de réserves en soustrayant du total des positions de réserve au Fonds les montants que les membres lui paient en or et en droits de tirage spéciaux. Une estimation plus exacte de la création nette de réserves s’obtient en tenant compte des variations nettes de devises qui résultent des opérations du Fonds, c’est-à-dire en estimant le montant net des devises qui restent dans le circuit du système monétaire international (ou qui en sont absorbées) après les tirages (rachats) sur le Fonds, déduction faite des conversions et remboursements de swap.

Les auteurs essaient d’estimer le montant en fin d’année de la création cumulative nette de réserves pour la période 1951–73, ainsi que ses variations annuelles. Chose assez étrange, l’analyse des données ne dégage pas une étroite relation entre les variations de la liquidité créée par le Fonds et celles des autres instruments de réserve internationale, sauf pour les quatre dernières années de la période étudiée. A partir de 1970, les effets des transactions du Fonds ont eu tendance à neutraliser, bien que dans une faible mesure, l’accroissement énorme des liquidités mondiales émanant d’autres sources.

L’évolution de la politique monétaire et de ses instruments en Espagne 1

Christopher Browne et Leo Van Houtven

On distingue dans l’évolution du système du crédit et de la politique monétaire en Espagne, les vingt dernières années, trois périodes bien tranchées : les années 1950, les années 1960 et celles qui suivent 1969. Au cours des années 1950, les autorités ne disposaient pas des instruments nécessaires pour contrôler la liquidité du système du crédit, et elles donnaient la priorité aux besoins de financement du secteur public. Une fois réalisé le programme de stabilisation de 1959, la réforme bancaire de 1962 a fourni aux autorités des instruments de contrôle de la liquidité, mais ceux-ci n’ont pas été utilisés efficacement avant 1969, la priorité étant alors accordée aux besoins d’un secteur privé en expansion rapide. Pendant chacune de ces périodes, la gestion monétaire a contribué à l’apparition répétée de difficultés de balance des paiements, de fortes pressions en hausse sur les prix et d’amples fluctuations conjoncturelles.

Depuis 1969, les autorités se préoccupent de plus en plus d’assurer un contrôle efficace de la liquidité de l’économie par la mise en oeuvre d’instruments supplémentaires de politique monétaire. Le nouveau système a été mis pour la première fois à l’épreuve en 1973 lorsque les autorités ont essayé de freiner l’expansion de la masse monétaire, qu’elles avaient laissée s’accroître les deux années précédentes à un rythme exceptionnellement rapide après avoir adopté une politique d’aisance monétaire dans le dessein de favoriser la reprise de l’économie. Au premier semestre de 1973, les autorités ont pris diverses mesures pour diminuer la liquidité des banques. Elles ont émis des bons du Trésor à trois mois, fait obligation aux banques de maintenir sur une base quotidienne leurs réserves liquides obligatoires et réduit les lignes de réescompte à la Banque d’Espagne. Le taux d’expansion monétaire n’en est pas moins resté excessif, partiellement en raison des entrées importantes de capitaux étrangers, qui se sont traduites par un excédent considérable de la balance des paiements. Vers le milieu de l’année, toutefois, pour la première fois depuis bien longtemps, les autorités semblaient être à même de ralentir l’expansion du crédit par un contrôle indirect de la liquidité.

La réforme bancaire de 1962 comportait des mesures visant à augmenter et à élargir la gamme des institutions financières, y compris par la suppression des restrictions déjà anciennes à la création de nouvelles banques et à l’ouverture de nouvelles succursales. Toutefois, la réforme renforçait encore la politique du crédit préférentiel aux secteurs prioritaires, déjà répandue dans les années 1950, et compartimentait encore davantage le système du crédit, en exigeant, par exemple, que les banques privées réunissent soit les conditions de banque commerciale, soit celles de banque d’affaires, et en réformant les opérations des établissements officiels de crédit. L’octroi de crédit préférentiel s’est fortement accru dans la première moitié des années 1960 et il représentait en 1966 plus d’un tiers du crédit au secteur privé. Depuis 1969, cependant, des efforts sérieux ont été entrepris pour accroître la concurrence entre les intermédiaires financiers et pour laisser les forces du marché jouer un rôle plus important dans la collecte et la répartition des ressources financières.

Allemagne : anticipations et évolution effective des prix 1

Adalbert Knöbl

Dans cette étude, l’hypothèse selon laquelle les anticipations exercent sur le comportement des prix une influence presque autonome, ou au moins partiellement indépendante, est mise à l’épreuve des données empiriques. La méthode utilisée à cette fin, qui diffère des analyses antérieures, consiste à attribuer des valeurs numériques à des données tirées d’études qualitatives sur les prix, pour parvenir à la dérivation d’une série chronologique explicite des anticipations concernant les prix.

En résumé, l’analyse montre que les données de l’observation semblent confirmer deux choses : d’une part, les anticipations de prix influent sur le taux effectif d’inflation et d’autre part, ces anticipations dépendent à leur tour, dans une large mesure, des expériences passées, des taux d’inflation constatés dans les périodes antérieures et des pressions exercées par la demande. L’analyse laisse entendre, en conséquence, que le taux effectif d’inflation est à tout moment fonction de trois facteurs principaux : 1) les tensions sur les coûts, 2) les pressions de la demande et 3) le taux d’inflation observé dans la période récente, dans la mesure où il détermine l’élasticité des anticipations.

Ces conclusions, si elles sont valables, entraînent d’importantes implications au plan de la politique économique. Dans une situation d’inflation galopante, il peut s’avérer très difficile de modérer le rythme de l’inflation au moyen des instruments de la politique de gestion de la demande, si cette politique est appliquée à des doses classiques. En effet, il est improbable que des mesures de cette nature suffiront pour réduire les pressions qui s’exercent sur le potentiel de production et pour les ramener à un niveau comparable à celui que l’on observe dans le moyen terme, car, dans ce cas, il ne s’agit pas seulement d’éliminer la pression de la demande excédentaire, mais encore, de prendre des mesures pour contrebalancer les tensions inflationnistes, lesquelles se trouvent renforcées par les prévisions que font les agents économiques en se fondant sur leur expérience de l’évolution des prix dans le passé. En d’autres termes, la politique de gestion de la demande doit être suffisamment énergique pour parvenir, entre autres choses, à casser le processus d’amplification des élasticités d’anticipation. Or, cette manière de voir implique que la politique de gestion de la demande ne pourra donner un coup d’arrêt au crescendo des anticipations qu’au prix de restrictions exceptionnellement sévères de la demande, et, partant, d’une aggravation du chômage.

Néanmoins, et selon les conclusions de l’analyse, une fois qu’une telle politique conjoncturelle parvient à freiner l’amplification des anticipations et que le taux d’inflation dans la période courante est revenu à un niveau modéré et acceptable, le chômage pourrait retomber au niveau peu élevé auquel il se maintenait antérieurement, et la politique de gestion de la demande, quant à elle, pourrait se concentrer à nouveau sur l’unique objectif qui lui était précédemment assigné, c’est-à-dire éviter que la demande ne devienne excédentaire. Il s’ensuit que le recours, dans le court terme, à une politique très restrictive de gestion de la demande pourrait être le moyen d’atténuer, dans le moyen terme, les effets de la compensation qui s’opère entre le chômage et l’inflation.

L’étude indique, toutefois, qu’il existe une autre méthode pour freiner l’amplification des élasticités d’anticipation, et qui serait le recours à une politique des prix et des revenus, avec un blocage éventuel des salaires et des prix. On peut valablement soutenir que cette solution pourrait atténuer les effets défavorables que ne manquerait pas d’entraîner une politique restrictive de gestion de la demande, si une telle politique était appelée, à elle seule, à freiner le cours des anticipations inflationnistes. En outre, la politique des prix et des revenus offre des perspectives à peu près comparables en ce qui concerne l’atténuation des effets de la compensation qui s’opère dans le moyen terme entre le chômage et l’inflation.

Politiques des revenus et du marché du travail en Suède, 1945–70 1

Ekhard Brehmer et Maxwell R. Bradford

Dans la période qui a suivi immédiatement la Seconde Guerre mondiale, la Suède a eu recours à des mesures de politique des revenus, y compris un contrôle direct des prix, sans adopter, toutefois, une politique suffisamment restrictive de gestion de la demande. Cette stratégie n’a pas réussi à concilier les objectifs de stabilité des prix, de plein emploi et de croissance économique. Pour atteindre ce but de façon optimale, les autorités, au cours des années 1950, ont délibérément modifié le dosage de leurs politiques économiques pour intervenir activement dans le domaine monétaire et budgétaire et, depuis la fin de cette décennie, aussi sur le marché du travail.

Conçue à l’origine comme un adjuvant des mesures de gestion de la demande, la politique du marché du travail est devenue par la suite un instrument de politique structurelle, utilisé indépendamment de la situation conjoncturelle, et elle a constitué un élément particulièrement important des efforts entrepris par le Gouvernement suédois pour obtenir à la fois la stabilité des prix, une croissance rapide et le plein emploi. Au cours des années 1950 et 1960, toutefois, le Gouvernement s’est abstenu d’intervenir dans les négociations salariales, surtout en raison de l’opposition des travailleurs comme du patronat. Les syndicats ont cherché à obtenir des majorations moyennes uniformes des salaires conventionnels, quel que soit le niveau de productivité des différentes firmes ou branches d’activité économique. Jointes à des mesures plus ou moins efficaces de gestion de la demande et à la concurrence internationale (qui a limité la plupart du temps, depuis la guerre, les hausses des prix internationaux), la politique de solidarité salariale des syndicats et la politique active du marché du travail menée par le Gouvernement ont concouru à la restructuration souhaitée de l’économie suédoise. Cette restructuration a nettement réussi à améliorer l’efficacité du secteur des exportations, mais les fermetures accélérées, durant les années 1960, d’industries faisant concurrence aux importations ont contribué à augmenter la propension de la Suède à importer.

Au cours des années 1950 et 1960, le «nouveau» dosage de politiques s’est révélé plus apte à empêcher les récessions qu’à lutter contre les tendances inflationnistes, entre autres, parce que le Gouvernement a continué à vouloir maintenir le plein emploi et un degré élevé d’assistance sociale. En outre, il a été difficile de contenir les pressions en hausse exercées sur les prix en situation de plein emploi à cause de facteurs structurels sur lesquels le contrôle de la demande n’a pas de prise. Ces facteurs résultent du fait que des secteurs exposés à la concurrence internationale dans lesquels la croissance de la productivité est relativement élevée ont été à la pointe des augmentations de salaires qui ont entraîné pour les secteurs «protégés» des relèvements uniformes de salaires que leurs gains de productivité étaient loin de justifier.

L’adoption par le Gouvernement d’une politique efficace des revenus s’est heurtée à de larges écarts de productivité entre les divers secteurs de l’économie et les autorités chargées d’organiser le marché du travail ont été impuissantes à empêcher les glissements de salaires.

L’impôt sur la capacité de production : l’expérience pakistanaise 1

Sijbren Cnossen

La sous-utilisation de la capacité de production est un phénomène inquiétant dans les pays en voie de développement. Devant une situation de ce genre, le Pakistan a instauré, en 1966, un nouvel impôt appelé impôt sur la capacité. Le Gouvernement estimait qu’en imposant la production de plein rendement plutôt que la production effective, cette dernière s’en trouverait stimulée, vu que le taux moyen d’imposition devait baisser à mesure qu’augmenterait la production. En outre, les procédures administratives seraient simplifiées, surtout parce que l’impôt sur la capacité rendrait superflus les contrôles compliqués de la production qu’entraînait le système des accises.

L’impôt sur la capacité a été appliqué à cinq industries en remplacement des anciennes accises. Les capacités annuelles de production ont été calculées essentiellement sur la base des résultats antérieurs et de comparaisons intra-industrielles; les fabricants ont également tenu compte du rendement théorique indiqué par les machines. L’assiette de l’impôt pouvait être ajustée en cas d’installation d’outillage supplémentaire ou de suppression de matériel ancien. Des dégrèvements étaient accordés au cas où la production devait être arrêtée pour des raisons indépendantes de la volonté du producteur ou en cas de crise générale de l’industrie; des remboursements étaient prévus pour les exportations, et des abattements étaient autorisés dans le but de stimuler l’industrialisation régionale.

Comme le montre l’expérience pakistanaise, c’est une chose compliquée que de mesurer adéquatement la capacité de production. Quelles que soient les connaissances techniques et l’ingéniosité mises en oeuvre, il subsiste inévitablement une part d’arbitraire. Par contre, un impôt sur la capacité gêne moins l’utilisation des installations que ne le font les accises, lesquelles nécessitent un contrôle de la production; celle-ci est beaucoup moins perturbée. Un impôt sur la capacité pouvait servir à faciliter la transition d’un système généralisé d’accises vers celui d’une taxe sur les ventes basée sur la vérification de documents, et pourrait être utilisé aux lieu et place des impôts indirects spéciaux ou des taxes sur les ventes pour les petites entreprises manufacturières qui ne tiennent pas une comptabilité adéquate.

La mesure dans laquelle un impôt sur la capacité stimulerait la production n’est pas certaine, mais pour autant qu’il augmenterait le prix du capital, il pourrait inciter les chefs d’entreprises à faire un usage plus intensif de leur stock de biens de capital. Les industries que le Pakistan a soumises à l’impôt sur la capacité fonctionnaient déjà à un taux élevé d’utilisation, parce qu’elles avaient recours à des matières premières nationales abondantes. En ce qui concerne les autres industries du Pakistan, il est permis de supposer que si les autorités avaient levé, dans la mesure du possible, les restrictions à l’approvisionnement en matières premières, elles auraient résolu une bonne partie de leur problème de base.

Il semble indiqué de souligner que si un gouvernement veut augmenter la production, il doit également créer un cadre macroéconomique tel que les affaires puissent s’y développer. Il faut supprimer les imperfections et les empêchements qui entravent le fonctionnement efficace du marché avant d’ajouter à la panoplie fiscale de l’Etat des mesures destinées à stimuler la production; même alors, il conviendrait d’évaluer soigneusement, d’une part, leurs effets bénéfiques éventuels, et d’autre part, le coût des incertitudes et des complications administratives qu’entraînerait nécessairement leur adoption.

L’arbitrage obligatoire comme forme de politique des revenus : le cas de l’Australie 1

Anne Romanis Braun

Le rôle des tribunaux d’arbitrage dans le règlement des conflits du travail et la fixation des conditions d’emploi par des décisions ayant force de loi sont devenus un trait caractéristique de l’économie australienne. Un système centralisé de décisions relatives aux salaires s’est progressivement développé à partir de la procédure d’arbitrage qui fut substituée aux négociations collectives au début du siècle, à une époque où régnaient un chômage chronique et des troubles sociaux. L’existence de cette centralisation des décisions a permis aux instances d’arbitrage du «Commonwealth» australien d’influencer le mouvement des traitements et salaires en général, et les a contraintes à formuler une politique nationale des salaires. De ce point de vue, l’expérience australienne présente un intérêt indéniable pour les autres pays qui envisagent d’appliquer une «politique des revenus».

L’arbitrage a été institué en 1904 pour combattre la misère et les troubles sociaux en fixant et en appliquant par voie judiciaire les taux de salaires minimum; jusqu’en 1930, les grèves ont été interdites. Le «salaire de base», fixé en fonction des besoins d’une famille, est devenu le salaire courant des ouvriers non qualifiés, et des «marges» ont été accordées d’après les différentes qualifications et conditions de travail. De 1922 à 1953, le «salaire de base» était indexé sur les prix. Au cours de la crise économique des années 1930, le tribunal a imposé une diminution générale des salaires, et on lui reconnaît le mérite d’avoir réduit l’incidence de la crise sur l’emploi et sur l’activité économique.

Depuis la Seconde Guerre mondiale, les instances d’arbitrage ont tâché d’élaborer une procédure adaptée à une situation de plein emploi. Au début des années 1950, la fonction régulatrice du système a été renforcée par l’abolition de l’indexation, par des relèvements uniformes des marges, et des sanctions ont été prévues contre les grèves. Pendant une dizaine d’années, ce système a contribué à freiner les pressions salariales, mais des difficultés ont commencé à surgir au cours des années 1960, où une amélioration de la situation extérieure de l’économie a été accompagnée par un glissement de plus en plus prononcé des salaires. Des questions importantes, telles que les critères utilisés pour déterminer l’échelle des augmentations de salaires, les avantages et inconvénients d’une indexation sur les prix et les moyens de limiter les glissements de salaires sont examinées dans leur contexte historique. Les bénéfices importants réalisés par certaines industries, en encourageant de fortes majorations de salaires en vertu de décisions arbitrales particulières ou des règlements salariaux plus favorables que ceux légalement fixés par arbitrage, ont placé les autorités devant un dilemme : soit permettre dans d’autres secteurs des augmentations analogues, génératrices d’inflation, soit aller à rencontre de la «justice salariale comparative» et saper le support du système d’arbitrage par les employés. En 1967, la commission a essayé en vain d’intégrer dans les salaires fixés par elle les rémunérations dépassant les taux fixés («over-award payments»). En 1968/69, les sanctions contre les grèves ont perdu toute efficacité. Depuis lors, le système est devenu en fait un mécanisme de «négociations quasi collectives».

Une étude de l’évolution des salaires depuis 1953 semble indiquer que le taux d’augmentation des salaires fixés par arbitrage a suivi en général les variations des prix mondiaux et la croissance de la productivité, mais que l’évolution du système d’arbitrage en 1967–69 explique en partie pourquoi les salaires ont augmenté plus rapidement depuis 1967.

L’auteur conclut que l’arbitrage obligatoire doit être considéré comme un instrument utile pour le maintien de bonnes relations entre employeurs et employés et qu’il peut contribuer puissamment, quoique de façon indirecte, à réduire la poussée inflationniste des salaires dans le cadre plus large d’une politique des revenus. C’est surtout dans les pays qui entament leur révolution industrielle que l’arbitrage obligatoire est susceptible de donner des résultats.


Mercados cambíanos dobles y otros remedios para los flujos de capital perturbadores 1

J. Marcus Fleming

En este artículo se examinan varios instrumentos de política de que disponen los gobiernos para hacer frente al problema de los flujos internacionales de capital perturbadores o, en términos más generales, al problema de los desequilibrios de pagos temporales y reversibles. Los instrumentos examinados incluyen: 1) mercados cambiarios separados (dobles) para las transacciones de capital y las corrientes, 2) impuestos y subsidios que afectan a las transacciones de capital o a las rentas del capital, 3) intervención oficial en los mercados de divisas a plazo, 4) políticas monetarias o de tipo de interés (inclusive una combinación fiscal-monetaria), 5) financiación oficial o uso de reservas, y 6) tipos de cambio unitarios flotantes y márgenes más amplios. El estudio se centra en el mecanismo de los mercados cambiarios dobles, evaluado en comparación con cada uno de los otros métodos desde el punto de vista de los efectos de asignación, el alcance, la observancia, la flexibilidad, etc. Si los mercados dobles se manejan según directrices apropiadas, pueden compararse favorablemente en términos generales con casi todas las demás políticas, con la posible excepción de los tipos unitarios flotantes. El estudio concluye con una sugerencia a favor de un sistema de mercados cambiarios dobles con tipos flotantes (sujeto a intervención oficial adecuada) en ambos mercados.

Las transacciones del Fondo y la creación de reservas, 1951–73 1

Vittorio Barattieri y Franco Batzella

En este trabajo se analiza el grado en que las transacciones con la Cuenta General del Fondo Monetario Internacional han contribuido al crecimiento de las reservas internacionales durante el período de 1951–73. Para este análisis los autores se han valido del marco descrito por J. Marcus Fleming en 1964.

También se estudian brevemente los efectos que tienen en la liquidez las transacciones que realizan entre sí los participantes en la Cuenta Especial de Giro del Fondo.

La creación bruta de reservas que se produce mediante las transacciones del Fondo tiene su origen en los aumentos de la liquidez incondicional de los países miembros cuyas monedas son objeto de giros por otros países miembros, así como en los préstamos concedidos al Fondo. En los primeros cálculos, la creación neta de reservas queda determinada substrayendo del total de las posiciones de reserva en el Fondo los pagos efectuados por los países miembros al Fondo en oro y derechos especiales de giro. Se obtiene una estimación más exacta de la creación neta de reservas tomando en cuenta las variaciones netas de las divisas que ocurran en relación con las operaciones del Fondo, es decir, estimando la cantidad neta de monedas que queden en el sistema monetario internacional (o que se absorban de él), después de hechos los giros (o recompras) contra el Fondo, deducidas las conversiones y los rembolsos conforme a acuerdos “swap.”

En el estudio se trata de estimar la cuantía a fin de cada año de la creación acumulativa neta de reservas desde 1951 hasta 1973, así como sus variaciones anuales. Es un tanto sorprendente que el análisis de los datos no indique una relación estrecha entre las variaciones de la liquidez generada por el Fondo y las variaciones en otros activos de reserva internacionales, excepción hecha de los cuatro últimos años del período estudiado. Desde 1970, los efectos de las transacciones del Fondo han tendido a contrarrestar, aunque muy ligeramente, los enormes aumentos de liquidez mundial de origen distinto.

La evolución de los instrumentos y la política monetaria de España 1

Christopher Browne y Leo Van Houtven

La evolución del sistema crediticio y de la gestión de la política monetaria de España en los 20 últimos años puede dividirse en tres períodos diferentes: el decenio de 1950, el de 1960 y los años transcurridos desde 1969. Durante los años cincuenta, las autoridades carecían de instrumentos para controlar la liquidez del sistema crediticio y dieron prioridad a la satisfacción de las necesidades financieras del sector público. Después de ponerse en práctica el programa de estabilización de 1959, la reforma bancaria de 1962 suministró a las autoridades los instrumentos de control de la liquidez, pero éstos no se utilizaron eficazmente hasta 1969 porque se dio prioridad a la satisfacción de las necesidades del sector privado en rápido crecimiento. En ambos períodos, la gestión monetaria contribuyó a repetidas dificultades de balanza de pagos, fuertes presiones alcistas en los precios y amplias fluctuaciones cíclicas de la actividad económica.

Desde 1969, las autoridades se han interesado cada vez más en controlar efectivamente la liquidez de la economía mediante el uso de nuevos instrumentos de política monetaria. La primera vez que el nuevo sistema se puso realmente a prueba fue en 1973, cuando las autoridades se pusieron como meta el reducir el ritmo de la expansión monetaria, después de las tasas desusadamente elevadas de los dos años anteriores, en que siguieron una política acomodadiza para promover la reactivación de la economía. En el primer semestre de 1973, las autoridades tomaron diversas medidas para reducir la liquidez de los bancos. Se emitieron letras del Tesoro a tres meses, el cumplimiento del coeficiente de caja se exigió sobre las cifras diarias y se redujeron las líneas de redescuento en el Banco de España. Con todo, la tasa de expansión monetaria siguió siendo excesiva, en parte debido a una entrada considerable de fondos del exterior, reflejo del gran superávit de balanza de pagos. No obstante, hacia mediados de año pareció que las autoridades se encontraban en condiciones, después de muchos años, de desacelerar el ritmo de la expansión del crédito mediante el control indirecto de la liquidez.

La reforma bancaria de 1962 introdujo medidas para aumentar y ampliar la gama de instituciones financieras, incluida la abolición de restricciones implantadas mucho antes al establecimiento de nuevos bancos y sucursales bancarias. Sin embargo, al mismo tiempo, con la reforma se fortaleció la política de crédito preferencial a los sectores prioritarios, muy extendida ya en los años cincuenta, y se acentuó la fragmentación del sistema crediticio—p.ej., exigiéndose que los bancos privados reunieran los requisitos de bancos comerciales o de bancos industriales y reformando las operaciones de las entidades oficiales de crédito. La concesión de crédito preferencial aumentó mucho en la primera parte del decenio de 1960, y hacia 1966 afectaba a más de la tercera parte del crédito al sector privado. Sin embargo, desde 1969 se han tomado importantes medidas para acrecentar el grado de competencia entre los intermediarios financieros y para fortalecer el papel de las fuerzas del mercado en la captación y asignación de los recursos financieros.

Expectativas y comportamiento real de los precios en Alemania 1

Adalbert Knöbl

En este trabajo se somete a prueba empírica la hipótesis de que las expectativas de precios ejercen una influencia al menos parcialmente independiente en el comportamiento real de los precios. El método empleado, que difiere de los análisis anteriores, cuantifica los datos de estudios cualitativos de los precios para derivar una serie cronológica explícita de las expectativas de precios.

En resumen, el análisis indica que hay pruebas empíricas de que las expectativas de precios ejercen influencia en la tasa efectiva de inflación y de que dependen en alto grado de la experiencia pasada, de las tasas pasadas de inflación y de las presiones de la demanda. Por consiguiente, el análisis sugiere que la tasa efectiva de inflación en cualquier momento depende de tres factores principales: 1) las presiones de los costos, 2) las presiones de la demanda y 3) la tasa de inflación en el pasado reciente, por su efecto en la formación de las expectativas sobre los precios corrientes.

Estas conclusiones, de ser válidas, tienen importantes consecuencias de política. En una situación de inflación acelerada puede ser muy difícil moderar el ritmo de inflación por medio de políticas de la demanda aplicadas en la forma tradicional. No es probable que baste con que estas políticas reduzcan la presión sobre la capacidad a determinado nivel a medio plazo, porque según el análisis no sólo es necesario eliminar el exceso de presión de la demanda, sino también tomar medidas para contrarrestar la presión inflacionista, resultado del comportamiento de los precios en el pasado. Es decir, la política de la demanda tiene que bastar, entre otras cosas, para frenar las expectativas de subida de los precios. Este método supone que el “freno” sólo puede lograrse con las políticas de la demanda a expensas de restricciones desusadamente altas y al consiguiente costo de desempleo.

Ahora bien, el análisis sugiere que, cuando la política de la demanda aplicada en esta forma pone coto a las expectativas de precios, y la tasa de inflación contemporánea es aceptablemente moderada, es posible que el desempleo vuelva a su nivel previo más bajo y que las políticas de la demanda puedan volver a desempeñar la sola función anterior de evitar el exceso de presión de la demanda. Así, las políticas muy estrictas de la demanda a corto plazo pueden ser un medio para mejorar la relación de correspondencia desempleo-inflación a medio plazo.

Con todo, se indica que otro posible método de frenar las expectativas de subida de los precios podría ser poner en práctica políticas de precios e ingresos, posiblemente con una congelación precios-salarios. Cabe argumentar que este método podría mitigar el grado de severidad de las políticas restrictivas de la demanda que se necesitaría para que las expectativas inflacionistas puedan frenarse con dichas medidas exclusivamente, en tanto que quizá ofrezca posibilidades semejantes para mejorar la relación de correspondencia desempleo-inflación a medio plazo.

La política de ingresos y de mercado laboral de Suecia, 1945–70 1

Ekhard Brehmer y Maxwell R. Bradford

En el período inmediatamente posterior a la segunda guerra mundial, Suecia recurrió a medidas de política de ingresos, entre ellas el control directo de los precios, pero no adoptó políticas de gestión de la demanda suficientemente restrictivas. Esta estrategia no permitió conciliar los objetivos de política de estabilidad de precios, pleno empleo y crecimiento económico. Para conseguirlo en forma óptima, la combinación de medidas de política económica se abandonó deliberadamente en los años cincuenta por una activa política fisco-monetaria, complementada desde los últimos años del decenio de 1950 por una activa política de mercado laboral.

La política de mercado laboral, formulada originalmente para reforzar la política de gestión de la demanda, pasó a ser posteriormente un instrumento de la política estructural, usada independientemente de las condiciones cíclicas, y un elemento especialmente importante en los esfuerzos del Gobierno sueco para conciliar la establidad de precios, el crecimiento rápido y el pleno empleo. Sin embargo, en los decenios de 1950 y 1960 el Gobierno no trató de interferir en el proceso de negociación de salarios, principalmente a causa de la oposición de las organizaciones obreras y patronales. La aspiración de los sindicatos ha sido obtener en sus contratos aumentos medios uniformes de salarios, independientes del nivel de productividad de las empresas o ramos industriales. En combinación con políticas de gestión de la demanda más o menos eficientes y la competencia internacional (que ha limitado el alza de los precios internacionales en casi todos los años de posguerra), tanto la política sindical de solidaridad salarial como la activa política de mercado laboral del Gobierno contribuyeron a promover la reestructuración deseada de la economía sueca. Esta reestructuración consiguió acrecentar la eficiencia del sector de exportación del país, aunque el cierre acelerado de fábricas de productos competidores de las importaciones en los años sesenta contribuyó a que aumentara la propensión a la importación.

La “nueva” combinación de políticas resultó más eficaz para evitar recesiones que para combatir las tendencias inflacionarias, en los decenios de 1950 y 1960, en parte debido a la continua determinación del Gobierno de mantener pleno empleo y un alto grado de bienestar social. Además, ha sido difícil contener la presión alcista en los precios en condiciones de pleno empleo, debido a factores estructurales fuera del control de la gestión de la demanda. Dichos factores se deben a que los sectores expuestos a la competencia internacional y que han tenido un aumento relativamente alto de productividad han sido los líderes de la negociación de salarios y han pasado a los sectores “protegidos” aumentos uniformes de salarios mucho mayores que los aumentos de productividad de estos últimos.

Los principales obstáculos qua ha, encontrado el Gobierno para adoptar una política de ingresos eficaz, han sido las grandes diferencias de productividad entre los sectores económicos y la falta de control del deslizamiento de salarios por las organizaciones del mercado laboral.

Impuesto a la capacidad: el experimento pakistaní 1

Sijbren Cnossen

La subutilización de la masa de capital existente es un fenómeno perturbador en los países en desarrollo. Ante esta situación, Pakistán estableció en 1966 un nuevo impuesto denominado a la capacidad. Al gravar la capacidad de producción, en vez de la producción efectiva, el Gobierno consideró que la disminución resultante de las tasas tributarias medias al aumentar la producción, estimularía el producto. Además, se simplificarían los procedimientos administrativos, sobre todo porque el impuesto a la capacidad evitaba la necesidad de controles engorrosos de la producción, en vigor con el sistema anterior de tributación indirecta.

El impuesto a la capacidad se aplicó a cinco industrias, en lugar de los anteriores impuestos indirectos. Las capacidades anuales de producción se calcularon principalmente a base de datos de producción física anteriores y comparativos, aunque se utilizó también la capacidad de producción registrada de la maquinaria. Cuando se procedía a la instalación de nuevas máquinas o la eliminación de equipo anticuado, la obligación tributaria podía reajustarse. Se concedían rebajas de impuestos si la producción se interrumpía por razones ajenas al productor o en caso de recesión industrial difundida; se aplicaba un plan de rembolsos para la exportación y se ofrecían bonificaciones para estimular la industrialización regional.

Según se deduce de la experiencia de Pakistán, medir debidamente la capacidad es empresa complicada. Por mucha pericia e imaginación que se ponga, siempre quedan elementos inherentemente arbitrarios. Por otra parte, el impuesto a la capacidad afecta menos a la utilización de la capacidad que la forma tradicional de tributación indirecta basada en controles de la producción. El impuesto a la capacidad puede utilizarse para facilitar la transición de un sistema generalizado de impuestos indirectos a un impuesto sobre las ventas fundado en la verificación documental, y constituye un sustituto útil de la obligación tributaria, por consumo o ventas, de las pequeñas unidades manufactureras que no llevan contabilidad adecuada.

Los efectos de incentivo del impuesto a la capacidad son inciertos, si bien, en la medida en que hace aumentar el precio del capital, el impuesto a la capacidad puede inducir a las empresas a utilizar más plenamente la masa de capital existente. En Pakistán, las industrias sujetas al impuesto a la capacidad ya estaban funcionando a tasas de utilización altas, porque utilizaban abundantes materias primas locales. En lo que respecta a otras industrias pakistaníes, puede suponerse que la posibilidad de eliminar las limitaciones del suministro de materias primas hubiera resuelto buena parte del problema básico de política.

Parece apropiado insistir en que si el objetivo del gobierno es aumentar la producción, un requisito esencial consiste en facilitar una estructura macroeconómica conveniente para las actividades de las empresas. Los desincentivos e imperfecciones que impiden el funcionamiento eficiente del mecanismo del mercado han de eliminarse antes de añadir al arsenal de política tributaria del gobierno incentivos para incrementar la producción; incluso así, los efectos benéficos potenciales deben sopesarse comparativamente con el costo de la incertidumbre y las complicaciones administrativas que inevitablemente trae su introducción.

El arbitraje obligatorio como forma de política de ingresos: El caso australiano 1

Anne Romanis Braun

La función de los tribunales de arbitraje en la resolución de los conflictos laborales y en el establecimiento de las condiciones de empleo mediante laudos legalmente obligatorios constituye una característica propia de la economía australiana. El sistema centralizado de decisiones salariales surgió gradualmente de los procedimientos de arbitraje establecidos en remplazo de la negociación colectiva en un período de desempleo y desasosiego crónicos a principios de siglo. Las decisiones centralizadas confirieron a la comisión de arbitraje del Estado autoridad para influir en el movimiento de los sueldos y salarios en general y obligaron a considerar una política nacional de salarios. La experiencia australiana en este campo reviste gran interés para otros países que proyectan implantar una “política de ingresos.”

El arbitraje se estableció en 1904 como medio de prevención de la pobreza y los conflictos mediante la determinación y ejecución obligatoria de salarios mínimos; hasta 1930 estaban prohibidas las huelgas. Al “salario básico,” fijado para cubrir las necesidades de una familia, se le consideró como retribución corriente de la mano de obra no capacitada y se acordaron “márgenes” para distintos tipos de trabajo calificado y condiciones de trabajo. De 1922 a 1953 el “salario básico” se ajustó automáticamente a las variaciones de los precios. Durante la depresión de la década de 1930 el tribunal impuso una reducción general de los salarios y se le reconoce el mérito de haber amortiguado el impacto en el empleo y la actividad económica.

Desde la Segunda Guerra Mundial los órganos de arbitraje han tratado de establecer procedimientos apropiados a las condiciones de pleno empleo. A principios de la década de 1950 se reforzó la función reguladora del sistema con la abolición del ajuste automático, la adopción de un procedimiento de aumento uniforme de los márgenes y el establecimiento de sanciones contra las huelgas. Durante una década el sistema ayudó a moderar las presiones salariales, pero en el decenio de 1960 comenzaron a surgir dificultades al combinarse condiciones externas más favorables con un creciente deslizamiento de salarios. Se analizan en su contexto histórico importantes aspectos, tales como el criterio para determinar la escala de aumentos de salarios, las ventajas y desventajas del ajuste automático a las variaciones del costo de la vida y el problema de reducir los deslizamientos de salarios. Las utilidades elevadas de determinadas industrias, que favorecieron fuertes aumentos salariales según laudos arbitrales específicos, o convenios de subidas de salarios mayores que los fijados por laudo, plantearon la disyuntiva de permitir aumentos de importancia similar en otros sectores con consecuencias inflacionistas o de contravenir la “justicia de salarios comparativos” y socavar el apoyo de los obreros al arbitraje. Tras un intento infructuoso en 1967 para que se absorbieran en los salarios fijados por laudo las remuneraciones contractuales más altas, y el fracaso de las sanciones contra las huelgas en 1968/69, el sistema ha funcionado como una “negociación cuasi colectiva.”

Un estudio de la evolución de los salarios a partir de 1953 sugiere que la tasa de aumento de los salarios fijados por laudo en general ha sido sensible a la influencia de las variaciones de los precios mundiales y al incremento de la productividad, pero que la aceleración de la subida de salarios a partir de 1967 obedeció en parte a la evolución registrada en el sistema de arbitraje en 1967–69.

El estudio concluye afirmando que el arbitraje obligatorio debe considerarse como un instrumento valioso en las relaciones industriales, que puede tener efectos indirectos importantes en la reducción de las presiones salariales inflacionistas dentro del marco más amplio de una política de ingresos. El arbitraje obligatorio puede ser particularmente útil para los países en las etapas iniciales de desarrollo industrial.

In statistical matter (except in the résumés and resúmenes) throughout this issue,

Dots (…) indicate that data are not available;

A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

A single dot (.) indicates decimals;

A comma (,) separates thousands and millions;

“Billion” means a thousand million;

A short dash (–) is used between years or months (e.g., 1955–58 or January–October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

A stroke (/) is used between years (e.g., 1962/63) to indicate a fiscal year or a crop year;

Components of tables may not add to totals shown because of rounding.

International Monetary Fund, Washington, D.C. 20431 U.S.A.

Telephone number: 202 393 6362

Cable address: Interfund


The Role of the Federal Reserve System

by Ralph A. Young

Pp. xii + 196

Index, Charts, Tables

This study gives a detailed account of the form and functions of the unique central banking organization of the United States—the Federal Reserve System. It discusses the changing roles of its various instruments of credit policy and reviews their use over the past two decades up to mid-August 1973.

The U.S. banking structure consists of thousands of commercial banks and specialized thrift institutions, distributed over a wide area and offering check payment and deposit services. The credit market, centered in New York City, is large, encompassing a wide range of financing activities and credit obligations in both domestic and international business. Within the credit market is a money market dealing in financial claims of short maturity; it plays a key role in implementing the monetary policy of the Federal Reserve System. It enables the Federal Reserve to rely on open market operations as the principal instrument for carrying out its policy and for maintaining orderly market conditions.

The central bank discount or lending facility is closely coordinated with the Federal Reserve open market operations, with the U. S. discount rate typically positioned within the band of money market rates. Another major instrument for implementing monetary policy is the Federal Reserve’s authority to vary the required reserve ratios of member banks; it is used as a supplement to open market and discount operations. Also, the Federal Reserve has three selective credit regulations to support its general policy; these cover the financing of stock market trading, rates of interest on time deposits of member banks, and lending abroad by financial institutions.

Over the past decade, U. S. monetary policy has been subject to critical examination and public debate. As a result, the Federal Reserve has reviewed its practices and has adopted a combination strategy for guiding its open market policy by taking into account the performance of the monetary aggregates, the trend in bank reserves, and the structure of interest rates. The author’s firsthand knowledge of the workings of the Federal Reserve enables him to describe and analyze recent developments in U. S. monetary policy.

Price: US$1.25. Information on making payments in currencies other than U. S. dollars may be obtained by writing to the Fund at the address given below.

Order from

The Secretary


Washington, D.C. 20431 U.S.A.


Anne Romanis Braun, Assistant to the Director, Research Department, is a graduate of Cambridge University. She was formerly a member of Oxford University Institute of Economics and Statistics, and an economist with the U. K. Ministry of Production and Board of Trade, the Organization for European Economic Cooperation, and the Economic and Social Affairs Department of the United Nations.

The author is deeply indebted to Professors E. H. Phelps Brown, Keith Hancock, and J. E. Isaac for helpful discussions of the Australian arbitration system and for comments on an earlier version of this paper, but the opinions expressed and any errors are those of the author.


Sections I and II of this paper draw heavily on studies listed in the References at the end of this article, in particular those by E. H. Phelps Brown, Keith Hancock, J. E. Isaac, and Dianne Yerbury and J. E. Isaac.


The original ruling in the famous 1907 Harvester case described the basic wage as intended to meet “the normal needs of an average employee, regarded as a human being living in a civilized community” (H. B. Higgins, 1922). The award was actually based on the wages being paid by public bodies, but it was supported by sketchy calculations of the cost of living and rent (Sells, 1924).


The Commonwealth Conciliation and Arbitration body is referred to here as “the Court,” or, after 1956, as “the Commission.” The Commonwealth Industrial Court is referred to as “the Industrial Court.” Its jurisdiction covers the legal interpretation of arbitration awards, registration and deregistration of unions, and imposition of penalties under clauses banning strike action or for noncompliance with an award.


The appointment of commissioners, who to a large extent replaced judges in the regular arbitration and conciliation work, dates back to a change in the legislation in 1947. It represented a victory for the unions as well as an attempt to reduce delays (Walker, 1970).


See also Commonwealth Bureau of Census and Statistics, Official Year Book of the Commonwealth of Australia, 1969, pp. 261–62.


Such arrangements, which are not very numerous, constitute contractual agreements under common law instead of becoming quasi-legislative instruments under the arbitration law. The most famous of these private settlements are the Broken Hill mining and the Melbourne newspaper agreements. In 1968 only 1.4 per cent of employers were covered by such comprehensive collective bargains.


Most of these supplementary agreements are not registered as awards and are therefore not included in arbitration wages.


Before 1951, the Court usually reacted to a strike by refusing to arbitrate, by suspending or canceling awards, or by removing from the register the unions involved, but none of these actions was intended to be a serious deterrent. Some state laws still prohibit strikes, but they are rarely invoked.


Statement by the President of the Commission, quoted in the Eighth Annual Report of the Commonwealth Conciliation and Arbitration Commission, 1964.


This advantage was cited when the Government decided, in January 1974 to intervene in the coming national wage case in support of the reintroduction of automatic adjustment. It was also argued that automatic adjustment facilitates the conclusion of longer-term agreements and hence may reduce the frequency of wage negotiations at the industrial level. While the unions’ submission claimed that all award wages should be raised in line with the quarterly movement in the cost of living index, the Government proposed to ask that a flat sum representing the adjustment required to maintain the real value of the minimum wage be added to all award wages. If automatic adjustment was restored, the Government proposed to submit that price movements be disregarded in all future national wage cases and that claims be based solely on productivity growth, technological changes, and so on (Swancott, 1974), Isaac (1973, p. 253) had suggested that automatic adjustment might be a necessary element “as part of an incomes policy package.”


Claims for the establishment of margins, or for increases in particular margins, traditionally involved detailed and lengthy work value inquiries. According to one authority, these were based on the “mystical notion” that “arbitrators were endowed with a peculiar power that enabled them to arrive at valuation of a man’s work by contemplating detailed evidence about it. This made sense if one could compare the work so described with other work for which the rate was presumptively fair. When accompanied by a doctrine forbidding such comparison (as was the case in New South Wales for many years) or when simply unaccompanied by any such comparison, the elaborately stated doctrine of work value served only to obscure, not explain, the process of fixation” (Wootten, 1970, p. 133).


Reddaway gave evidence in the case. He suggested that a large wage increase was justified by the rise in export prices and the successful readjustment of the economy to the cessation of foreign borrowing. He thought that a large increase might help to control an incipient boom by avoiding a sudden burst of construction based on hopes of very high profits.


As early as 1928, legislation had required the Court to take into consideration the probable economic effects of awards on the community in general and on the industries concerned, except in fixing the basic wage. Paradoxically, however, this clause was deleted in 1930, just before the criterion of capacity to pay became dominant.


During the war in principle all wages were pegged at the February 1942 level of award rates. However, the cost of living adjustment of the basic wage continued, and periodical increments and promotions were permitted (Butlin, 1955, and Walker, 1970).


The basic wage case was held up by a High Court ruling that the question of hours should be decided first, after the unions had objected to the two issues being treated together (Official Year Book of the Commonwealth of Australia, 1954, p. 292).


The differentials between the laborer’s rate and the rates for patternmakers and fitters, which had been 56 and 45 per cent of the laborer’s rate in 1947, had been halved by 1953 (Hancock and Moore, 1972).


The basic wage was to be adjusted for changes in the cost of living in the intervening years unless either party could show that it should not be.


In the 1953 ruling, it was still emphasized that “the Arbitration Court is neither a social nor an economic legislature. Its function under … the act is to prevent or settle specific industrial disputes” (Official Year Book of the Commonwealth of Australia, 1956, p. 185). Similar statements were made in many later cases, for example in 1964: “the Commission is not a national incomes commission.”


It was pointed out in the Report that if increases in award rates absorbed over-award payments, there might be some advantage in giving recognition to market realities, but in practice no such absorption took place. When award rates increased, market rates also rose. Hence, the logical conclusion was that there was always the capacity to pay higher award rates.


Kaldor (1964) had also suggested that the consistent payment of over-award wages in certain industries and occupations might be due to an inappropriate structure of award wages that did not encourage a sufficient inflow of labor. Strangely enough, Kaldor did not discuss the possibility that over-award payments in the metal industries might reflect the continuing power of a highly organized work force in a monopolistic industry to extract over-award payments from the employers. Kaldor also stressed that if the Commission accepted the proposition that heavy earnings drift required that award wages should increase less than productivity in order to maintain price stability, it would be acquiescing in a situation in which award wages must inevitably fall increasingly below actual earnings. It was therefore essential to discover the causes of earnings drift and to adopt measures and policies to minimize it.


Vehicle Industry (re Wage Increases at General Motors–Holden, 1965), 115 C.A.R. 931.


The Metal Trades Award applies to the engineering, metal-working, and fabricating industries, which in 1968 accounted for 44 per cent of the 1.3 million workers employed in manufacturing. The award determines the minimum weekly rates of pay for an elaborate occupational classification (for example, 29 classes in the case of general engineering) based on the principle of work value. It also covers many other matters relating to working conditions and union rights (Derber, 1971).


The September 1967 decision had the effect of restoring about the same differentials between highly skilled and unskilled workers as had existed at the end of 1947, but it narrowed the differentials between unskilled and semiskilled workers (Hancock and Moore, 1972).


In contrast to earlier practice, increases were given in percentage terms in 1969 and 1970. As margins were no longer adjusted separately, flat sum awards would have had the effect of gradually reducing differentials.


The breaching of the 1969 instructions to commissioners and the difficulties posed for the arbitration system in combining the functions of national wage fixing authority with the arbitration aimed at conciliation required by the new legislation on bans clauses were very clear in the Victoria State Electricity Supply case. As the President of the Commission observed in the 1970 Annual Report of the Conciliation and Arbitration Commission (pp. 7–8): “If on the one hand the Judge merely restricts himself to the policy or course of action previously adopted by the Commissioner whose place he has taken he is unlikely to get a settlement of the dispute; if on the other hand he departs significantly from this policy he may well endanger the authority of the Commissioner concerned and perhaps distort the general pattern of the Commission’s work.”


Shortly before the case, the President of the Commission was quoted as saying, “Employers are trying to get the Commission to award smaller increases but meanwhile gambolling around in the business sea like porpoises, competing for labor. The unions haven’t reached a sufficient stage of national responsibility to be able to repress their own members’ demands for over-award increases, yet they say the Commission should give them more” (Edwards, November 1970).


This step was facilitated by the establishment in February 1970 of a single Metal Trades Industry Association of Australia (MTIA). (See Derber, 1971.)


The ACTU claimed an increase of over 20 per cent in total wages, and a rise of about 50 per cent in the minimum wage, with quarterly adjustment for changes in the cost of living.


The main thrust of the proposals was to satisfy the employers’ desires for separation of conciliation and arbitration, for a greater role for presidential members of the Commission and a much smaller role for the arbitration commissioners for particular industries, and for more economic restraints on Commission decisions. The Government rejected the employers’ view that strikes should be statutorily prohibited as contraventions of awards, but agreed that, in dealing with bans cases, the arbitration authorities’ primary obligation should be to stop the strikes referred to them rather than to review the whole issue (Edwards, November 1971). Provision was also to be made to enable the Commonwealth Government to seek a review of a conciliation award in the public interest and to permit parties not directly concerned in an award to appeal against the ruling if they could show that they were affected by it. According to Edwards (May 1971), the adoption of the Government’s proposals would have meant that the Commission was “once again in a position to embark on a wage policy, a course it tentatively embarked on in 1969 and which was destroyed the following year by boom conditions.”


Up to 1968, Australia’s record with respect to time lost through strikes was comparable to that of Japan, France, and Finland, and it was far more favorable than that of Canada, the United States, or Italy. It was, however, less favorable than that of the United Kingdom, where wages increased more rapidly, and much less so than that of Switzerland, Sweden, Germany, or the Netherlands, where strikes amounted to less than 0.05 day per worker a year.


Higgins’ equation for the movement of earnings given award wages, which shows a constant drift of 0.8 per cent per annum unrelated to the pressure of demand, probably provides an indication of the importance of this factor (C. I. Higgins, 1971).


Higgins has shown that, given the magnitudes of major national award decisions, variables representing pressure of demand in the labor market and price changes significantly influenced the rate of award wages during the 1950s and early 1960s.


A view expressed by Nevile (1972) and Simkin (1972) among others.


The rise in export prices from 1962 to 1963 does not seem to have influenced award wages until 1964/65. By contrast, the discrepancy between the change in award wages and the indicator from 1956/57 to 1957/58 seems to have been caused by an immediate rather than a lagged reaction to the sharp fall in export prices during 1958.


The contrast with the delayed response of wages to autonomous influences produced by automatic adjustment at the time of the Korean conflict is very striking (see Chart 3).


In his pioneering study, C. I. Higgins (1971) comments that “the Phillips curve has flattened out”; and Jonson and Mahar (1973) do not connect the reduction in drift, which shows up as a reduced coefficient on awards in their earnings equation, with the fact that awards were considerably higher in relation to price and productivity changes after 1966 than during the early 1960s. This fact is illustrated in Chart A of Jonson (1973), which shows that the estimated change in awards for the years 1960–70 overestimates the actual changes up to 1965 and underestimates the changes in 1968 and 1970–71.


In 1970 there were 305 trade unions in Australia, half of which had less than 1,000 members. Another 96 had less than 5,000 members. Only 33 had a membership of over 20,000, including 14 with more than 50,000 members.


For a discussion of the influence of wage determination procedures on the strength of cost inflation, see Romanis (1967), pp. 179–85.


That is, with given conditions as regards the degree of competition or monopoly prevailing in different markets, the extent of unionization, antitrust legislation, government interference with market prices, and so on.


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IMF Staff papers: Volume 21 No. 1
Author: International Monetary Fund. Research Dept.
  • View in gallery

    Australia: Export and Import Price Indices, 1949–72, and Annual Increases in Consumer Prices, 1949/50–1972/73

  • View in gallery

    Australia: Strikes, Unemployment, and Wage Increases, 1949/50–1972/73

  • View in gallery

    Australia: Wage Increases and Indicator of Autonomous Factors; Wage Drift, 1949/50–1972/73