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86Xst Session*3 }
JOIN T C O M M IT TE E PRINT
STUDY PAPERS NOS. 10 AND 11
POTENTIAL PUBLIC POLICIES TO DEAL WITH
INFLATION CAUSED BY MARKET POWER
BY
E
m m et t e
S. R
edford
A BRIEF INTERPRETIVE SURVEY OF
WAGE-PRICE PROBLEMS IN EUROPE
BY
M
a r k
W. L
e is e r s o n
MATERIALS PREPARED IN CONNECTION WITH THE
STUDY OF EMPLOYMENT, GROWTH, AND
PRICE LEVELS
FOR CONSIDERATION BY THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
w
DECEM BER 11, 1959
Printed for the use of the Joint Economic Committee
UNITED STATES
GOVERNMENT PRINTING OFFICE
48575
WASHINGTON : 1959
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington 25, D.O. - Price 25 cents
JO IN T ECONOMIC COM MITTEE
(Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.)
PAUL H. DOUGLAS, Illinois, Chairman
WEIGHT PATMAN, Texas, Vice Chairman
HOUSE OF REPRESENTATIVES
SENATE
RICHARD BOLLING, Missouri
JOHN SPARKMAN, Alabama
HALE BOGGS, Louisiana
J. WILLIAM FULBRIGHT, Arkansas
HENRY S. REUSS, Wisconsin
JOSEPH C. O’MAHONEY, Wyoming
FRANK M. COFFIN, Maine
JOHN F. KENNEDY, Massachusetts
THOMAS B. CURTIS, Missouri
PRESCOTT BUSH. Connecticut
CLARENCE E. KILBURN, New York
JOHN MARSHALL BUTLER, Maryland
WILLIAM B. WIDNALL, New Jersey
JACOB K. JAVITS, New York
S tudy of E m ployment , G rowth , and P rice L evels
(Pursuant to S. Con. Res. 13, 86th Cong., 1st sess.)
O t t o E c k s t e in ,
Jam es
II
Technical Director
W. L e h m a n , Administrative Officer
W. K n o w l e s , Special Economic Counsel
John
1
These are part of a series of papers being prepared for
consideration by the Joint Economic Committee in connec
tion with their “Study of Employment, Growth, and Price
Levels.” The committee and the committee staff neither
approve nor disapprove of the findings of the individual
authors. The findings are being presented in this form
to obtain the widest possible comment before the com
mittee prepares its report.
Ill
LETTERS
OF
T R A N S M IT T A L
D ecem ber 11, 1959.
To Members of the Joint Economic Committee:
Submitted herewith for the consideration of the members of the
Joint Economic Committee and others are study papers 10 and 11,
“Potential Public Policies To Deal With Inflation Caused by Market
Power” ; and “A Brief Interpretive Survey of Wage-Price Problems
in Europe.”
These are among the number of subjects which the Joint Economic
Committee has requested individual scholars to examine and report
on to provide factual and analytic materials for consideration in the
preparation of the staff and committee reports for the “Study of
Employment, Growth, and Price Levels.”
The papers are being printed and distributed not only for the use
of the committee members but also to obtain the review and comment
of other experts during the committee’s consideration of the materials.
The findings are entirely those of the authors, and the committee and
the committee staff indicate neither approval nor disapproval by this
publication.
P a u l H . D ouglas ,
Chairman, Joint Economic Committee.
Hon. P a u l H. D o u g l a s ,
D ecem ber 9, 1959.
Chairman, Joint Economic Committee,
UJS. Senate, Washington, D.G.
D ear S ena to r D o u g l a s : Transmitted herewith are two of the
series of papers being prepared for the “Study of Employment,
Growth, and Price Levels” by outside consultants and members of the
staff. The authors of these papers are Emmette S . Redford, Uni
versity of Texas, Austin, Tex., and Mark W. Leiserson, Yale Uni
versity, New Haven, Conn.
All papers are presented as prepared by the authors, for considera
tion and comment by the committee and staff.
O tto E c k s t e in ,
Technical Director,
Study of Employment, Growth, and Price Levels.
C O N T E N T S
STU D Y PAPER NO. 10, “POTENTIAL PUBLIC POLICIES TO DEAL
W ITH INFLATIO N CAUSED BY M ARKET POW ER,” BY EM M ETTE
S. REDFO RD
Page
Introduction____________________________________________________________
1
I. Inflationary concentrations of market power________________________
1
II. Basic approaches in policy__________________________________________
3
Introductory comments________________________________________
3
Corrective forces within the economy__________________________
4
Demand controls_______________________________________________
5
Antitrust______________________________________________________
6
7
Withdrawal of Government support for market power__________
Public consideration of wage and price increases________________
8
III. Problems involved in public consideration of wage and price increases..
10
The problem of scope of control________________ _______________
10
Prices or both prices and wages___________________________
10
10
Increases or increases and failures to reduce prices_________
Industries, companies, or products to be included__________
11
Criteria of inclusion___________________________________
11
11
Market structure_________________________________
Market behavior_________________________________
12
Inflationary potential____________________________
13
Conclusion_______________________________________
14
Width of inclusion____________________________________
14
Method of decision___________________________________
15
The problem of standards______________________________________
16
Criteria for judgment on price increases___________________
16
Criteria for judgment on wage increases___________________
18
Cost of living_________________________________________
19
Comparable wage rates_______________________________
19
Ability to pay________________________________________
19
Productivity increases________________________________
20
Maintenance of purchasing power_____________________
20
Essentiality___________________________________________
20
Conclusion________________________________________________
20
21
The problem of type of action_________________________________
The problem of organization___________________________________
25
IV. Conclusions________________________________________________________
27
VII
VIII
CONTENTS
STUDY PAPER NO. 11, “A BRIEF INTERPRETIVE SURVEY OF WAGEPRICE PROBLEMS IN EUROPE,” BY MARK W. LEISERSON
I.
II.
III.
IV.
Page
Introduction_______________________________________________________ ____33
The statistical record___________________________________________________35
Wage-price stability and the coordination of economic policy_______ ____39
Centrally coordinated wage policies________________________1 _______ ____40
Netherlands___________________________________________________ ____41
Norway_______________________________________________________ ____43
Sw eden.______________________________________________________ ____45
United Kingdom___________________________________________________46
Conditions for effective national wage policy___________________ ____49
V. Wage policy b}r indirection and default_____________________________ ____52
Germany______________________________________________________ ____52
France_____________________________________________________________54
VI. Conclusions________________________________________________________ ____ 55
Practicability of a national wage policy________________________ ____55
Other alternatives_____________________________________________ ____57
Final remarks______________________________________________________58
Selected bibliography___________________________________________________ ____58
Appendix: “Comparative Notes on Wage-Price Setting in Western
Europe,” by Donald R. Snodgrass_________________________________________61
Austria_________________________________________________________________ 61
Belgium____________________________________________________________ ____ 63
Denmark___________________________________________________________ ____ 65
France_____________________________________________________________ ____67
Germany___________________________________________________________ ____70
Italy_______________________________________________________________ ____73
Netherlands________________________________________________________ ____75
Norway____________________________________________________________ ____77
Sweden_________________________________________________________________80
United Kingdom___________________________________________________ ____83
TABLES
Table 1. Average annual changes in per capita output and prices, by coun
try, 1949-58__________________________________ _______________________ ____36
Table 2. Changes in price levels and import prices, by country, 1949-58-_ 37
Table 3. Average annual percentage of unemployment, by country, 195056____________________________________________________________________ ____37
Table 4. Average annual changes in money and real wages in industry, by
country, 1949-58_____________________________________________________ ____38
Table 5. Average annual changes in manufacturing output, output per
man-hour, and wage costs, by country, 1950-56____________________________39
Table 6. Wage drift in Norwegian and Swedish industries, 1948-56__________50
STU D Y
PAPER
N O . 10
POTENTIAL PUBLIC POLICIES TO DEAL WITH
INFLATION CAUSED BY MARKET POWER
(BY EMMETTE S. REDFORD)
48575— 50------ 2
STUDY
PAPER
N O . 10
POTENTIAL PUBLIC POLICIES TO DEAL WITH
INFLATION CAUSED BY MARKET POWER
(By Emmette S. Bedforda)
I n t r o d u c t io n
This paper deals with the inflationary threat inherent in wage set
ting and pricing practices in large organizations of labor and capital.
It states the problem of cost-push inflation, discusses generally and
briefly the applicability and adequacy of various approaches in pub
lic policy to the problem, and points up in more detail the specific
administrative problems involved in direct Government limitation or
surveillance of wage and price increases by organizations with con
siderable market power.
The paper is intended to serve only as an introduction to the prob
lem. The issues outlined are so broad and complex that it may be
expected that they will be the subject of study by many task forces
dealing with the problem of inflation in the future.
I . I n fl a t io n a r y C o n c en tr a tio n s
of
M a rk et P ower
It can be assumed that there is a public interest in avoidance of in
flation, and that inflation is manifested in the price level. There is
also evidence now that inflation may be caused in two ways. One is
through an increase in demand so as to put pressure upon the supply
of goods, which is commonly referred to as demand or demand-pull
inflation. The other is through an independent increase in wages or
prices and is called sellers’ or cost-push inflation.
Demand inflation has so long been the concern of economists that it
forms the classic model of inflation. Sellers’ inflation has only re
cently received substantial attention, in part because it is recognized
to be an inherent possibility of the existence of organization power,
but in the main because of studies tending to show that it was an im
portant element in the most recent inflationary movement (since 1955)
m the United States.
Key economic decisions on wages and prices are now made for vital
areas of the economy by organizations of great size and power. Wages
are fixed by agreement between organizations; such wages are now
often referred to as administered wages. Prices may be fixed by or
ganizations in accord with objectives desired to be attained and such
1 The author is grateful for the able assistance given by Mr. Michael Brower of the
staff of the Joint Economic Committee in the preparation of this paper, and to Prof.
George W. Stocking, of Vanderbilt University, and Dean Page Keeton, of the University of
Texas, for reading and criticizing a draft of the paper.
1
2
PUBLIC POLICIES TO DEAL W ITH INFLATION
prices determine or influence the pricing levels for an industry or
product; such prices are sometimes called administered prices.
Whenever one or more organizations acting singly, concurrently, or
jointly have the ability through the administration of wages or
prices to exact more income for the amount and quality of labor, cap
ital, commodity or service supplied than could be obtained in the
absence of such organizational action they may be said to have market
power.
The effective exercise of market power may contribute to infla
tion in several ways. The first is through the downstream move
ment (the passing on) of the particular item of cost which is
controlled. For example, market power over producers’ prices of
automobiles or steel will be reflected in succeeding stages of distri
bution and ultimately in consumers’ costs. Because successive sellers
often increase their dollars-and-cents markups more than the in
crease in their purchase costs the amount of the price increase will
swell as the commodity moves through successive stages of produc
tion and distribution. This pyramiding of prices through the pricing
practices of successive groups of sellers enlarges the inflationary efxect of original cost increases in producer industries. Second, mar
ket power may contribute to inflation if exercised under such conditions
as to create a pattern to be followed in other industries, thus creat
ing lateral downstream movements of pyramiding prices which fur
ther enlarge the effect of the original exercise of market power. This
kind of enlargement of the effects of cost increases is now familiar
as a result of the pattern-setting wage negotiation and the patternsetting price movement of firms in a leadership position. Third,
exercises of market power may give rise to repetitive cycles of wageprice or price-wage increases. These cycles, after the manner of the
chicken and the egg cycle, may lead to an inflationary spiral which
feeds upon itself. Thus three types of chain reaction may be created
by the exercise of market power: the direct, pyramiding, downstream;
the pattern-setting, pyramiding, lateral; and the wage-price or pricewage cycle.
There is, therefore, latent inflation in the existence of market power.
When concentrations of power are sufficient to create market power
these concentrations become inflationary concentrations of power; that
is, they are capable of producing inflationary effects. This capability
creates the threat of sellers’ inflation. Whether such inflation actual
ly develops will be dependent upon the exercise of market power in
situations which create one or more of the types of chain reaction
described above and upon the nonexistence of measures to counteract
these effects.
Organization decisions leading to price increases may be made con
currently with other developments in a general movement of prices
upward. ^To the extent that such decisions stimulated or accentuated
the inflationary trend there would be sellers’ inflation within a general
inflation. But organizations might force particular wages or prices
upward even when there was no general upward trend in prices. In
such a case there is a sellers’ inflation but it is industry or commodity
inflation in the absence of general inflation. It is a form of sectoral
inflation and could exist concurrently with unemployment of men and
resources. Such inflation, produced by market power, appears to be
PUBLIC POLICIES TO DEAL W ITH INFLATION
3
a severe exercise of organization power because it may result in greater
distortion of the allocation of resources and the distribution of in
come through market power than would result in a period of general
price advance. Finally, organizations may fail to adjust prices down
ward in deflation, or in response to selective weakening of demand
or reductions in cost in a nondeflationary period. Such failure to
adjust prices downward might be defined only as price rigidity, but
it is also a form of price inflation, being either an inflationary factor
in a deflationary period or sectoral inflation created by nonresponsive
ness to new factors.
Any concentration of power capable of producing one of the three
effects described in the preceding paragraph may be capable of pro
ducing the other two. Yet public policy may be concerned immedi
ately only with price increases, either because this appears to be the
present danger or because it appears to be the usual danger. Since
this is true, and since the means for dealing with price increases may
be simpler than those for dealing with both price increases and price
rigidity, primary attention is given in this discussion to the means of
dealing with price increases, and with wage increases which may result
in price increases.
II.
B a s ic A
pproach es
in
P
o l ic y
INTRODUCTORY COMMENTS
The existence of market power is now widely recognized as a cause
for deep concern. The business community is concerned over the
existence of this power in labor organizations. Thus, a statement
prepared for the Chamber of Commerce of the United States says
“that cost-induced inflation is becoming a very real possibility, if not
an alarming probability,55and finds the cause in the “monopoly power
of organized labor.552 Labor organizations are concerned over the
existence of the power in industrial organizations. The AFL-CIO
Executive Council has declared:
The ability of the executives of the dominant corporations in strategic indus
tries, such as steel, auto, and oil refining, to raise prices, regardless of economic
conditions in recent years, represents a major problem that must be solved if
the Nation is to achieve relative price stability.3
Others in a more independent position than either of these contending
forces are concerned over the phenomena accounting for both state
ments, namely, the concentration of power in organizations.
Americans have always been concerned over concentrations of power.
Once it was a concern over the concentration of political power. In
the Constitution-framing period of our Nation, Americans learned
how to limit power in two ways: by checking power with power
through separation of powers, checks and balances, and federalism;
and by direct limitations on the use of power through bills of rights
and judicial review. In the following century Americans were
alarmed over growing concentrations of private economic power.
3 Administered Prices and Inflation : Some Public Policy Issues, Apr. 23, 1959. Sub
mitted to the Subcommittee on Antitrust and Monopoly, Committee on the Judiciary,
U.S. Senate.
3 Statement issued at San Juan, P.R., Feb. 24, 1959.
4
PUBLIC POLICIES TO DEAL W ITH INFLATION
Again they learned how to use two methods for limiting power: by
restraint on its growth and exercise through antitrust laws, and by
direct limitation on rates of charge through regulatory agencies.
The problem of concentrated private power has now been presented
in new ways. Unfortunately, there appears to be no simple way of
dealing with it in its present forms. The policy issues are extremely
complicated and baffling, and it is probable that the responsible
Government official will find only partial answers and that even these
will be found in several complementary approaches. It will be help
ful to refer briefly to the several lines of approach which are proposed
as answers to the problem of inflation or of concentrated power to see
how far they may provide an answer to inflationary concentrations
of private power. There are, in general, five lines of approach sug
gested for public policy.
CORRECTIVE FORCES WITHIN THE ECONOMY
One line of approach suggested is that Government depend upon
the corrective forces operating with the economy. Three types of
argument are currently advanced in favor of this approach.
One argument is that society will be best protected by the conscience
and restraint of those who possess market power. The argument has
been set forth by A. A. Berle as the means of meeting the general
problem of corporate power.4 In his exposition the argument is not
for a completely let-alone policy by Government, for it is assumed that
the conscience of man can be buttressed by legal standards of trustee
ship developed in courts or in legislatures.
It is likely that courts and legislatures will indeed develop addi
tional standards of trusteeship for organizations of capital and of
labor; at the same time, it may be doubted whether legal standards of
trusteeship, whatever they may accomplish in meeting other problems
of private powTer, can define standards of restraint on wage requests
and price changes which can be made effective primarily through the
conscience of men. A recent study of “Pricing in Big Business” re
ports that corporate officials appear to be sensitive to public reaction
to their policies and to feel a sense of public responsibility, and that
many of the large corporations tried to hold the price line following
the end of World War I I ; 5 assertions of similar attitudes among
labor leaders have also been made; but it may nevertheless be too much
to expect that management and labor will be able consistently to view
specific questions of wages and prices in terms of public interests rather
than of the interests of the groups which they are under compulsion
to represent.
Another argument is that of countervailing power, which is that
private concentrations of power beget opposed concentrations.G The
argument is supported by the fact that concentrations of labor have
arisen to meet concentrations of capital and that concentrations of
buyers or sellers have often arisen to meet concentrations of the other.
The conclusion is drawn that the public is protected by a new check
and balance system, that between organizations; to the extent that the
*A. A. Berle, Jr., “ The 20th Century Capitalist Revolution” (New York, 1954).
6A. D. H. Kaplan, Joel B. Dirlam, and Robert F. Lanzilotti, “ Pricing in Big Business:
A Case Approach” (Washington, D.C., 1958).
®John Kenneth Galbraith, “American Capitalism : The Concept of Countervailing Power”
(New York, rev. ed., 1956).
PUBLIC POLICIES TO DEAL W ITH INFLATION
5
new system works the public need not be concerned with the failure
of the old checks and balances assumed to operate in the competitive
market. The wise course for Government to follow, it is suggested,
is to support movements for rise of countervailing power, as it did
for labor through the National Labor Relations Act, or to aid those
areas of the economy where countervailing power has not arisen, as it
has done for agriculture.
Although contervailing power may be protection for the public, both
critics and proponents of the idea have noted that it may not always
exist or may not be operative. Large organizations of buyers and
sellers may collaborate with each other and pass the cost to the con
sumer or freeze out competitors; many organizations are either not
faced with opposing organizations of power or are faced with oppos
ing organizations with too little strength to resist; in some industries
vertical integration has extended the power of organizations all the
way from the producer to the consumer. Yet the chief limitation on
the protection of countervailing power is that noted by the original
proponent of the idea. It is that in times when demand is high and
relatively inflexible, buyers find little cause to resist the cost-push pres
sure of sellers. It becomes easier to accept the increased cost and pass
it along. Even the will of the managers of industry to resist the de
mands of labor is weakened. Labor-management agreements become
inflationary because there is no countervailing power in consumers.
In other words, cost-push of labor, the market power of industry, and
the demand pull of buyers all contribute to upward movement of prices.
It may be added that even the first two of these may sometimes, with
out demand sufficient to induce full use of capacity, lead to sectoral
inflation. It is not likely, therefore, that policymakers will accept
countervailing power as sufficient in itself to protect the public interest.
Still another argument is that of freedom of enterprise. This argu
ment is often presented as a denial of the existence of effective market
power. In this form, it is an argument that organizations cannot on a
sustained basis exact an excess above what a free market will allow.
Critics would answer that this is not true, or that even if it were true
the power to exert temporary control or influence could set in motion
a chain of inflationary forces. The argument for freedom of enter
prise is also presented as a claim that, whatever may be the adverse
effects of private market power, these cannot be as bad as the effects of
public power exerted through legislatures and administrators. Pre
sented in this way the issue appears to be between those who trust
private power and those who trust public power. Many, however,
will be interested in searching for ways by which public power may
be exerted to avoid excessive uses of private power without leading
into the main dangers in use of public power. This desire will lead
to consideration of other approaches in policy.
DEMAND CONTROLS
A second line of approach is through controls over demand, chiefly
through monetary and fiscal measures.
The reason for support for this policy is that management of mone
tary and fiscal measures may dampen demand pressures and thus pre
vent sellers from obtaining price increases. But such measures are
most effective for the highly competitive sectors of the economy and
6
PUBLIC POLICIES TO DEAL W ITH INFLATION
may “touch lightly, or even exempt,” the markets where firms are large
and prices are administered.7 To be effective in markets where there is
concentrated market power, monetary and fiscal controls would prob
ably have to be so drastic that they would create recession in the econ
omy generally.8 It would be economically undesirable and politically
infeasible to use monetary and fiscal controls on so drastic a. scale.
There is increasing recognition, as stated at the first of this paper,
that there are two broad elements in the problem of inflation. The
demand-pull element may be met by general demand controls (mone
tary and fiscal measures) supplemented perhaps with selective de
mand controls (e.g., restrictions on installment buying or on inven
tory buildup). The cost-push element may require other types of
controls especially adapted to the prevention or control of bridgehead
situations which would have a major inflationary effect.
ANTITRUST
A third approach is maintenance or restoration of competition
through antitrust.
A fuller realization of the potentials of antitrust could be one means
of preventing inflation through exercise of market power. Alertness
in detection and vigor in enforcement may narrow the range of col
lusive and coercive practices. Effectiveness in enforcement could be
increased by granting the Department of Justice power to obtain in
formation through civil investigation demands. Further barriers to
concentration of power could be erected through legislation extending
the antimerger provision of the Clayton Act to banks and by prevent
ing mergers until these could be studied by a governmental agency.
Adoption of some rather arbitrary legislative tests on legality of busi
ness conduct might simplify standards of enforcement and expand
the role of antitrust. Selected industries of high concentration and
chain-producing effects could be studied to see whether enlargement
of competitive forces, either under existing or new laws, would be
possible. Actions of a rather drastic type on the antitrust front could
presumably prevent the development of situations which would lead
to consideration later of much more drastic remedies, including price
controls of some sort.
Nevertheless, the limitations of antitrust are of common knowledge.
Periods of w7eak enforcement or of weakening judicial construction,
limited funds for enforcement and prolonged litigation, loopholes
such as those which have characterized section 7 of the Clayton Act,
difficulties of unraveling tangled skeins of corporate relationship or
of breaking apart a merged enterprise, judicial requirement of com
plete market analysis in place of acceptance of per se doctrines—these
and other difficulties are known. More significant perhaps, the nature
of the industrial problem has changed. Prevention of collusion and
coercion, and of monopoly, does not mean that managerial leadership
in high concentration situations cannot set the pattern of price and
production in an industry. New adventures in antitrust along bold
7 See testimony of J. K. Galbraith, “ Hearings Before the Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary. U.S. Senate,” July 11, 1957, pp. 32-71.
8 See besides Galbraith, Gerhard Com, mimeographed paper: “ Answers to Questions
of Senate Committee on Finance,” Apr. 15, 1958, and his testimony before a subcom
mittee of the Committee on Government Operations of the House, Amending the Employ
ment Act of 1946, on July 22,1958, and Apr. 9,1959.
PUBLIC POLICIES TO DEAL W ITH INFLATION
7
new lines might be required if the problem of market power was
to be fully dealt with through this method.
Even more baffling are the issues presented by the proposals to solve
the wage-push problem by expansion of antitrust prohibitions with
respect to labor organizations. These proposals take two forms.
One is to prevent the exercise of labor power to control product
markets, as for example through maintenance of prices or prevention
of entry of new employers. There is much argument for clarification
and expansion of legal restriction on such exercises of labor power,
but the practical problems in definition of types of action to be cov
ered are difficult and this form of public action would in all prob
ability not materially affect the potentialities for wage-push inflation.
The second form of the proposals is for limitation oil the market
power of unions in negotiating wages and other labor benefits. Inso
far as such proposals relate to labor practices, such as secondary
boycotts and “hot cargo” clauses, the established approach in Gov
ernment legislation is to seek to deal with these under the basic labor
regulatory statute (Labor Management Gelations Act) rather than
the basic business regulatory statutes (antitrust laws); Congress has
already given considerable attention to problems of this kind. The
plain fact is, however, that legislation on labor practices may have
little effect upon the bargaining power of most big unions. More
over, insofar as such proposals encompass limitation of industrywide
or multiple-unit bargaining there are many problems. Some think
marketwide bargaining is desirable. Some think it is preferable to
whipsaw tactics through which a union threatens each employer in
turn with a strike; a ban 011 multiple-unit bargaining would probably
not be effective without a limitation 011 multiple-unit union organiza
tion. So drastic a step is not likely, for it runs counter to traditional
public policy with respect to unionization and would meet powerful
political opposition. There may, it may be concluded, be need for
study of the applicability of the antitrust approach to new types of
market power, but it is not likely that- the problem of wage-push
inflation will be met adequately by this approach.
WITHDRAWAL OF GOVERNMENT SUPPORT FOR MARKET POWER
Another approach would be to retreat from governmental measures
which have the effect of supporting or protecting private market
power. This could include retreat from a considerable number of
Government price-prop and price-protective measures.
Not all Government price-prop actions have the effect of strength
ening market power. Thus, a minimum wage, or an increase thereof,
though it may have an inflationary effect, may also compensate the
weak for the disadvantage they suffer from the exercise of market
power by the strong. To abandon the maintenance of minimum
wages, or to fail to adjust them in line with increases in the cost
of living or increases in production, would accentuate the imbalances
created by the existence of market power. Similarly, price supports
for agriculture may be inflationary, but they are not usually supports
for private market power, for agriculture is an area of the economy
where market power in the hands of producers has usually failed to
materialize.
48575— 59------ 3
PUBLIC POLICIES TO DEAL W IT H
8
INFLATION
There are, however, many Government policies which tend to
establish a protective shield around market power. Among those
which may have this effect are the follow ing:
(а) Protective tariffs and quotas.
( б ) Resale price maintenance laws.
(o) Production controls for oil.
(d) Patent grants.
(e) Government—especially defense—purchasing and disposal
policies.
( /) Safeguards for rights of unionization and collective burgaining.
(g) Protections against competition and rate reductions in
regulated industries.
The listing of these measures underscores certain basic realities
with respect to public policy affecting price levels. First, public
policy encompasses many objectives which may conflict with that
of preventing inflation, including such objectives as national security,
conservation of resources, and support of the purchasing power of
various groups. The public official will take account of varied eco
nomic and noneconomic objectives and make choices among policy
objectives which are in conflict with each other. Second, delicate
questions of balance between objectives may arise. Thus, some would
argue that the most effective way to deal with the problem of market
power would be to amend the basic labor-management relations
statute so as to diminish the strength of organizations of labor; others
would argue that this would unduly increase the market power of
opposed concentrations and would endanger the maintenance of pur
chasing power necessary to maintain economic growth. As in the
case o f monetary and credit controls, alterations of the basic labor law
which were drastic enough to prevent any inflationary exercises of
market power might be so drastic as to weaken supports for sustained
and increasing demand. Third, the political force of groups demand
ing price-prop or protective measures is often very great, and this
political force may now often be supported by claims, as in the case
o f protective duties, that the national interest is involved.
It may be that developing consciousness of the potential impact of
private market power on the economy will lead to more caution in
creation o f protective shields for private groups. On the other
hand, it is apparent that the motivations which have led to the vari
ous public policies will not disappear and hence that there will be
no general retreat from these policies. It may be expected that a
government that is responsive through representative institutions
will yield to many group demands which have the effect of sustaining
or increasing price levels.
PUBLIC CONSIDERATION OF WAGE AND PRICE INCREASES
The inadequacies of* internal corrective forces, the ineffectiveness
of demand-limiting controls of monetary and fiscal types as restraints
upon sellers’ inflation, the imperfections of antitrust law and ineffec
tiveness o f antitrust enforcement, and the unlikelihood of general re
treat from price-prop and price-protective policies probably account
for the recent suggestions for public consideration of wage and price
PUBLIC POLICIES TO DEAL W ITH INFLATION
9
increases.9 The proposals for public consideration all look to some
type o f executive or administrative consideration of specific price
and/or wage increases.
In the discussions o f sellers’ inflation there has been widespread
agreement that public determination of prices and wages for indus
try generally should and would not be considered, except for unusual
emergencies threatening a general and large inflationary movement.
There seems to be rather general agreement at this time that creeping
inflation is preferable to general price and wage control by public
authority. Yet there has been search for means by which the public
interest could be represented in some way in the making of key de
cisions on price and wage increases. The proposals vary from mere
surveillance and publicity to public determination for one or a few
industries. They may be arranged to show an order of progression
o f increasing severity.
( 1 ) Notice.— Firms o f great size and power would be required to
give notice o f intention to increase prices to some public authority.
Such proposals for notice always include one or more of the following
means of public followup action.
( 2 ) Hearings.—Hearings might accompany notice requirements
being either {a) mandatory, or mandatory unless a finding of lack of
necessity was made, or (b) optional, within the discretion o f the pub
lic authority designated to hold hearings. Or hearings might be held
in the absence o f notice requirements whenever economic stability
was, in the opinion of the President or other authority, threatened by
a prospective price and/or wage increase. In the former case lav/
would require notice and hearing; in the latter it would provide only
for hearing on an intervention basis. Notice and hearing for a cate
gory o f industries or products would require a standing agency to
administer the hearing requirements; hearings on an intervention
basis could be held by a standing agency or by ad hoc groups desig
nated by the President or other authority. In this discussion con
sideration is given to the two possibilities o f: (a) notice and hearing,
and ( h) hearing with requirement of notice.
( 8 ) Factfinding.—A finding of facts could be made on the basis
o f facts (a) gathered in a study, or ( 6 ) obtained in a hearing, or (e)
adduced in both ways. Thus, factfinding is possible with or without
hearings.
(4) Publication o f finding*.—The mildest form o f sanction for
notice and hearing, hearing, or factfinding requirements would be the
force o f an informed public opinion. Publication o f finding is, there
fore, an essential feature of proposals for these forms of public par
ticipation.
(5) Advisory opinions.— Publication o f findings could be accom
panied by an advisory opinion or recommended decision. This means
of increasing the extent o f public participation has been included in
various proposals.
9 See, for example, H.R. 12785 (85th Con., 2d sess.), H.R. 4870 and 6263 (80th Cons:.,
1st sess.), the final version of which is now known as the Reuss-Clark bill, and S. 215 the
O’Mahoney bill. Hearings on the former set were held July 21 and 22. 1958, and Mar.
25, 26, and Apr. 9, 1959, before the House Subcommittee of the Committee on Govern
ment Operations. Hearings on S. 215 were held in April and May of 1959 by the Subcom
mittee on Antitrust and Monopoly of the Senate Committee on the Judiciary.
PUBLIC POLICIES TO DEAL W ITH INFLATION
10
( 6 ) Belay.— Suspension o f wage or price increases might be pro
vided by law (<2 ) for a period after notice, (b) until hearings were
held or a factfinding or other report issued, or (c) for a period after
the date of issuance of a report or advisory opinion.
(7) Public decision.—Utility-type control has been suggested for
one or a few industries, particularly steel. This would mean refusal
o f permission to make proposed price increases. In addition, public
decision might be substituted for collective bargaining in such indus
tries where there was a threat of cost-push inflation. This would mean
refusal of permission to make wage increases.
III. P
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These various proposals for public consideration present questions of
economic consequences, including effects on sellers’ inflation and eco
nomic growth. They also raise problems of administrative feasibility.
The discussion which follows deals primarily with these administra
tive problems.
There are problems which are peculiar to each of the types of pro
posals listed m the preceding section. Obviously, utility-type control,
which calls for authoritative decisions, would have much more farreaching effects than the other types, which involve only surveillance
and advisory or suspensory action. Also, requirements for notice and
hearing on all proposed price increases would have much broader
effects than authorization for intervention on an occasional basis
where prospective wage or price decisions were regarded as a serious
threat to the public interest. Nevertheless, these proposals separately
and jointly raise several common problems of administrative feasi
bility. These common problems can be discussed under four headings,
and attention given at the same time to some of the peculiar problems
raised by the separate proposals.
TH E PROBLEM OF SCOPE OF CONTROL
The first set. o f problems relates to the breadth or inclusiveness of
the controls which would be imposed. There are three issues to be
discussed.
Prices or both prices and wages
Should price increases only be considered or should both price and
wage increases be included ?
Some would argue for the former on the ground that corporate
action rather than labor action is the chief cause of inflationary in
creases or that holding the price line is a means o f preventing infla
tionary wage increases. On the other hand, the wage-price relationship
in cost-push inflation is so close and so evident that it might be ex
pected that policy determiners seeking the goal o f price stability
would feel that the objectives could not be attained without considera
tion of wage increases.
Increases or both increases and failures fo reduce prices
Should the oversight of prices and wages extend only to increases
or also to failure to ma ke downward adj ustments ?
PUBLIC POLICIES TO DEAL W ITH INFLATION
11
The current proposals and discussions anticipate inclusion only of
increases. This is probably due primarily to these factors:
(a) The immediate problem appears to be avoidance of inflationary
increases in wages and prices.
(b) The factors which would call for downward revision are varied
and not too firmly grasped at this time.
(e)
The political difficulties of forcing downward revision appear
to be much greater than those of preventing increases. The former
calls for departure from the status quo, in the case of wages for re
linquishment o f gains attained, and in the case of prices for gambles
on the effects o f changes.
It may be that machinery established for consideration o f increases
could serve later for consideration of downward revisions, but it may
be assumed that no more than the problem o f rising prices would be
considered in initial legislation.
Industries, companies, or products to be included
How determine which o f the thousands o f decisions relating to
prices and/or wages should be subject to public surveillance or super
vision? What industries, companies, or products should be included?
What is contemplated in the proposals for public consideration of
prices and wages is establishment of a category of industries, com
panies, or products which are or may be affected with a new kind of
public interest. The new public interest is in inflationary effects from
the exercise o f market power. The question is : What industries, com
panies, or products are or may be affected with this public interest ?
The discussion of this question will give attention to these specific
points: (a) What are the criteria o f inclusion which could be em
ployed? (b) What are the policy considerations affecting decision on
the width o f inclusion? (c) What are the means by which Congress
could determine the issues, either by its own action or through delega
tion to the President or an administrative agency ?
Criteria of inclusion
Market structure.—The most commonly used measure of market
power is the structure o f the market.
Structure in turn is commonly measured by concentration ratios.
Concentration ratios measure the proportion of an industry within
the control o f designated numbers of firms—1, 4, 8, or other number.
There are inherent difficulties in obtaining accurate concentration
ratios. Shall the ratio be stated in terms of percentage of sales, sales
value added in manufacture, employment, total assets, net capital
assets, or capacity ? Shall the ratio be determined on the basis of data
for one or for more years ? What number of sellers shall be used ?
Beyond these minimum determinations there are other difficulties.
The chief o f these is differentiation of the product or line o f com
merce, particularly where substitutes exist or new product lines are
being introduced and old ones substantially modified. Another is the
problem of defining the market; presumably this would be a national
market, but often local or regional differences and international trade
factors are significant. Also, questions arise as to what firms or units
o f production are sufficiently independent to be capable o f independent
action.
12
PUBLIC POLICIES TO DEAL W ITH INFLATION
In view of the many inherent difficlties it is not surprising that
existing data for measuring concentration ratios are not entirely
satisfactory. Nor is it surprising that there is much discussion and
difference o f opinion over means of preparing satisfactory ratios.
These conclusions are possible nevertheless: ( 1 ) No concentration ratio
will be accepted as satisfactory by all economists, or what is more
significant, by all o f industry; hence, attack would be made on any
which were used; ( 2 ) a reasonably satisfactory concentration ratio,
based upon the data available from the Census Bureau, could probably
be established by an agency of administration; and, (3) improvement
in the accuracy of the ratios could b expected over a period of time as
a result of collaboration between the agency and the Census Bureau.
Another factor in market structure is size. Some would argue that
absolute size, in contrast to proportion of the market controlled, bears
no necessary relation to concentration, and thus, it is held, to market
power. The argument is that one or a small number of quite small
firms may represent great concentration and possess considerable
market power in a market which is limited either geographically or in
the extent of total demand or for other reasons. Conversely, it is
argued that large firms may not have a large share of the market
for their products. Yet two facts do indicate the importance o f size.
First, size may be a useful indicator of markets needing further, more
detailed study. Second, size does increase the effects of market power,
and hence the public interest in the exercise of market power may be
greatest in the case of units of large size.
Certain conclusions about market structure figures (concentration
ratios; size measurement) as criteria of inclusion can be briefly stated.
There are three major limitations on their utility and adequacy.
First, the number of decisions on prices and wages on which there
would be a possibility of exercise of market power, as indicated by con
centration ratios and size measures, would be so large that no central
ized agency could possibly deal with all of them, except by the develop
ment o f a control bureaucracy of a size which the Nation would not
tolerate. Second, in addition to the fact that market structure figures
are only imperfect measures of potential market power, they fail to
reveal the extent of exercise of power. Third, they do not show the
sectors of the economy in which the use of market power may produce
the greatest inflationary effect. The value of market structure figures
is that they are useful as preliminary indicators of markets needing
further and deeper study. Additional study could be focused on the
exercise of power or the potential inflationary effects, or both of these.
Market behavior.—It might be argued that inclusion of an industry,
company, or product line in a scheme for public consideration of prices
should be dependent upon evidence of the historical exercise of mar
ket power to exact a larger return than would have been possible under
a competitive market. Evidence of exaction o f an excess return might
be sought in such factors as price inflexibility, profit levels, relative
shifting among market leaders, entry and exit of firms, and degree of
capacity utilization. But only on the first two o f these is the definite
statistical data of even medium reliability, and even on the first two
there are statistical inadequacies. These might not be serious if the
conclusions to be drawn from price inflexibility and a high profit
level were uniformly dependable. But high profits are not always
indicative o f the exercise of market power; these may be the result
PUBLIC POLICIES TO DEAL W ITH INFLATION
13
of such factors as rapid innovations in product or process of produc
ing it, continuing demand increases, abnormally high risk, or un
usually rapid rates o f technological obsolescence and correspondingly
high replacement costs not allowed for in depreciation allowances.
Price inflexibility may supply a first clue o f the existence and exercise
o f market power, but*a fuller market study may be needed to confirm
the assumption created by the clue. A t any rate economists are not
agreed that it could be accepted as a single standard for judging the
exercise of market power.
In antitrust cases a detailed market study leading to accumulation
o f evidence o f various types is usually essential to establish the exer
cise o f market power. Such studies may take years or months and be
followed by painstaking presentation of the evidence to win a favor
able judgment from a court. Obviously, something less conclusive
than this is needed as a guide for determining whether the public
should consider price increases in an industry.
Certain types of evidence on historical market behavior, such as
price inflexibility or high profit levels, could corroborate other data
but their acceptance as the only criteria for inclusion would be un
likely.
Inflationary potential.— One way to narrow the range of public
consideration would be to select those strategic sectors of the economy
in which the exercise o f market power might have the greatest infla
tionary potential. But how determine inflationary potential? One
method would be to measure the direct effect 011 the costs to ultimate
users—householders, governments, and industrial and commercial
users—o f the price increase of a particular product. A second method
would be to concentrate attention on those increases which diffused
cost and price increases widely throughout the economic system. One
economist has listed 15 industries which show the highest diffusion
rating. He has suggested also that the most serious contribution to
inflation could be expected to arise in sectors—
(a) which diffuse output widely throughout the system, ( b ) where demand is
inelastic with respect to price, ( c ) where labor costs are a relatively high pro
portion of total costs and where productivity is increasing much less than the
average, and ( d ) where wage-rate increases have a tendency to spread widely
throughout the wage structure of the economy.10
Such tests would supply guides for limitation and concentration of
public attention. Thus, for example, steel is an industry wiiich is “ a
pivotal sector” according to the tests suggested.11 A third method
would be to observe wage and price movements to see which would,
be likely to establish patterns o f behavior and to intervene with
public hearings or other consideration only at these points. Annual
moves for wage increases are now common; moreover, early wage de
cisions tend to set patterns for later demands. These wage moves may
be made in different industries in different years, and hence public
consideration would need to be based on close and alert observation
to determine the key economic decisions which might set off chain
effects. Similar observation might be made o f independent price
movements which would carry a heavy inflationary potential.
“Policy Problems: Choices and Proposals,” in “Wages, Prices, Profits,
“ Ibid p 157 (American Assembly, 1959), pp. 137 ff., quotation from pp. 153-104.
14
PUBLIC POLICIES TO DEAL W IT H
INFLATION
Application of such criteria of inclusion would not be easy. For
one thing, factual data is incomplete. The Consurmer Price Index
does not fully reveal the effects of particular price increases in basic
industries. The wholesale price index would do this more ade
quately but it too would have elements o f incompleteness, including
failure to show the secondary impact of the product on the costs and
prices o f other products. The input-output tables from which diffu
sion effects could be determined are old and extend only to a limited
number o f product groupings. In addition, the latitude of judgment
in determining inflationary potential, particularly where based on
observation o f wage and price moves, would be considerable.
Conclusion.—The judgment on inclusion would perhaps be based
on a combination of types of criteria. Such a combination is illus
trated by a recent study of the impact of steel prices on the postwar
inflation.12 Steel is shown to be an industry of high concentration,
both in labor and company organization. It is known also to be an
industry in which the diffusion effects of price increases are great and
in which wage negotiations often have an important pattern-setting
effect in the economy. The extent of the diffusion effect is revealed in
this conclusion:
If steel prices liad behaved like other industrial prices, the total industrial
price index would have risen by 40 percent less over the last decade and less
by 52 percent since 1953. Finished-goods prices would have risen less by 23
and 38 percent, respectively.18
By use o f various kinds of data with respect to market behavior it is
concluded that—
The wage and price behavior of the steel industry represents an important in
stance of inflation caused to a substantial degree by the exercise of market
power.14
Studies of a similar kind for other industries, using multiple criteria
o f judgment, could serve as the basis for determinations to include
particular industries in a program of Government surveillance of
price and/or wage increases.
Width of inclusion
A dominant factor in determining the width of inclusion would be
judgment on how large an effort the public wanted to assume. Un
doubtedly the Congress would not want to provide for a new function
o f great complexity and difficulty unless there was hope for some
reasonable amount of success in avoiding sellers’ inflation. But this
guide o f purpose might be qualified by a desire for limitation o f the
number o f occasions of public intervention. Consequently, some
choice between completeness and limited intervention might be neces
sary. Some possibility for exaction o f an excess charge from the pub
lic might exist in all cases where there was a high concentration ratio.
On the other hand, there might be a desire to limit effort to those
cases where the threat had been demonstrated by past experience to
be real, or to those cases where the present threat of inflationary im
pact appeared to be material, or even further to only a few key deci
sions which would threaten a large inflationary impact.
12 Otto Eckstein and Gary Fromm, “ Steel and the Postwar Inflation,” Study Paper No.
2, “ Study of Employment, Growth and Price Levels,” Joint Economic Committee, 86th
Cong., 1st sess., Nov. 6, 1959.
PUBLIC POLICIES TO DEAL W IT H
INFLATION
15
One factor affecting judgment would be the type of public surveil
lance and consideration which was contemplated. The width of in
clusiveness might vary inversely with the weight o f the requirement
which was imposed on industry and on the Government. Creation of
administrative power to refuse permission to increase prices or wages,
in effect a utility type of control, would certainly not be considered
for more than a few industries. Mere notice requirements might, on
the other hand, be extended to a considerable number o f industries,
companies, or products. Hearing requirements, which would be fol
lowed only by publicity of findings or advisory opinions, might ap
ply on an optional basis to a wide number of companies or products
but would not appear to be administratively feasible on a mandatory
basis for more than a very limited number o f proposed price or wage
increases.
It would be possible to have a rather broad category for inclusion
under notice requirements. This category could be defined in terms
of a concentration ratio, or by this in combination with other factors,
or by other means. But a narrowing o f the scope o f the span o f
public attention would be required before factfinding, hearings, or
advisory recommendations were undertaken.
Method o f decision
There are a number of feasible means of reaching decisions on this
matter o f inclusion.
First, Congress could specifically name the industries or products
which would be covered by requirements. It would presumably do
this if one or a few industries were designated for utility-type control.
It could also list those industries or lines of commerce (with exemp
tions of relatively small companies) to which notice, hearing, or other
requirements would apply.
Second, Congress could lay down in legislation a clear set of criteria
and delegate to an administrative agency the responsibility o f applying
these criteria to available statistics on industries and markets and of
making a determination of which companies and products were in
cluded. This method might be regarded as more feasible for notice
requirements than for hearings or factfinding requirements, for in
the case o f the latter executive or administrative judgment on the
need for hearing or factfinding in the particular instance might be
regarded as desirable.
Third, Congress could lay down in legislation a general set of
guidelines for the agency, but leave to it discretion to determine,
within these guidelines, which industries, companies, or products
would be covered.
Fourth, Congress could outline only the broad policy objectives to
be sought and leave to the agency or to the President the determination
of the industries, companies, or products, and the occasions, to which
the powers granted would be applied.
Fifth, Congress could vary the definiteness of its prescriptions and
the limitations on discretion of the agency or the President with the
type o f function to be exercised. It could follow the second or third
method described above in regard to the requirement for notice, and
the third or fourth with respect to factfinding, hearing, or delay
requirements.
48575— 59-------4
16
PUBLIC POLICIES TO DEAL W IT H
INFLATION
Finally, it is possible that these decisions could be made on the
basis o f congressional-executive cooperation. Congress could name
a few industries or lines of commerce and add to these on the basis
o f administrative recommendation. Or, preferably perhaps, Con
gress could lay down guides for an administrative agency on indus
tries to be required to give notice, and ask for administrative reports
to Congress on those selected for inclusion, subject perhaps to con
gressional approval or veto. Or Congress could authorize hearings
or factfinding within the discretion o f the President and set up a factgathering agency which would recommend to the President and Con
gress further steps in regard to notice or other requirements.
THE PROBLEM OF STANDARDS
What standards would guide the President or an agency in the
decision on whether price or wage increases were justifiable? Factual
summaries without reference to any standards of judgment on whether
an increase was justified would not be likely to carry weight in public
opinion or with parties desiring increases; and advisory statements
or public utility decisions would necessarily rest on standards of judg
ment.
Although standards of judgment would be required for any type
o f action, the difficulty o f the problem of standards would be less
where the only sanction was advisory or suspensory action than where
a legally determinative decision for a period of some length was made.
The latter type of decision would need to meet the standards of
accuracy and fairness which would survive in courts; the former would
need only to meet standards which would survive in the public
forum and carry conviction o f merit with the parties affected.
Criteria for judgment on price increases
There are many standards for judgment on justification for price
increases but there are questions as to how appropriate and how
acceptable these would be for prevention of price inflation.
Complex standards, such as have been used in utility regulation,
would not serve usefully in inflation control. Value of property,
determined either on replacement cost, market or exchange value,
or prudent investment, would be determinable only after great delay ;
argument over the basis of determination and the accuracy o f esti
mates would be unavoidable. Fair return, if determinable from com
plex analyses of cost-of-capital data, would also be ascertainable only
through extensive study over too long a time span. The difficulties
o f determining these issues in an industry which included several
sellers would be even greater than in the case of monopolistic utilities.
There are simpler standards which have been used in price control
in emergency periods. These are easier to apply, though they too
leave scope for uncertainty and difference of judgment. One is the
historical earnings standard, according to which the reasonableness
o f returns today is measured by the returns in some base period or
periods. This standard has been used both in emergency price control
and in agricultural pricing decisions. The first difficulty is selection
o f an appropriate base period or base periods. The next is determina
tions o f the extent to which use o f the base period data must be con
ditioned or modified for factors different from those existing on base
PUBLIC POLICIES TO DEAL W IT H
INFLATION
17
period dates. Another difficulty is determining the method of cal
culating earnings: Is the proper test the dollar amount of earnings
in the past period? Or the dollar amount modified for changes in
investment ? And for changes which have occurred in the real value
o f the dollar ? Or shall earnings be estimated as a percentage o f sales ?
Or as a percentage of invested capital (a resurrection of complex
utility standards) ? Or are all of these relevant to a decision?
Another standard used in emergency price control was historical
margins, according to which the margin of markup by a seller was
deemed to be reasonable if in accord with industry practice or his
practice. It may be expected that a seller’s own practice would be
regarded as the more appropriate figure : It uses his own experience
as the guide for determining the appropriate margin for him, rather
than asking him to sleep in a bed furnished by a competitor or in a
bed manufactured out of the average of the industry. Moreover, there
is an inflationary trend in any effort to use margins determined as the
mean or the average for the industry for no price controller would
try to live with a figure which did not allow a margin of safety above
the mean or average. Also averages may be above those used by the
largest sellers, and encourage these to think in terms of higher
margins.15
The standard historical margins for a particular seller would prob
ably be called into question in some circumstances. The margin pricing
standard converts every cost increase into a price increase greater
than the cost increase. It has the same pyramiding effect as costplus pricing, which in fact it is. Factfinding bodies might conclude
that a cost increase (wages; or price of a primary supplier) was justi
fied but that the earnings of the company were so great, measured by
other standards, that some absorption of cost increase was appropriate.
This qualification of the historical margins standard might be thor
oughly justified by all the circumstances; it would, however, be d if
ficult, if not impossible, for factfinders or price limiters to obtain ac
ceptance by a company of any direct limitation o f its margin ex
pectancies or goals, for those to most sellers are more sacrosanct than
any laws of economics or standards of the public interest.
A further standard may be referred to as the comparative profit
standard. According to this standard the profit rates o f a concern
seeking a price increase would be compared with those of other con
cerns in the same or other industries with comparable risks and com
parable historical experience with respect to earnings rates. The
standard o f comparison with industries of comparable risk is one
which has been prescribed for utility ratemaking by the Supreme
Court o f the United States.16 The primary difficulties in use of this
standard are, first, determining what industries have comparable risks,
and, second, obtaining satisfactory earnings figures for these indus
tries.
15 The author recalls a conversation 2 years after the end of wartime price controls
with the manager of one of the Nation’s largest wholesale grocery establishments. The
manager, an ex-OPA official, pulled from his desk the margin-ceiling chart adopted by
OPA for wholesale grocers, and said, “ We use this as a guide in setting prices.” I said,
“ But those margins are higher than you used before price control.” He replied, “ Oh,
yes. But our competitors use them also.” OPA had, in combating immediate inflation,
contributed to permanent inflation.
16Bluefield Waterworks & Improvement Co. v. Public Service Commission, 262 U.S. 679,
692 (1923) ; FPC v. Hope Natural Cas C o 320 U.S. 591, 603 (1944).
18
PUBLIC POLICIES TO DEAL W IT H INFLATION
Still another standard is the rate o f use of capacity. One economist
has suggested a mathematical rule according to which price increases
would be allowed if the rate of use of capacity exceeded a stated
percentage.17 T o other economists this appears infeasible because
o f present lack o f data on capacity and because of inability to measure
or perhaps in some industries to even define capacity. Nevertheless,
rate o f use of capacity may be a significant standard in determining
need for price increases. I f capacity is used fully and demand is
pressing upon supply, and if this is not a temporary situation, then a
price increase may be deemed reasonable as means o f inducing new
investment. This may indeed be the most useful standard for de
termining the justification for price increases which have as their
purpose increase o f investor’s return rather than coverage of wage
increases.
The foregoing discussion 011 standards of judgment reveals only in
part the difficulties o f factfinding, advisory opinions, or decisions on
prices. The difficulties would be compounded in a rapidly changing
industrial scene with introduction of new products and new industries
and rapid, even revolutionary, changes in technology of production.
The pace o f developments outruns the accumulation o f factual data
and puts a strain on standards of measurement and comparison.
Moreover, pricing judgments would need to be based on consideration
o f the need for incentives and for rewards for increased productivity
and cost-saving measures and at the same time of the need for passing
to the consumer and to the economy as a whole some of the gains
in productivity in the more rapidly evolving areas of technological
advance. Also, the evasive elements of quality improvement or de
terioration, o f discounts and other departures from standard price,
o f varieties o f pricing technique and practice, and the uncertainties
as to future market conditions would qualify accuracy in judgment
on justification for price increases. Special difficulties would arise
in judgment on the justification for price increases for single products
in multiproduct industries or companies. Finally, it would be im
perative that pricing judgments be made cautiously because o f the
delicacy of economic relationships and the danger that decisions could
impede economic growth or deal unfairly with groups.
Criteria for judgment on wage increases
There are several standards which could be used for judging the
justification for wage increases. These are cost of living, comparable
wage rates, ability to pay, productivity increases, maintenance o f pur
chasing power, essentiality. The first four of these are the most
commonly suggested standards for settlement of wage disputes.
Although the several standards appear on superficial view to be
simple, the simplicity o f each would disappear in application and the
applicability o f each would be argued, either in general or in specific
instances.
As to problems of application, it may be noted that there are tech
nical difficulties in determining the real cost o f living, comparable
17 Abba Lerner, “Employment, Growth, and Price Levels,” hearings before the Joint
Economic Committee, pt. 7, September 24. 1959, pp. 2265, 2266.
PUBLIC POLICIES TO DEAL W IT H INFLATION
19
wage rates, ability to pay, and productivity increases. After discus
sion o f these four standards one authority has concluded—
the range of passible wage rates which would follow from the various possible
applications of each of the principles would generally be wider than normal
variance between the parties in collective bargaining. The alternative meanings
and measurements of each one of these standards are so diverse that the prin
ciple frequently can provide little help as an authoritative determination of
wages.18
As to issues of applicability, brief comments may be made con
cerning each o f the standards.
Cost of living
Wage increases could be regarded as reasonable if these merely
compensated for an increase in the cost of living and considered un
reasonable if they went beyond this point. The reasonableness of
cost of living increases would generally be accepted, though some
might argue that this would continue the spiral of wage-price or
price-wage increases. The larger objection to the standard would be
that it, by not allowing for productivity increases, fixed on labor a
stationary real wage. Since no one would want to deny any pos
sibility o f further increases in the standard of living of labor groups,
this standard could be useful only as one, but not as the sole, stand
ard for judgment.
Comparable wage rates
Wage increases could be granted where the level of payment was
below that for comparable work in other plants, companies,
or industries, and denied where this was not true. Technical d if
ficulties in applying this standard are peculiarly forbidding. In
addition, it would be argued in instances that historical differences
were justified and hence that denial of increases in upper-level wage
scales was unreasonable. More significant, the comparable-wagerate standard, like the cost-of-living standard, will, if applied nega
tively, fix a ceiling on the standard of living of laborers, except for
improvements resulting from price decreases, and improvements of
product quality. It, again like the cost o f living standard, would
be useful as a principle of affirmative judgment on wage increases,
but o f small utility as a principle of negative judgment.
Ability to pay
The great technical difficulty in application of this standard is
that it requires determination of ability to pay, and thus leads into
complexities similar to those in determining the reasonableness of
price increases. Beyond this, the applicability of the standard to
the determination of the reasonableness of wage increases is limited.
It would distort the wage structure by granting to labor the benefits
of superior efficiency or superior market power of particular con
cerns or industries. Such distortions would lead inevitably to move
ments for increases in other sectors of the economy. The prefer
able course o f action, where income sufficiently large to justify a laMJohn T. Dunlop, “ The Economics of Wage Dispute Settlement,” Law and Contemporary
Problems (spring, 1947), 293.
20
PUBLIC POLICIES TO BEAL W IT H
INFLATION
bor-sharing increment exists, might he to decrease prices. This,
however, may not be voluntarily done and is not likely to be forced
by government, even when the result of market power. A t the same
time, government would not in all probability resist wage increases
which could be justified on the ability-to-pay basis, since these would
require no price increases.
Productivity increases
According to this criteria wage increases could be considered as
reasonable if there had been increases in productivity per man-hour
o f work. This would undoubtedly be the primary criterion for de
termination of the reasonableness of wage increases. The difficulty
would be in determining or applying the appropriate measure of
productivity increase. I f the total gam from productivity increases
m an industry o f improving technology were taken by investors and
labor in the industry, then the rest of society would obtain no gains
from the increases, an imbalance would be created in the wage re
lationships among industries, pressure would be created on centers
o f market power in other industries to seek comparable gains, and
the total effect would be an inflationary trend in prices. These re
sults could be avoided i f the average increase in productivity
in the whole economy were used as the test. The average increase
is a measure whichwould be accepted widely as the correct one. But
in addition to difficulties of accurately estimating the average in
crease, there would be the problem of determining in particular in
stances whether the urgent demand for more than the average was
justified by special factors.
Maintenance of purchasing power
The argument has sometimes teen advanced that wage increases
should be made to maintain or even to increase purchasing power.
This argument, in a sense, overlaps other criteria, for cost-of-living
and productivity increases in wages have the effect o f maintaining
purchasing power. T o the extent that the argument urges more than
these amounts, it would be weak in periods o f full employment and o f
demand sufficient to create inflation, and would assume that wage in
creases rather than price decreases was the remedy in periods or fall
ing employment or decreasing demand. Yet the absence o f effective
pressures ior price reductions would lead to argument for wage in
creases to maintain purchasing power and thus this standard o f judg
ment would be suggested for public consideration.
Essentiality
In W orld W ar I I one test that evolved for public wage determina
tions was the necessity o f drawing more labor to an essential enter
prise. This too would probably be sometimes suggested as a standard
tor judgment in administration of a new system o f public considera
tion o f wage increases.
Conclusion
The foregoing discussion highlights some o f the complexities of
public price and wage consideration, though full appreciation of the
extent o f these complexities is difficult to grasp without experience in
the choice and application o f standards. The history o f wartime con
trol o f prices and wages showed ever-increasing complexity and varia
tion in standards o f judgment.
PUBLIC POLICIES TO DEAL W ITH INFLATION
21
It is probable that Congress could do 110 more than set forth the
broad objectives to be sought. Standards of judgment would be
evolved by an administrative agency or by ad hoc factfinding or hear
ing groups. It is possible that this would be largely a pragmatic
process, in the beginning at least, in which the claims, counterclaims,
and factors in the situation, would be evaluated separately in each in
stance. On the other hand, a continuing center of study in the execu
tive branch might clarify guides for judgment which could be helpful
both in public consideration and in private negotiations or delibera
tions.
Even though the considerations affecting price and wage judgments
are complex and multiple, there are criteria of judgment from which
informed and responsible decisions can be made. If the public con
sideration only extended to factfinding, hearings, advisory opinions,
and executive pressure then the effectiveness of public participation,
and the safeguards against errors in this participation, would rest in
the inherent correctness of the public decisions and the confidence in
this correctness from the public and the affected interests. If a utility
type of control were established, then greater effectiveness would be
sought through authoritative public decisions and the safeguard for
accuracy in judgment would rest more largely in the internal processes
of government.
THE PROBLEM OF TYPE OF ACTION
The simplest form of public action would be occasional interven
tion through factfinding or hearing procedures without requirements
for notice of proposed wage or price increases. On the basis of
knowledge obtained on increases which were in prospect or which
had been made, a public authority would determine that a hearing
should be held or a factfinding study made. Presumably the inter
vention would occur only in cases where there was threat of a serious
inflationary impact. There would appear to be no reason why the
President could not take action of this kind without a statute. Yet
any fixed program of action of this kind would depend upon con
gressional authorization. The statute would indicate the contingency
under which the President would act. It could be phrased to em
phasize emergency conditions threatening economic stability. Or
it could be framed to emphasize inflationary threats which were of
material significance without restriction to situations deemed to be
emergencies. At any rate it could be assumed that the determina
tion on whether the contingency stated in the statute existed would
rest with the President.
This minimal amount of public action would be subject to the ob
jection that it would be ineffectual toward prevention of sellers’ in
flation. It could be argued that provision for presidential interven
tion would be merely a feint toward the problem of sellers’ infla
tion in the absence of (1) notice of prospective changes, (2) con
tinuing surveillance of markets, and (3) conclusions as to justification
of proposed increases.
The key decision is whether notice should be required. The ad
vantages, or even necessity, of notice are apparent. Without notice
no system of continuing surveillance can be set up. And without
notice intervention by the President would often be possible only
after increases in prices were in effect. Consideration of price
22
PUBLIC POLICIES TO DEAL W ITH INFLATION
changes at this stage would in many, perhaps almost all, cases be
futile.
The requirements of notice would constitute no real problem as far
as wage increases are concerned. The Labor Management Relations
Act now' requires 60 days notice to the other party in a collective bar
gaining contract of intent to seek changes in the contract and notice
thereafter to the Federal Mediation and Conciliation Service of the
existence of a dispute. It would be a relatively simple matter to mod
ify these requirements to include notice to an agency responsible for
surveillance on wage and price increases.
It would also be relatively simple to require industry to give notice
that wage increases would require price changes. As for price
changes made independently of wage increases, the problems pre
sented are more difficult. The volume of changes to be listed would
be much greater than in the case of wages. Industry would complain
that the requirement was burdensome and that notice with a waiting
period was infeasible in all cases. The argument has also been made
that industry would be hesitant to make price decreases if it knew
that increases to former or new levels were to be subject to public
scrutiny.39
Notice appears to be essential for any effective public consideration
of inflationary increases in prices arising from market power. Yet the
requirement could not be imposed without careful consideration of cer
tain problems respecting it: First, is the problem of determining the
width and criteria of inclusion and of applying the criteria of inclu
sion. Second, is the problem of defining the requirement: What is to
be the period of notice ? What is included in the requirement: elimina
tion ox discounts, elimination of services and allowances, change in
form and quality of product so as to supply less to the consumer at the
same price, etc? What exceptions shall be granted—on grounds of in
feasibility of reporting, seasonal or other temporary changes, or other
factors? Except for the period of notice, such determinations would
need to be vested in an administrative agency, which in its turn would
encounter extremely vexing problems.
Surveillance, following notice, could take many forms. A first step
might be staff analysis of notices to determine which increases carried
sufficient inflationary threat to justify further public consideration. It
would not be feasible or desirable to take followup action on every pro
posed price increase. It could be expected that the agency would have
some standards which could be applied by the staff, or by the agency
on staff recommendation, for winnowing through listed price increases
to determine which called for further consideration. The number of
price increases proposed would be too numerous—even in a single
industry or product line—to allow for hearings on all.
This preliminary step could be taken with good judgment only with
the aid of a well-informed staff. There would be need for a staff with
knowledge of trends in the economy, conditions in particular markets,
and pricing practices in industries and companies from which reports
were received.
19 See testimony of Roger Blough and others before the Subcommittee on Antitrust and
Monopoly of the Senate Committee on the Judiciary, “Administered Prices,” pt. II, April
and May 19f>9.
PUBLIC POLICIES TO DEAL W ITH INFLATION
23
Assuming decision to give further consideration to a proposed in
crease, what further steps might follow ? First, it would be possible to
have a factfinding study, either by an agency or an ad hoc committee.
A report based on such a study could be the means by which public in
fluence was exerted on those proposing the increase. This is the wellknown practice in labor disputes. In labor disputes, however, the re
port goes back to the collective bargaining table for consideration by
opposed parties. In the case of consideration of proposed price or
wage increases because of their inflationary effect the report would go
to the party proposing the increase for its consideration. In such a
case the argument that a public hearing was necessary to insure fair
ness to parties proposing an increase and to the public would probably
be forcefully advanced and accepted. Second, it could be assumed that
some steps would need to be taken in advance of a hearing. There
would be need for assemblage of statistical data. There would also be
need for some authority representing the public to analyze this data
and present a public case at the hearing. Third, the nature of the hear
ing would need to be carefully considered. Utility rate hearings often
take many months. The issues to be considered in inflationary concen
tration ox power cases would be equally as complex, often more com
plex. But long delays in decision on price or wage increases could not
be tolerated. The effectiveness of the effort to control sellers’ inflation
would be destroyed if there was not a firm resolve to limit the length of
hearings. Necessarily, all issues could not be “litigated” ; the hearing
would be more legislative, less judicial, in type than utility rate pro
ceedings.
A program of surveillance of prices or of wages and prices for a
number of industries or products would collapse from its own weight
if hearing procedures and steps leading to hearings had to follow the
judicialized model which has developed for utility rate regulation.
If one or a few industries were chosen for utility type of control the
need for simplification would still be presented but in a more dif
ficult form. In utility type of control decisions would be subject
to judicial review, at least on constitutional grounds. The record
would have to be adequate to substantiate the decision made. It may
be thait before a utility type of control is imposed on another industry
a congressional committee should consider whether, or by what means,
procedures can be sufficiently simplified to prevent delays of years
in reaching final decisions. This kind of decisionmaking process is
unfitted for dynamic American industrial conditions.
The need for expedition in processes would be imperative because
suspension of wage or price increases during factfinding or hearing
would be vital to the success of the public effort. In the absence of
suspension the chain effects of wage or price increases through indus
try would be so great that, as Humpty Dumpty found for the egg,
no recourse would exist for undoing what had already occurred. But
suspension would and could not be accepted for long in a dynamic
economy. A principle of economy in administration would have to
work in two ways: in careful choice and restriction of number of
factfinding or hearing proceedings to those which could be handled
administratively, and in simplification of proceedings to insure
prompt disposal.
48575— 59------ 5
24
PUBLIC POLICIES TO DEAL W ITH INFLATION
What action would follow factfinding studies or hearings ? Aside
from the possibility of utility-type control for one or a few industries,
all suggestions for public participation envisage that reliance will
be placed on nonlegal or soft sanctions. The first is the appeal to
rational judgment resting in a correct statement of facts from an
authority having a reputation for fairness and for devotion to the
general interests. The second is the support of public opinion. The
third is the influence of an executive recommendation.
It may be assumed that the first step following factfinding studies
or hearing in a program of public surveillance would be a report.
This report would include a summary of the facts, and to the extent
that the facts pointed toward a conclusion a mere factual summary
could focus attention on the issue of justification for an increase. The
limitations of such a report are that it does not sufficiently aid a public
judgment on this issue of justification. If public opinion is to be
effective it may have to be focused by a recommendation or advisory
opinion. Some might argue that these isues of wage and price level
are too complex to be entrusted to inexpert public opinion. On the
other hand, if dependence is to be placed on public opinion as a sanc
tion, then there is strong argument for expert guidance to the public
through a definite recommendation or advisory opinion.
There are major limitations upon public opinion as a sanction.
Few newspapers publish factfinding reports in labor disputes and
probably an equally small number would publish reports on pro
posed wage or price increases which might have inflationary effects.
The public gets incomplete and distorted information on the con
tents of an important public report. It may be that the effectiveness
of a program resting on public opinion as a sanction would be de
pendent, in considerable measure, on whether Government would be
willing to pay the costs of printing factfinding reports and advisory
opinions. Yet this would still not overcome another limitation of
public opinion as a sanction. This is the limitation of the span of
attention of the citizen. The citizen can give his attention to only
a limited number of things at a particular time. If, therefore, hear
ings are held or factfinding reports issued only occasionally, then the
chance of obtaining public attention is increased.
The weight of recommendations would be materially dependent,
not alone on public opinion, but on the standing of the governmental
authority which made the recommendation. If these were Presiden
tial recommendations they would undoubtedly carry great force; if
these came from an agency or an ad hoc group the weight of the rec
ommendation would presumably be less.
Concluding this section it can be said that the basic choices in
public policy, if public consideration were undertaken, appear to be
from among these alternatives:
(1) A minimal program of Presidential intervention in
occasional instances.
(2) Notice requirements, optional factfinding studies or hear
ings with simplified procedures.
Either of the above would be followed by public report and
possibly recommendations or advisory opinions.
(3) Utility-type control for one or a few industries.
PUBLIC POLICIES TO DEAL W ITH INFLATION
25
THE PROBLEM OF ORGANIZATION
A number of possibilities with respect to organization for com
batting sellers’ inflation can be distinguished.
(1) The minimum proposal for public intervention presents few
organization problems. This is the proposal for Presidential estab
lishment of ad hoc hearing or factfinding boards at his discretion.
The only problem would be a Presidential source of information on
need for establishment of such boards. This might be advisers in the
Executive Office of the President, or these aided by the executive
departments and the Federal Trade Commission and possibly the
Federal Reserve Board. Or the President or the Congress might
desire the establishment of some new study center to make recom
mendations to him on need for and advisability of action.
(2) The proposal for a utility type of control for one or a few in
dustries revives some old problems of organization. These center
around the issue of whether the traditional system of commission
organization should be used for new activities, or whether modifica
tions of that system would insure more effective regulation. As to
possible modifications there is division of opinion as to the desirable
ends to be sought, some believing that new steps should be taken to
insure judicial independence, others believing that changes should
aim toward more aggressive representation of the public interest and
more attention to development of policy standards. Consideration
of these trends in criticism would be desirable before determining a
form of organization for a new regulatory function.20
(3) If action different from the two suggested above is contem
plated, then special problems of organization are presented. The
first possibility would be establishment of a continuing study center.
Such a center might have two responsibilities. The first would be to
assemble and analyze information on the extent of the threat of infla
tion through concentrations of market power and on the locations of
power through which any such threat might materialize. The second
would be to make recommendations to the Congress and the President
on feasible public policies for meeting dangers to the economy arising
from inflationary concentrations of power.
(4) Another possibility would be a study and action center. Such
a center, in addition to the few functions stated in the preceding
paragraph, could have these action responsibilities: First, it could
receive notices of proposed price and wage increases and analyze these
for the purpose of determining which increases deserved further study.
Second, it could make preliminary investigations or studies on those
increases with the objective of determining whether the proposed in
crease should be suspended and a full-scale investigation through fact
finding or hearing proceedings should be initiated. Third, it could
present the case against an increase, or for modification or limitation
of an increase, at factfinding or hearing proceedings.
a®For recent discussion see Louis J. Hector, “Problems of the CAB and the Regulatory
Commissions,” Memorandum to the President, Sept. 10, 1959: Ferrel Heady, “The New
Reform Movement in Regulatory Administration,” Public Administration Review, vol. XIX
(spring, 1959), pp. 89-100; Emmette S. Redford, “The Regulatory Commissions: The
Need for a New Look” (Bureau of Public Administration, University of Maryland, 1959) ;
and “Independent Regulatory Commissions,” report of the Special Subcommittee on Legis
lative Oversight of the Committee on Interstate and Foreign Commerce, H. Rept. No. 2711,
85th Cong., 2d sess., Jan. 3, 1959.
26
PUBLIC POLICIES TO DEAL W ITH INFLATION
(5)
If factfinding or hearing procedures were desired, these could
be provided in several ways: (a) Through ad hoc boards set up by
the President; (6) through ad hoc boards set up by the agency serving
as the study and the action center; (c) by the agency itself, which
would in this case have combined functions of initiation and con
sideration similar to the pattern of the regulatory commissions; or
(d ) by hearing or factfinding panels attached to but independent from
the control of the agency responsible for preliminary study, initia
tion, and presentation of the case against an increase.
The primary considerations in choice from among these alterna
tives would be (1) the frequency with which proceedings of the type
would be conducted, (2) the degree of need for consistency in applica
tion of standards, (3) the degree of independence desired in the pro
ceedings and in the preparation of a report, and (4) the extent to
which Presidential participation was desired.
If study, or study-action, or study-action-hearing functions were
to be performed on a continuing basis then a problem of designation
or creation of an agency responsible for such functions would arise.
What possibilities would exist? First, it is unlikely that any of the
four departments of administration dealing with economic matters—
Agriculture, Commerce, Labor, Treasury—would be used. The func
tion to be performed is not closely related to existing functions of any
of these four. Also the clientele orientations of the first three of
these would militate against their acceptability to the various groups
affected by the program. Second, the functions could be delegated
to the Federal Trade Commission. Favorable to this is the fact that
the Federal Trade Commission has acquired knowledge and experi
ence in dealing with concentrations of economic power, both through
its investigations under section 6 of the Federal Trade Commission
Act and through its proceedings under section 5 of that act and under
the Clayton Act. Objections to locating the functions in the Federal
Trade Commission would include the following: (1) That there was
need for an agency whose effectiveness for these functions would not
be impaired by the traditions and methods of the Federal Trade
Commission, including its primary concern with antitrust as a weapon
of public policy and its use of procedures designed primarily for law
enforcement; and (2) that the form of organization was inappro
priate, either because the hearing function would not be sufficiently
independent from the study and action functions to insure confidence
or that the study and action functions would be too much removed
from the influence of the President. Third, if only a study function
were involved it could be placed in the Council of Economic Advisers
or in a new staff agency in the Executive Office of the President.
Fourth, if more than study functions were involved then a new agency
outside of the existing departments or the Executive Office might be
created. If only study and action functions were to be placed in the
agency, with factfinding or hearing functions placed in ad hoc boards
or in panels attached to but independent of the agency, then the argu
ment for placing the agency under Presidential direction would un
doubtedly be compelling. If factfinding and hearing procedures were
to be placed in this agency, then the question of relation to the Presi
dent would be more complex, involving for its solution, judgment on
whether close association of this function with the Presidency would
impair or strengthen its effectiveness. For the special objectives to be
PUBLIC POLICIES TO DEAL W ITH INFLATION
27
attained in this suggested type of program it may be that both inde
pendence and Presidential connection would be desirable, and that to
this end factfinding or hearing should be by panels in whose imparti
ality the public would have full confidence but that these would act
because the President or an agency serving for him believed that a
threat to the public interest was involved.
IY.
C o n c l u sio n s
It is essential to view the consideration of the problem of sellers’
inflation and the proposals with respect to its prevention with per
spective. To do so, several factors must be kept in mind.
(1) Price stability is one but not the sole, or even chief, economic
obj ective in public policy. Economic growth, high employment levels,
and fair distribution of returns are dominant objectives for the econ
omy, and price stability has significance as it is related to these
objectives.
(2) Sellers’ inflation is only one of the possible manifestations of
the power of large private organizations in our society. These organ
izations may be able to exert great political influence, to influence the
thinking of the public through nationwide communications, to stop
production in vital sectors of the economy, to resist innovations in
accord with
production and distribution
movements in the economy, a;
x
>r to obtain a
larger benefit, at least temporarily, than could be obtained in a marketcontrolled economy. This view of the potentials of large organiza
tions does not deny that large organization has been the means of
introducing new products, increasing production, and facilitating
mass distribution at lowered cost; it only recognizes that the develop
ment of large organizations has also brought some serious problems,
of which the potentiality for the exercise of market power with infla
tionary effects is one.
(3) Current proposals seek to meet only a part of the problem of
use of market power to control price and wage levels. These pro
posals deal only with price or wage increases, leaving untouched the
problem of price rigidity, that is, the failure of prices to move down
ward with declines in demand or improvements in production.
(4) The administrative difficulties to be faced in public effort to
prevent the use of market power to produce inflationary increases in
prices and wages would be tremendous. Over what industries, com>anies, or products would surveillance be necessary? Could the pub
ic effort be successful without surveillance over a wide range of Amer
ican industry? Could public effort be pinpointed at the strategic
centers from which new inflationary pressures would arise? Could
public attention be brought to these centers in time to prevent the
beginning of new inflationary chain effects? What type of public
action would be needed. Would notice of prospective price and wage
increases be necessary? If so, would exceptions to the requirements
for notice be required to meet special situations in industry? What
follow-up action would be taken after receipt of notice? Could the
consideration of filings and the making of fact studies or holding of
hearings be completed in the brief period within which judgment
would be required? Would factfinding, report on hearings, and ad
visory recommendations carry real weight with the companies or
{
28
PUBLIC POLICIES TO DEAL W ITH INFLATION
unions seeking increases? What standards could be used in deter
mining whether to investigate or hold hearings, what to pinpoint in
factfinding or hearing reports, what recommendations to make ? How
could public participation be organized so as to produce confidence in
reports but at the same time to produce enough support from the
Government to carry weight with the parties affected ? Could public
authority be exercised with aggressive and continuing attention to
public interests or would organs of administration become sluggish
and weak in motivation? Would a continuing type of control, sim
ilar to utility control, be desirable for a few sectors of the economy?
If so, for which sectors? Could agencies for administration of such
controls maintain the independence and vigor needed for success?
(5) Government surveillance of price and wage increases would
have political effects. New issues in politics would be created and
these would relate to matters of intense interest to parties. The pres
sures on Government from labor and investor interests would be in
creased, and the political struggle among groups might be intensified.
The political resistance to adverse Government actions on wages and
prices would be great, so great in fact that it could be expected that
only the power and prestige of the Presidency could be expected to
carry weight against the resistance. And allegations of Presidential
partiality toward particular groups would be unavoidable.
(6) The ultimate test of public surveillance would lie in the eco
nomic and social results. The surveillance would need to be exercised
with consideration of multiple objectives, including not only that of
price stability but the effects upon economic growth, employment, and
purchasing power, national security, and justice to economic groups.
To balance these objectives and give each its proper weight in a
rapidly changing economy, and to conclude public consideration with
the expedition required to avoid adverse effects on the economy, would
constitute a large challenge to administrative and political authorities
seeking to avoid inflationary wage and price increases.
The administrative difficulties and political consequences of public
action, and the strong desire to maintain private decision on matters
of wages and prices, has led to a great reluctance to consider means of
public participation in these matters, even when production was im
peded over a protracted period by a strike in a key industry. Patience
may be an attribute of wisdom on matters of this kind. At the same
time, the growth of market power leads inevitably to consideration of
public participation. In the labor field provision for notice and for
fact finding in emergencies is already part of public policy. The means
of dealing with stoppage of industry, inflationary threats, and other
types of situations created by the development of large organizations
with economic power will be one of the most difficult areas of policy
in the future.
It may be hoped that the threats from concentrations of economic
power may be met by a variety of Government policies. A prime need
is more effective enforcement of antitrust laws and amendments of
these laws to insure more complete attainment of their purpose. Gov
ernment policies which tend to support and strengthen the market
power of groups need to be considered in terms of their effects on the
power of these groups over the economy. Such developments would
aim toward correction and prevention of all the manifestations of
PUBLIC POLICIES TO DEAL W ITH INFLATION
29
market power and would lessen the need for consideration of public
intervention on prices and wages. Yet it is unlikely that develop
ments of these types will go far enough to prevent the existence of
inflationary concentrations of market power. Since this is true, the
means of restraining the use of market power toward inflationary
ends has now begun to be considered. Some would warn, “Beware be
ginnings” ; others would advise, “Begin now to acquire knowledge
and experience on the problem.”
If a beginning toward public consideration of prices and/or wages
which may have inflationary effects is desired, the following lines of
policy may be the most feasible for effective administration and hence
the ones on which consideration should be focused.
(1) Establishment of a study center in the executive branch of the
Government to analyze the effects of concentrated market power on
prices and wages, to pinpoint the centers of concentrated power which
have the largest potential for starting inflationary chain movements,
and to recommend to the President and to the Congress policies for
avoiding inflationary moves from centers of market power.
(2) Requirement of notice of prospective changes in prices, or of
wages which would lead to price increases, where such changes would
issue from positions of power and would have a serious inflationary
effect. The selection of industries, companies, or products for which
this requirement would be imposed would need to be made carefully so
as to limit the burden on Government and on economic organizations.
It would probably be desirable for Congress to retain control over
the selection, either through strict definition of categories to be in
cluded, or through approval or veto powers over executive determina
tions on inclusion of specific industries, companies or products, or
categories of these. In an area of evolving policy, continued congres
sional participation and executive-congressional cooperation may be
both desirable and necessary.
(3) Authorization to the President to set up fact-finding and hear
ing boards to study prospective price and/or wage increases and issue
advisory statements or recommendations. A study center, on the basis
of information obtained from notices or otherwise, could advise the
President on the need for fact-finding and hearing boards and could be
authorized also to present facts and arguments to the boards. Whether
the burden imposed upon the President by such requirements would be
so large as to require consideration of establishment of other adminis
trative arrangements would be revealed as the scope and frequency of
public intervention was determined by experience or further policy
decisions.
(4) Development of a policy for the steel industry. Because of the
inflationary record and potential of steel prices and wages, a policy
for the steel industry alone could be considered as an alternative to
requirements for a number of industries or products, such as our out
lined under paragraphs 2 and 3 above. A policy for the steel industry
might have the dual objective of avoiding inflationary effects of con
centrated market power and of preventing stoppages of production.
The alternatives of policy which could be considered extend over the
whole range of possibilities discussed in this paper, including notice,
fact finding, hearings, advisory opinions, and public determination in
case of serious threat to the public interest.
STUDY PAPER NO. 11
A BRIEF INTERPRETIVE SURVEY OF
WAGE-PRICE PROBLEMS IN EUROPE
(BY MARK W. LEISERSON)
48575— 69-------6
STUDY
A
PAPER
N O . 11
BRIEF INTERPRETIVE SURVEY OF WAGEPRICE PROBLEMS IN WESTERN EUROPE
(By Mark W. Leiserson)
I . I n tr o d uc tio n
A characteristic of recent discussions of inflation is the emphasis
upon the structure and operation of labor and product markets in
the inflationary process. A common theme in the arguments of those
who interpret the price increases of the past few years as evidence
of a new-style inflation is the assertion that traditional theories of
inflation stated in terms of excessive aggregate demand or too much
money fail to take into account the inflationary potential inherent
in the economic power of business and labor groups operating in
imperfectly competitive markets. Frequently, the existence of this
power is identified as an independent source or cause of inflation,
producing what is labeled generally as cost-push inflation. The
accompanying implication as far as public policy is concerned is that
anti-inflationary action should take the form of governmental meas
ures to limit directly the power of private economic organizations—
whether business or labor—to make inflationary wage and price deci
sions, since, at high levels of employment, the ordinary competitive
pressures of the market are judged to be insufficient to accomplish
the required economic discipline.
A variety of proposals have been offered regarding the form this
direct governmental intervention in wage-price setting might take*
Some have been as drastic as a prohibition of collective bargaining
organizations beyond the confines of a single plant or firm. Others
have been as mild as the systematic use of moral suasion by public
authorities in key sectors to make wage-price decisions more respon
sible to the public interest in noninflationary settlements. All these
suggestions, however, rest upon the basic proposition that Government
economic policy to control inflation cannot rely only upon general
fiscal and monetary measures, that, in an economy where the Gov
ernment undertakes to maintain full employment and economic growth,
price stability requires increased supervision of the structure and
operation of private systems of wage-price determination.
There are probably few who would dispute the validity of this
proposition as stated. But there is continuing, even bitter controversy
about the extent to which the Government should attempt to control
levels of employment and economic growth and about the degree of
direct intervention into economic processes judged necessary or desir
able for successful achievement of such overall policy objectives.
33
34
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
This study is an attempt to see what light may be thrown on the
general problem of wage-price stability by a survey of recent expe
rience in Western Europe with particular emphasis on the interac
tion between Government policy and private economic organizations
important in wage-price determination. Being ambitious in scope,
it must necessarily be more modest in its ultimate objectives. A thor
ough analysis of economic developments within all the individual
countries is obviously impossible within the confines of a brief mono
graph. Moreover, it will be necessary to concentrate principally upon
the wage determination side of the wage-price problems.
But a more fundamental limitation of this kind of survey stems
from the inherent difficulties of making overall comparisons Detween
countries. These inevitably do violence to the diversity and com
plexity within any single national economy. There is no gainsaying
the validity of the argument that “international comparisons of indus
trial relations systems may be less fruitful, or even misleading, if con
fined solely to countrywide systems.” 1 Nevertheless, such compari
sons may not be completely useless provided sufficient care is taken not
to impute to any conclusions reached greater precision and appli
cability than can be justified given the high level of generalization
involved.
There remains the question of how relevant European experience is
for the United States. Certainly there can be no expectation of deriv
ing simple lessons from the struggles against inflation in Western
Europe. The profound differences in economic structure, and in social
and political organization are sufficient to preclude any easy conclu
sions regarding the effectiveness, for example, of different types of
economic policy measures. Since our observations of economic policy
developments m Europe cannot be carried out under the controlled
conditions of a laboratory, the judgment of how important the differ
ences between countries are to any interpretation of events can never
be wholly objective.
Furthermore, any conclusions regarding the effectiveness of differ
ent types of policy measures can only be stated relative to some system
of underlying social and economic values and cannot generally yield
definitive determinations of the objective efficiency of policy instru
ments. For it is advances in resource utilization, technological prog
ress, and deliberate institutional change which lie at the center of the
problems of economic growth and stability rather than questions
concerning the efficient operation of a particular economic system
with unchanging technological horizons and given political and eco
nomic institutions. Consequently comparisons of differing approaches
to the problem of reconciling wage-price stability with full employ
ment economic growth must take into account the constellation of
1 John T. Dunlop, “Industrial Relations Systems,” New York; Henry Holt & Co., 1958,
P. 25.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
35
group and individual interests within a particular economy and the
manner in which those interests influence and are influenced by gov
ernmental actions. Indeed, from one point of view the problem of
wage-price stability may be viewed as a peculiarly acute illustration
of the difficulties of achieving an effective adaptaton of policy instru
ments designed to serve the common interest in high and growing
levels of real income in the face of conflicting claims regarding the
distribution of that income and of the sacrifices entailed in the process
of production. It is an obvious and commonplace observation that
these conflicts, and hence the possible instabilities they cause, can never
be completely eliminated in a free and progressive economy.
In the analysis and evaluation of European economic policies, there
fore, it is essential to keep clearly in mind that the problem of wageprice stability cannot be separated from the basic noneconomic issues
surrounding the relations between private and public interests. In
particular, comparative judgments of different economic policy and
organizational structures with respect to their effect on economic
growth and stability can, in general, be made only by abstracting from
considerations of equity in the distribution of social and economic
welfare. This is merely to say that the formulation of economic policy
is not simply a problem of finding out how to get what is wanted most
efficiently but in large measure, is a problem of determining, implicitly,
or explicitly, what it is that is wanted, as well. Hence, the present
inquiry is not to be interpreted as a search for efficient instruments of
policy whose application might insure wage-price stability in a modem
industrial economy, but as an attempt to observe the way in which
public and private policies and institutions in a few countries have
actually operated.
II. T h e S tatistic al R ecord
Before taking a look at the character of wage-price problems in
individual countries, it will be useful to survey briefly the compara
tive economic performances of Western European countries as record
ed in general statistical indicators of output, employment, prices and
wages, etc.
In table 1 the average annual increases in real per capita gross na
tional product have been calculated for the periods 1949-53, 1953-58,
and 1949-58 along with the associated increases in price levels. The
10 European countries and the United States have been arranged in
order of the average rate of change in output per capita over the
whole period 1949-58. Although the rates of annual increase in both
output per capita and price levels since 1949 range roughly from 2 to 7
percent the figures show no clear pattern of association between them.
The period 1949-53 covering the rise and subsequent fall of inflationary
pressures accompanying the 1949 devaluation and the Korean war
boom of 1950-51 shows a higher rate of price increase than in 1953-58,
but the differences in growth rates are less marked.
36
SURVEY OP WAGE-PBICE PROBLEMS IN EUROPE
T able 1.— Average
annual changes in per capita output1 and prices* "by
country, 1949-58
[Percent]
1949-58
Austria.........................................................
Germany (Federal Republic).....................
Italy..................................................... ........
France........................................................
Switzerland............................... .................
Netherlands...............................................
Belgium.....................................................
Sweden........................................................
Norway........................................................
Denmark......................................................
United Kingdom...........— ........................
United States...............................................
1949-53
1953-58
Output
Prices
Output
Prices
Output
6.5
6.3
5.5
4.0
3.5
3.2
. 2.6
2.5
2.5
2.1
1.9
1.9
7.2
*3.3
2.9
7.0
4 1.2
4.3
*2.5
5.1
5.4
4.0
4.5
2.4
5.8
10.0
5.8
4.2
3.9
2.7
3.0
2.1
3.6
2.8
2.2
4.5
11.9
*4.8
4.5
9.9
1.1
4.9
2.3
7.5
7.4
5.5
5.1
2.7
6.9
5.4
5.3
3.9
3.2
3.6
2.4
2.9
1.6
1.6
1.8
(-.1 )
Prices
3.4
2.3
1.7
4.6
«1.2
3.8
6 2.7
3.2
3.8
2.9
4.1
2.3
1 Real gross national product per capita.
2 Price indexes of gross national product.
* 1950-58.
* 1950-53.
«1949-57.
61953-57.
Source: OEEC, “General Statistics.”
In general, the two periods may be taken to represent two distinct
types of challenges to the stability characteristics of the wage-price
mechanism in the various countries. That is, the problems of the first
period were to a large extent dominated by the difficulties of adjust
ment to what for any individual country appeared as primarily ex
ternal influences—the exchange devaluation of 1949 and sharp fluctu
ations in export demand and import prices. Since 1953, on the other
hand, the international economic situation has been stable enough to
bring problems of internal stability to the fore.
While the relation between price and per capita output movements
is blurred, a somewhat more consistent pattern may be discerned in
the movement of price levels alone. Over the whole period 1949-58
the countries ranked by rate of price increase fall into three more or
less distinct groups. In four countries—Belgium, Germany, Italy,
and Switzerland—the annual rate of increase in prices was consistently
low, averaging between 1 and 3% percent per annum. In a second
group—Denmark, Netherlands, Norway, Sweden, and the United
Kingdom—the rate of price increase has been significantly higher,
averaging from 4 to about 5.5 percent. France and Austria with
an average annual rate of price increase of 7 and 7.2 percent consti
tute a third group. Moreover, this same grouping (with the excep
tion of Austria) appears to hold for the two subperiods as well, despite
the pronounced difference between the periods in the movement of
import prices.
From the comparison between changes in price levels and import
prices in table 2 it is apparent that rising costs associated with in
creases in external prices can be judged an important element in gen
eral price movements only for the years 1949-53. For those years
the magnitude and impact (as roughly measured by the ratio of im
ports to national product) of higher costs of imports seem to be closely
related (except for France and Belgium) to the upward shifts in the
price level in the various countries. For the following years, how
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
37
ever, the same statement cannot be made; yet the highest price in
creases were still concentrated among the same group of countries.
This suggests (leaving France and Austria aside as somewhat special
cases), that the observed gross similarity in price movements between
Norway, Sweden, Netherlands, Denmark, and the United Kingdom
on the one hand, and Italy, West Germany, Belgium, and Switzerland,
on the other, may be a reflection of underlying similarities in economic
policies and the operation of cost-price determining mechanisms.
T able 2.— Changes in price levels and import prices,* by country, 1949-58
[Percent]
1949-58
1953-58
1949-53
1953
Price Import Price Import Price Import Import
level prices level prices level prices
GNP
France..............................................................
Austria................................................ .........
Norway..... .................................. ....................
Sweden..............................................................
United Kingdom............... _.............................
N etherlands___________________________
Denmark.............. ...........................................
Italy.________________________________
Germany (Federal Republic).........................
Belgium.............................................................
Switzerland.......................................................
81
79
58
54
49
45
42
28
a29
421
9
36
138
34
40
23
20
21
9
*11
* 26
2
45
52
32
32
22
20
23
17
3 15
9
4
15
152
35
37
28
20
23
9
38
22
-1
25
18
20
17
22
20
15
9
12
811
85
18
-7
-1
2
-4
-2
-2
83
83
15
24
47
28
20
45
32
14
21
35
27
i Changes in price indexes of gross national product and imports of goods and services from OEEO na
tional accounts data.
* 1950-58.
31950-53.
* 1949-57.
«1953-57.
Source: OEEO, “ Statistics of National Product and Expenditure 19S8 and 194.7-1955” and “ General
Statistics.”
Fragmentary evidence tendin,
this possibility may
(but not very reliable) compar
be gleaned from some of the avai
ative statistics on unemployment, wages, and productivity. Figures
on average rates of unemployment (table 3) show a sharp break
between countries with comparatively high rates (7-10 percent)
and those with very low rates (under 2.5 percent). And with the
exception of Denmark, the high unemployment countries are those
with the lowest rate of price increase, and vice versa. It may well
be that the size of the gap between the unemployment percentages
in the two groups is in part explained by statistical differences in the
measures used, but even a 50 percent increase in the four lowest
figures would not change the picture substantially.
T able 3.— Average annual percentage of unemployment, by country,1 1 9 50 -5 6
Belgium________________________ 10. 1 Sweden 4_______________________ 2. 4
2. 1
Denmark 2_____________________
9. 8 Netherlands 5__________________
1. 5
Italy 3__________________________ 9. 5 United Kingdom_______________
1. 2
Germany_______________________
7. 3 Norway 5______________________
1 Differences in definition and coverage make possible only the very roughest type of comparisons.
1951-56.
31951-55.
<1952-55.
»1950-55.
2
Source: United Nations Bureau of Economic Affairs, “ World Economic Survey/’ 1957, table 7, p. 36.
38
SURVEY OP WAGE-PRICE PROBLEMS IN EUROPE
Table 4.— Average annual changes in money and, real wages in industry,1
J>y country, 1949-58
[Percent]
1949-53
1953-58
1949-58
Money Beal Money Real Money Real
wages wages* wages wages2 wages wages*
France_______________________
Austria ______ _______________
Norway______________________
Sweden______________________
United Kingdom. ______________
Netherlands___________________
Denmark_____________________
Italy__ ________________ ____ _
Germany (Federal Republic)________
Belgium ______ ______________
Switzerland____________________
10.3
13.7
9.0
11.7
6.2
5.1
7.2
4.8
8.3
5.2
1.3
3.8
.5
.7
4.8
.6
.4
2.1
1.2
7.9
3.0
.2
8.5
4.1
5.8
6.2
6.5
8.3
5.2
5.1
7.0
5.8
2.1
3.7
1.6
2.6
2.6
2.5
5.0
2.0
1.8
5.0
4.2
.6
9.3
8.3
7.2
8.6
6.8
6.9
6.1
5.0
7.6
5.5
1.9
3.7
1.1
1.8
3.5
1.7
3.0
2.0
1.5
6.3
3.7
.4
1Indexes of average earnings, except for Austria, Belgium (1953-58), Denmark, and Germany, where
average wage rate coverage is generallymanufacturing but includes mininginNorway and Sweden; con
structionin Germany and Switzerland; mining, construction, transport, gas, and electricity in Belgium;
construction, transport, andcommerceinDenmark.
2Money wageindexdividedbycost oflivingindex.
Source: OEEC, “General Statistics.”
Turning now to comparison of wage movements (table 4 ), the pat
tern is not so clear but still vaguely perceptible in the fact that the
highest rates of money wage increases over the entire period (with
again one exception, Germany) have tended to be registered in those
countries where prices have been increasing the fastest. Increases in
real wages, however, vary substantially among countries in all three
groups. But one pattern in real wage movements that should be noted
is the marked disparity between the two periods 1949-53 and 1953-58
in the average rate of increase of real wages in Norway, Netherlands,
the United Kingdom, and, to a lesser extent, Austria. The other
countries seemed to have maintained a more stable rate of advance.
W ith no striking relationship apparent between comparative rates
of price and money wage increases among the countries considered, it
is only to be expected that in the absence of major changes in nonwage
costs, productivity increases have tended to be largest in those coun
tries with the lowest rate of price increase, and vice versa. The
evidence of table 5 on productivity increases in manufacturing indus
tries indicates that such has been the case. Aside from the excep
tional performance of France where increases in both productivity
and wage costs have been relatively high, the rate of productivity
increase has been comparatively high and the rate of wage cost in
crease comparatively low in Italy, Germany, and Belgium, while the
reverse is true for the other countries. A cautionary remark may
perhaps be entered here, to emphasize that no inferences should be
drawn from this evidence regarding the importance of stable prices
to increases in productivity. The circumstances affecting productivity
within a single country and between countries are so numerous and
varied as to prohibit the isolation of a single dominant causal factor
from simple comparisons of national averages of the sort used here.
Whatever the relation between price stability and rising productivity,
comparison of the rates of increase in manufacturing output with
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
39
output per man-hour reveals that the latter has probably exercised a
much stronger influence. This relationship is particularly striking in
the cases of Germany and Italy and stands out even more in the case
of France.
Table 5.— Average annual changes in manufacturing output, output per manhour and wage costs, by country, 1950-561
[Percent]
Output per Wage cost
man-hour per unit of
output
France____________________________________
Norway___________________________________
Sweden____________________________________
UnitedKingdom_____________________________
Netherlands________________________________
Denmark__________________________________
Italy_____________________________________
Germany (Federal Republic)_____________________
Belgium___________________________________
7.0
3.0
2.8
1.2
2.6
1.5
8.9
6.7
24.4
5.6
5.7
9.8
7.4
3.8
3.0
—1.6
1.5
Output
7.3
5.6
2.8
3.5
7.0
2.2
10.5
16.5
.0
1For Denmark, 1951-55; forNetherlands, Norway, andSweden, 1950-55.
2Output perman.
Source : United Nations, “World Economic Survey,” 1957, p. 37.
What, then, may we conclude from this sketchy statistical survey of
increases in prices and certain cost components in Western European
countries?
As a first approximation, the pattern of movements lend some valid
ity to a classification of countries into three groups: (1) Norway,
Netherlands, Sweden, and the United Kingdom, countries with a very
low rate of unemployment and comparatively high rates of increase in
price levels and labor costs; (2) Belgium, Germany, Italy, and
Switzerland, with appreciably higher rates of unemployment and
lower rates of cost and price increases; and (3) Austria, France, and
Denmark, which seem to represent in one sense or another “mixed”
or “borderline” cases. This grouping corresponds in the main to
the classification of countries according to characteristics of national
economic policy developed in the following sections. But there is no
intention of drawing the general conclusion that the pattern of wage,
price, output, and employment movements are to be explained solely
in terms of differences in national economic policies. These inevita
bly reflect differences in the nature of fundamental social and political
goals, in the basic structure of economic resources, and in the structure
of economic relations with other countries. The point of departure
is rather that the structure and organization of economic policies and
institutions, and hence wage-price setting mechanisms, tend to be
adapative to these underlying factors as well.
III. W a g e -P r ic e S t a b i li t y and t h e C o o rd in a tio n o f E co n o m ic
P olicy
There is at least one respect in which the economies of Western
Europe resemble the U.S. economy— they do not readily lend them
selves to analysis in terms of “pure types” of economic systems. The
traditional distinction between collectivistic and individualistic or
market economies is virtually meaningless in the face of the complex
40
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
mixture of free and regulated markets, public and private organiza
tions, individual and group decisions which characterize modem
economic life. Governmental action and influence at all levels of
economic activity is so pervasive and takes such a variety of forms it
would be a hopeless task to attempt to construct a simple overall
measure to compare the relative degrees of governmental intervention
among countries. Inasmuch as the problem of wage-price stability is
rooted in the difficulties of coordinating the policies and behavior in
both the public and private sectors, however, it is more meaningful to
concentrate upon how national economic policies in Europe differ
in their approaches to the problem of coordinating public and private
decisions with respect to wages and prices. On this basis, one may
classify countries in a rough fashion according to the extent of which
government economic policy attempts to achieve through systematic
administrative procedures a central coordination of public and private
decisions to make them conform to and consistent with overall govern
ment policy objectives. The extremes in such a spectrum are thus not
defined in terms of the size of the public sector of the economy nor
the extent of direct governmental regulation of the private sector,
though these may be important influences on the feasibility and effec
tiveness of centrally coordinated economic policy. What is important
is not the exercise of governmental authority over economic decisions
but the degree of direct authoritative coordination of those decisions,
both public and private, relative to the indirect decentralized processes
of market mechanisms and independent collective-bargaining
negotiations.
It is not necessary to belabor the obvious difficulties of applying
such a distinction. But with its aid, we may roughly identify three
different styles of economic policy. The first style is represented by
countries such as the Netherlands, Norway, Sweden, and the United
Kingdom where concerted efforts have been made, with varying
degrees of success, to find methods by which the government may
directly influence wage-price decisions in order that they may be cen
trally adjusted to the demands of the total economic situation and the
general lines of economic policy. The second style is perhaps best
illustrated by Germany and Belgium where, instead of attempting to
make wage decisions conform directly with some sort of efficiently
determined wage policy, it has been generally possible to maintain
conditions in the labor market such that the aggregate effect of in
dividual settlements has not threatened national policy objectives.
Finally, France, and to a lesser extent Italy, may be taken to exemplify
a third style where the government exercises considerable influence
over the determination of wages but the problem has been as much
one of coordinating public decisions as making private actions into
conformity with public policy.
IV . C e n t r a l l y C o ord in a ted W ag es P o lic ie s
O f all the countries in Western Europe, Netherlands and Norway
provide the best examples of countries in which central coordination
of economic policy has attained a relatively high state of development.
In both the process of policy formation has been systematized by the
rise of national budgeting and other quantitative techniques of na
tional economic planning. While neither has exhibited any great
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
41
reluctance to employ direct and quantitative controls if such are
deemed necessary to economic well-being and stability, there has been
a trend in both countries toward the progressive dismantling of the
systems of direct regulation which were in force during the period of
reconstruction following World W ar II. Moreover, there has been
no great emphasis in either the Netherlands or Norway on nationaliza
tion as a means of establishing control over the use and allocation of
economic resources. Instead efforts have been directed toward meth
ods of implementing national economic policy without either a drastic
diminution of the private sector or the elimination of powerful and
autonomous private economic organizations. Under these circum
stances the formulation of wage-price decisions have tended to become
centralized in an essentially tripartite series of negotiations against
the background of the total national economic situation and the whole
structure of government economic policy.
T h e N e th e rla n d s
This process of national economic bargaining has been more form
ally institutionalized in the Netherlands than in Norway. Since 1945
wages have been subject to a system of comprehensive wage control.
Under the terms of an extraordinary decree on labor relations of that
year a board of Government conciliators was established with power to
(1) fix general rules and principles of wage determination; (2) set
specific wage rates; (3) approve, disapprove, or modify the terms of
collective agreements (which are not valid until approved by the
board); (4) extend the provisions of contracts to parties outside the
bargaining unit; and (5) grant specific exceptions to established wage
rates. The board, in the exercise of these powers, was made generally
responsible to the Minister of Social Affairs, on the one hand, and
specifically directed to obtain the advice or opinion of the Foundation
of Labor— an organization of union and employer representatives set
up in May 1945 to seek ways of improving labor-management rela
tions.
In practice, the Labor Foundation— ostensibly only an advisory
body— has played a key role in the formulation and execution of wage
policy. The recommendations of the foundation with respect to
changes in collective agreements, representing as they do the agreed
position of both unions and employers in the light of the general eco
nomic situations, have only occasionally been rejected by the board
of conciliators. Another consultative body— the Social and Economic
Council— was created by the Industrial Organization Act of 1950 as
part of a general effort to strengthen the representation of labor and
management in the regulation of economic affairs. This council,
made up of 15 appointees each from labor, management, and the Gov
ernment, was designed to supervise a system of joint labor-manage
ment “product” and “industry” boards to be established under the
terms of the act. In addition the law stipulated that the Cabinet con
sult with the council on all-important social and economic proposals.
It was expected that the council would supplant the Foundation of
Labor as the principal advisory body on wage policy, but the Founda
tion has continued to serve as the focus of national negotiations be
tween labor and management and has gradually tended to act in an ad
visory capacity to the council.
42
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
One of the most striking features of the system of wage control as it
developed was the centralization of the decisions regarding wage dif
ferentials as well as general wage changes. The board of conciliators
worked out shortly after the war a wage scale based upon minimum
wage rates for five regions with two skill categories 10 and 20 percent
above these basic rates. Individual rates were then to be adjusted ac
cording to this scale. The scale has been progressively refined in the
direction of a national system of job evaluation to provide regional,
occupational, and incentive standards for wage rate determination.
During the early postwar years, Dutch wage policy was dominated
by the tasks of economic reconstruction. The Foundation of Labor
served successfully as an institutional mechanism for focusing the
efforts of labor and management on rehabilitating the productive
structure of the economy. Strikes and industrial unrest were mini
mized despite generally stable levels of real wage rates. Wage con
trol was directed primarily at keeping increases in money wages gen
erally in line with cost-of-living movements as part of a thorough
going economic stabilization program involving extensive controls
over prices, imports, and the allocation of materials. But perhaps
the most remarkable achievement of the system was the settlement in
March 1951. Despite the fact that the devaluation of the guilder and
the Korean war boom had pushed prices up 10 percent from their
September 1950 level, the unions agreed to a wage increase of only 5
percent, voluntarily (if perhaps reluctantly) accepting a decline in
real wages to aid in the Government’s struggle to combat inflation and
correct an adverse balance of payments.
The ending of the Korean crisis and the general easing of controls
brought increasing pressure for greater flexibility in wage policy and
increasing demands for improvements in real wage rates. The Social
and Economic Council in 1950 recommended the adoption of a “policy
of margins” whereby parties at the industry or firm level would be
permitted to fix wage changes within general limits established on a
national basis. And a 1954 report of the Foundation of Labor, while
maintaining the desirability of continuing with centralized coordina
tion of wage policy, proposed changes which would lessen the degree
of direct governmental control over wage setting.
In January 1954 a wage increase of about 8 percent intended to
offset the voluntary decrease of 1951 was granted. Within the space
of a few months despite the absence of marked price rises, another
general increase of 6 percent was put into effect. Further general
changes were forestalled during 1955 by the negotiation of holiday
and fringe benefit provisions on condition that they not raise earnings
by more than 3 percent nor lead to price increases. During that year,
however, the most serious conflict in the history of the foundation
of labor took place when the unions took issue with the Government’s
view that economic prospects required a check on additional wage
advances. The unions’ position was that the share of labor had been
decreased because of lagging wage adjustments. Collapse of the
whole system of wage control was avoided by a settlement providing
for lump-sum payment of 3 percent of earnings for the year 1955 and
other increases to be negotiated within individual industries up to a
maximum of 6 percent on condition that consequent price increases
not exceed 3 percent. The approval of this settlement in March 1956
represented a substantial break in wage policy in that its “permissive”
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
43
character explicitly allowed for differential adjustments based upon
circumstances in individual industries and firms and hence diverged
from the principle of a national job evaluation system.
Notwithstanding, these elements of change and restiveness, central
negotiation and coordination of wage policy in the Netherlands has
continued. A unanimous report of the social and economic council
on the problem of correcting the adverse balance of payments led to
the introduction in early 1957 of another wage stabilization program
which brought changes in the cost of living once more to the fore as
the principal basis of wage adjustment. But there has apparently
been as well a continuing trend toward increasing flexibility of wage
changes when general economic conditions permit, as evidenced by a
Government announcement this year authorizing wage raises where
they can be financed, without price increases, out of increased produc
tivity and profits and provided they do not lead to “objectionable
results” in the labor market.
Norway
Norway, like the Netherlands, relied to a great extent upon exten
sive and detailed direct government regulation of the economy to meet
the immediate problems of reconstruction after the war. A basic
foundation of the whole reconstruction effort was a stabilization pro
gram worked out with the central labor and employer federations to
prevent industrial conflict and excessive money wage increases while
the country’s economic resources were being strained to replace the
capital losses of the war and to reestablish a viable foreign trade posi
tion. But even in these early postwar years, the coordination of
wage settlements with general economic policy was less formally or
ganized than in the Netherlands. While wage demands were gener
ally subject to compulsory arbitration, the arbitration tribunals or
wage boards were not formally bound by any government policy
directives. Moreover, the Norwegian trade unions maintained their
traditional opposition to governmental wage-fixing. In 1949, com
pulsory arbitration was restricted to cases where wage demands had
not received the approval of the central federations and in 1952 was
abandoned (except for particular cases requiring special parliamen
tary action). In effect national wage policy in Norway has been left
to be determined in central negotiations between the trade union fed
eration and the employers’ association. Such a procedure was feasible
only because of the highly centralized organization of both groups
which made the national settlements controlling for the individual
agreements between their constituent members.
The legally autonomous status of these central negotiations, however,
has not meant the absence of governmental influence over the terms
of general wage settlement. The close association between the trade
unions and the Norwegian Labor Party (which has maintained a par
liamentary majority since 1946) has provided both the motivation and
the vehicle for the union leaders to formulate their wage demands in
the light of general economic policies and conditions. Thus the Gov
ernment has been a constant, if somewhat circumspect, party to na
tional wage bargaining even though it has sought to limit the extent
of its interventions.
Until rising import prices, following the exchange depreciation in
the fall of 1949 and the outbreak of the Korean war, made inevitable
44
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
an upward adjustment of internal prices and wages, the restraint of
union wage policy enabled the Government to maintain a relatively
successful policy of suppressed inflation. Despite the high liquidity
of the economy and the banking system and a generally excessive level
of monetary demand, the system of price controls, subsidies, and quan
titive regulations worked effectively enough to accomplish the objec
tives of an ambitious investment program while the cost-of-living
index was kept virtually unchanged from its 1946 level. Even so
the controls were not effective enough to prevent inflationary pressures
from producing gradual increases in prices outside the cost-of-living
index nor to keep wages from drifting upward through changes in
rates and earnings outside of the contractual agreements.
During the upward movements in prices and wages during 1950-51
the policy of union wage restraint continued (but only through the
process of governmentally arbitrated settlements) with the result that
real wages fell for the first time since the end of the war. The relaxa
tion of controls and the lessening of inflationary pressure that came
with the waning of the Korean boom was accompanied, as in the
Netherlands, with efforts to introduce greater flexibility into the wage
negotiations. The trade union federation attempted unsuccessfully
in 1952 and 1954 to permit negotiations on an industrywide basis
without a general wage settlement. The 1952 settlements did, how
ever, break new ground in differentiating, for the first time since the
war, between skill categories with respect to wage adjustments, while
the 1954 negotiations were marked by the absence of general wage
adjustments, contract changes being confined to fringe benefits pay
ments and separately negotiated wage adjustments for workers on
time rates.
By 1956, the movement toward greater decentralization had pro
gressed to the point where the Government, despite a concerted effort,
was unable to obtain a general agreement on wages in coordination
with its negotiations with the farm organizations on agricultural prices
and subsidies. The contracts negotiated by the separate national
unions and employer associations although varying considerably in
their terms on the average did not, however, exceed by much the
general increase which the Government had indicated as acceptable.
But major strikes occurred in the pulp and paper and the building
industries— the first strikes since the end of the war in which emer
gency arbitration was not invoked— and the tendency toward rising
prices after the settlement forced a partial reversal of the Govern
ment’s previously announced policy of reducing subsidies in order to
avoid a cost-of-living adjustment under the index provisions of the
contracts.
In 1958, negotiations between the two central federations were
successful in reaching agreement on a reduction in the workweek from
48 to 45 hours to be effective March 1, 1959. Wage increases were
limited to the amounts necessary to maintain weekly earnings. In
the background of this settlement, however, was prospective legisla
tion which would have reduced the legal workweek in any event al
though at a later date. When rising prices during the first half of
1958 brought a reopening of wage negotiations under the cost-of-living
provisions of the contracts, the unions and employers were unable to
reach a settlement or to agree on voluntary arbitration. As a result
the Government invoked emergency compulsory arbitration procedures
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
45
and placed the issue in the hands of a public wage board. The board
awarded increases averaging about 3 percent, this amounted to some
thing less than full compensation for the rise in the cost of living in
terms of wage rates, as distinct from earnings.
In the overall view, the formulation and administration of Nor
wegian wage policy has been a complex mixture of central and sepa
rate negotiations, direct and indirect governmental participation, vol
untary agreements and compulsory arbitration. Yet, by and large,
the efforts to coordinate wage decisions with national economic policy
have been reasonably, if not completely, successful.
Sweden
Whereas central coordination of wage policy in the Netherlands and
Norway has been consistently, if imperfectly, pursued over the years
since the war, the efforts in the same direction in Sweden and the
United Kingdom have been only temporarily and intermittently effec
tive. During the period 1948-50 the Governments in both countries
sought to achieve price stabilization through programs in which the
self-imposed wage restraint of the trade unions was an essential ele
ment, but with only partial and short-lived effects.
National wage bargaining in Sweden has been complicated by the
existence of two federations of national unions. The largest of these—
the Confederation of Swedish Trade Unions (L O )— is made up of 44
affiliated national unions whose membership of 1,400,000 comprises
almost the whole of the manual labor force. The Central Organiza
tion of White Collar Workers (TCO) is considerably smaller (350,000
members in 42 affiliated unions) but represents about 75 percent of all
salaried employees. As in Norway, both the principal labor and em
ployer federations are highly centralized organizations, able, within
limits, to see to it that the terms of any centrally regulated settlements
are incorporated into the contracts between their constituent organiza
tions. However, the existence of the separate organization for whitecollar workers (which itself is less centralized) and the fact that the
national unions in Sweden are somewhat stronger organizations with
a tradition of greater independence, has made the task of achieving
unity in union policy and action somewhat more difficult and un
certain.
Within the Swedish LO, however, the principal worker “solidarity”
has been a strong influence (again as in Norway) favoring coordina
tion of union policy. The political affiliation of the LO with the
Swedish Social Democratic Party is also a close one. But that party,
although it has controlled the Government since 1932 either alone or
as a dominant member of a coalition, has never attained an absolute
parliamentary majority. The consequent necessity for political com
promise is perhaps part of the reason for the lesser emphasis placed
upon national economic budgeting as a means of obtaining a high
degree of coordination in national economic policy. With a greater
decentralization of power in collective-bargaining institutions and
not so much weight placed upon formal mechanisms of economic plan
ning, it is not surprising that Swedish wage policy has lacked the
degree of continuity discernible in the Netherlands and Norway.
The first postwar experiment with a national policy of “wage re
straint” in Sweden was begun in 1948 when the Government appealed
to both unions and management for a halt to wage increases and
46
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
coupled the appeal with regulations limiting dividends and an in
crease on taxes on company profits. When the trade-union federa
tion was unable to withstand the pressure of the national unions for
further wage increases, the Government responded with increases in
excise taxes which, together with a continuing rise in prices, largely
nullified the wage raises in real terms. In the following year the
central federation was more successful in obtaining extension of con
tracts with only negligible wage rate changes and agreement on a
policy of further extension into 1950 was reached, with the Govern
ment undertaking to offset the effects of the September 1949 devalua
tion through increased subsidies. However, under the impact of the
Korean war boom, and also because of the discrepancies in the wage
structure resulting from the upward drift of earnings during the
period of the wage rate freeze, the Government and the unions aban
doned the policy of wage restraint. The resulting wage explosion
saw both wages and prices rise by over 20 percent by the end of 1952.
In 1952, a national settlement, centrally negotiated between the tradeunion federation and the employers association, attempted to limit
wage increases to 8 to 10 percent but by the end of the year contractual
agreements had increased wage rates by about 12 percent while the
wasre drift had added some 6 percent to earnings.
The policy of wage restraint was reinstituted during 1953-54 but
without attempting a general freeze on wage rate revisions and sup
ported by an easing of inflationary pressure. The quickening of de
mand during 1954 and the continuing effects of the wage drift created
the circumstances for another wage explosion of somewhat smaller
dimensions. Separately negotiated increases in 1955 were high (aver
aging over 8 percent) but somewhat unevenly distributed. Central*
ized bargaining began again in 1956 with a settlement between both
union federations and the employers association providing for an
average increase of around 4 percent. The pattern of centrally regu
lated agreements has been continued in 1957 (when the union and
employer federations recommended a contract duration of 2 years)
and 1959 and rate increases have been moderate— amounting to about
2 to 3 percent a year. The slackening of strain in the labor market
and reasonably stable prices, however, has probably been a greater
moderating influence than trade-union restraint.
U n ite d
K in g d o m
Circumstances in the United Kingdom have been even less favorable
to the development of any sort of formal coordination between a na
tional wage policy and general economic policy than in Sweden. The
British experience, therefore, is perhaps best considered as an illus
tration of governmental failure to find any direct method of co
ordinating collectively bargained wage settlements with its own policy
objectives and decisions despite much discussion of the need and one
actual attempt to implement a national wage policy.
Collective bargaining in the United Kingdom lacks the centralized
structure provided by the Scandinavian union and employer federa
tions and the Netherlands Foundation of Labor. While the general
council of the Trade Union Congress has considerably greater influ
ence in wage negotiations than the A F L -C IO does in this country,
the national unions are the centers of trade-union power in bargain
ing. The Bristol Employers’ Confederation likewise lacks the cen
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
47
tralized authority over its members which characterizes the Nor
wegian and Swedish employer federations and its role in wage
negotiations has been negligible.
The British experiment with a national wage policy of “voluntary
wage restraint” was inaugurated in 1948 with the promulgation by
the Labor government of a policy statement on personal incomes, costs,
and prices (Cmd. 7321, HMSO, 1948). In this white paper the Gov
ernment took the position that it should not institute direct controls
over incomes except through taxes, nor attempt a general “ freeze” of
all wage rates. But it enjoined the parties to collective bargaining
not to depart from the terms of collective agreements, expressed the
opinion that there was no justification for a general increase in money
incomes under the then existing conditions, and stated that every
demand for a wage increase had to be considered on its “national
merits” (which were left undefined). In contrast to Norwegian and
Swedish stabilization efforts during the same period, the British Labor
government was unable to get the trade unions to participate in the
development of a national wage policy. The 1948 white paper was
issued without prior consultation with the union leadership. Never
theless, after reserving their position by listing a broad set of condi
tions which they felt would justify wage increases, the unions under
took to support the Government in its efforts to limit wage movements.
The policy of “wage restraint” did serve to restrict the upward move
ment of wages and prices in the succeeding 2 years. But, like the
“wage drift” in the Scandinavian countries, the haphazard influences
of increases in earnings not associated with contractual changes led
to increased tensions among the unions and greater dissatisfaction
with a policy that had not had wholehearted support from the begin
ning. After the devaluation of sterling in the fall of 1949, and despite
the efforts of general council, the 1950 Trade Union Congress voted
against any continuation of a “wage restraint” policy. It is prob
able that, even had TTTC made the contrary decision, the inflationary
impact of increased defense expenditures and rising import prices
after the outbreak of the Korean war would have destroyed the possi
bility of any further reliance on voluntary restraint to control wage
levels.
Following the vigorous wage and price increases of 1950-51 and the
1951 election of a Conservative majority in Parliament, Government
policy to achieve wage-price stability entered a new phase. The Con
servative government first attempted through the National Joint A d
visory Council— an advisory body to the Labour Ministry composed
of representatives from the TUC, the British Employers’ Confedera
tion, and the nationalized industries— to obtain union cooperation in
devising means for keeping wage movements in line with productivity
changes. The TUC, however, rejected the Government’s proposal.
Since then there have been occasional governmental appeals for the
exercise of union restraint coupled with exploratory moves in the
direction of working out arrangements which would make possible a
greater degree of coordination between wTage-fixing and general eco
nomic policies. A ll of these have met with trade-union opposition and
achieved little significant result. Upward pressure on wages declined
somewhat after the end of the Korean crisis and the easing of internal
demand resulting from the disinflationary measures introduced by the
48
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
Conservative government, but the annual rate of money-wage increase
has remained high— averaging over 6 percent a year since 1953.
One particularly interesting feature of British experience during
this period has been the series of events which led to some feeling
among the trade unions that the Government was attempting to imple
ment a national wage policy via influence on the wage actions of
various statutory bodies. The evidence that a “back-door approach”
to wage policy (as Prof. Allan Flanders has labeled it) is only indirect
and inconclusive. The structure of Government intervention in fixing
conditions of employment in the United Kingdom provides three
major avenues for possible exploitation of such an approach. First,
in certain industries, lacking private collective bargaining arrange
ments, wages and employment conditions are set by tripartite wages
councils. The recommendations of these councils have legal force
upon being confirmed by the Minister of Labour, whose authority is
confirmed to approval of the recommendations, or referring them back
to the councils for reconsideration. The later course has been taken
only rarely, but in 1952 the Labour Ministry sent the recommendations
of some dozen wages councils back for reconsideration in light of the
need for keeping advances in wage incomes in step with production.
Amid the vigorous protests by the unions against the use of such a
method of moderating the rate of wage advance, the councils’ reports
were resubmitted without change and duly confirmed. Continuing
complaints, however, forced the Labour Minister in 1954 to assure the
general council of the TUC that the average delay between the receipt
of a council recommendation and the issuance of Government con
firmation had been reduced to a little over a week.
Public arbitration tribunals constituted a second possible avenue
for the exercise of governmental influence over wage setting. Volun
tary arbitration of disputes over changes in wage provisions of collec
tive contracts is much more common in the United Kingdom than in
the United States, and legislation makes available Government arbi
tration machinery to those industries where private arbitration ar
rangements have not been instituted. In addition, with the abandon
ment of compulsory arbitration in 1951 there was established an In
dustrial Disputes Tribunal to which the Minister of Labour could refer
for arbitration disputes over the terms of national agreements. In
creased employer resistance to wage claims during 1952 and 1953 and
a substantial increase in the number of disputes going to arbitration
coincided with the rejection of a number of important wage claims
by arbitration. The similarity and small size of awards by the Indus
trial Disputes Tribunal in 1953 brought accusations by the unions
that it was attempting to follow a wage policy. However, in the
opinion of one informed observer, the 1953-54 pattern of arbitration
awards was simply the result of the normal tendency for arbitration
tribunals to follow trends established in voluntary settlements in a
period when general economic conditions militated against large wage
increases.2
It was in the third area of Government intervention in wage fixing—
the determination of wages and salaries of Government employees and
workers in nationalized industries— that some of the most acute prob
aB. C. Roberts, “Trade Union Behavior and Wage Determination in Great Britain,” in
J. T. Dunlop (ed.), “The Theory of Wage Determination” (London, 1957)s pp. 119-120.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
49
lems of Government wage policy arose. While the nationalized indus
tries are supposed to be more or less autonomous with respect to wage
policies, it proved impossible for the Government to avoid responsi
bility for and participation in wage decisions in those industries. The
railway workers were perhaps the prime movers in forcing the issue.
Having already forced ministerial action on their wage demands in
1949, the railway unions in 1951 succeeded in forcing the Government
to grant a 7.5 percent increase instead of the 5 percent which had been
awarded by the special court of inquiry convened to settle the dispute.
Again in 1953 the Ministry of Labor intervened to get the transport
commission to raise its offer to the railway employees in order to avoid
a strike. Upon the pressing of additional demands by the railway
unions and a court of inquiry ruling in 1955 that the transport com
mission could not claim large prospective deficits in operating the
railroads as a defense against wage claims, it is not surprising that
the railway executive has shown weakened resistance to wage demands
in the years since. The wage settlements on the railroads in setting
a pattern for others have represented a perverse type of Government
wage policy contributing to, rather than restraining, the upward
pressures on wage rates.
With respect to other Government employees as well, there has been
no concerted effort to introduce direct fixing of wages as a focal point
of a national wage policy. The disapproval of a recommended wage
increase for employees of the national health service in the fall of
1957 (apparently intended to set a “good example” after ministerial
statements to Parliament emphasizing the necessity for stage stability)
was successful primarily in arousing resentment and irritation.
C o n d itio n s f o r e ffe c tiv e n a tio n a l w a g e p o lic y
Against the background of these cursory individual sketches of
experience with national wage policies in four different economies,
certain common features in those countries may be used to formulate
some tentative general conclusions about the conditions necessary for
effective governmental intervention to control the general level of
wages. The most obvious of these conclusions is that a centrally co
ordinated wage policy at best, can only be a partially effective means
of controlling inflation under conditions of generally excessive aggre
gate demand. Even in the Netherlands and Norway national wage
policy cannot be said to have been successful in accomplishing more
than a moderation or temporary postponement of wage-price move
ments in the presence of demand inflation— which is not to say that
such delaying processes have been unimportant or without crucial
significance at times. In this, European developments simply con
firm what has been our own experience with wage stabilization efforts
during World War I I and the Korean war.
Direct evidence of the limitations of general wage controls is fur
nished by the phenomena of “wage drift”— the tendency of earnings
to increase in excess of changes in contractual wage rates. Statistics
for Norway and Sweden (table 6) indicate that changes outside collec
tive agreements have consistently added at least 2 percent a year to
average earnings since 1948. In the Netherlands and United King
dom there is evidence in the spread between the indexes of industrial
wage rates and earnings that the same phenomenon has been present
though perhaps less quantitatively important. To a certain extent
50
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
“wage drift55 constitutes a measure of flexibility in a system of wage
controls that might otherwise prove too rigid. But, as we have already
had occasion to observe, the relatively haphazard occupational and
industrial distribution of wage drifting over a period of time, gen
erates tensions within the wage structure which increase the pressure
for adjustments in basic rates. Although it is fairly clear that wage
drifting is closely connected with shortages in the labor market, it is
still an open question as to how sensitive the wage drift may be to
reductions in labor market demand. I f the process continues to add
only 1 percent a year to the wage bill even under conditions approxi
mating full-employment equilibrium, it represents a rather important
constraint on the formulation of any national wage policy.
Table 6.—Wage drift in Norwegian and Swedish Industries, 1948-6$
[Percent]
Norway
Sweden
Contractual Wagedrift1 Contractual Wage drift1
ratechange
ratechange
1948....................................................
1949...................................................
1950...................................................
1951.................. ................................
1952.... ....................... .......................
1953....................... -...............-..........
1954 .............................. —.......... .......
1955............................... ....................
1956......... .... .....................................
2.4
1.7
5.6
10.7
4.2
0
2.7
0
2.8
1.7
5.0
3.1
2.7
3.7
3.5
5.2
4.5
.2
0
14.3
2.6
1.1
1.5
4.3
.5
8.6
2.8
3.9*
5.5
5.9
2.5
2.9
4.0
3.5
1Percentage increase in average earnings not accountedfor by contract rate changes. Swedishfigures
excludeinfluenceof changesinovertime.
Source: LarsAarvig, L0nnsutviklingogItfnnspolifikki Norgeetterkrigen(Oslo, 1957), p. 120. GSstaRehnr
“SwedishWagesandWagePolicies" inTheAnnalsoftheAmericanAcademyofPoliticalandSocialSciences,.
March 1957, p. 100.
The dependence of an effective national wage policy on the control
of aggregate demand is merely one aspect of the more fundamental
condition that governmental efforts to exercise general control over
wages must be integrated with the overall economic policy. Baldly
stated, coordinating private wage decisions with public policy objec
tives is bound to be difficult (or impossible) unless those objectives and
the measures proposed for their realization do not make up a reason
ably consistent program. An essential element of the national eco
nomic bargaining of the kind which has surrounded the formulation
of wage policy decisions in the four countries surveyed above is the
demonstrated capacity of the Government to carry out its part of the
bargain. This is trivially obvious with respect to control over the
cost of living since trade unions by their very nature are unable to
cooperate for very long in reducing real wages. But the principle
runs deeper. For what stands out particularly in the cases of the
Netherlands and Norway, but is visible as well in Sweden and the
United Kingdom, is that “responsible55 trade union behavior with
respect to the general wage level requires a situation where the rela
tions between national interests and the interests of the workers can be
defined in concrete terms and even given quantitative significance.
In the postwar period the objectives of first reconstruction and then
rearmament have for short periods been important enough to serve as
a dominant objective about which national wage policies could be
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
51
implemented. But the examples of Norway and the Netherlands
indicates that where foreign trade is extremely important to an
economy the balance of payments plays a prime role in providing a
clear policy focus. In those countries the potential impact upon
employment and real income of difficulties in the external economy is
direct and large enough to be a significant influence on wage decisions
at all levels. In fact, if one were to seek out the single most important
reason for the continuing efforts to achieve centralized control over
wages in Norway and the Netherlands it would probably be found
in the desire to prevent internal economic developments from inter
fering with the ability to trade in world markets and conversely, to
insulate the internal economy from the deleterious effects of unstable
movements in external prices and demand.
Finally, it is almost tautological that the reconciliation between
national and parochial interests which is implicit in any successful
wage policy is possible only with a relatively high degree of social
and political stability. Unless the various economic groups in the
Nation are satisfied that their particular interests are adequately
represented in the governmental policies being invoked in the name
of the public interest, disruptive organized political and economic
action is certain to result in a democratic country. The relative suc
cess of national wage policy in Norway must in large part be attributed
to the confidence of the trade unions in the social and political objec
tives of the labor government in that country. In this sense, the whole
panoply of economic measures, such as permanent price control au
thority, dividend limitations, price subsidies, interest rate regulation,
etc., available to the Norwegian Government has formed an essential
part of wage policy in Norway. And the fundamental disagreement
between the trade unions and the conservative government in Britain
over basic social goals has been an effective bar to cooperation on any
national wage policy.
But effective national wage policy is not just a matter of achieving
successful coordination of national policy decisions on the part of the
major organized interests in the economy. It must depend as well
upon the effectiveness with which the major economic organizations
themselves are able to achieve internal coordination of their own
policies. The centralization of both trade union and employer or
ganization in Scandinavia and in the Netherlands (through the Foun
dation of Labor) has been a principal factor making national wage
policy feasible in those countries. That it is not simply the formal
concentration of organizational authority which is important in this
connection may be inferred from the way the policy of the national
federations has had to adjust to the exigencies of internal organiza
tional pressures. The major source of the corrosive influence of the
wage drift on any union policy of wage restraint is, in fact, the intra
union conflicts it engenders over the appropriate distribution of the
wage bill. And it is significant that the improvement in economic
conditions in both the Netherlands and Norway has produced move
ments in the direction of greater independence of action by the affili
ates of the central labor and employer federations.
A related factor which perhaps merits separate mention as a con
dition contributing to the practicability of national wage policy in
all the four countries considered so far has been the absence of serious
conflicts within and between union and employer organizations over
52
SURVEY OF WAGE-PRICE PROBLEMS IN' EUROPE
such organizational and nonwage issues as union jurisdiction, work
ing rules, job standards, work assignments and the like. This has
been both a cause and effect of centralized bargaining in that such
issues are likely to defy resolution in the context of broad national
agreements affecting a wide variety of local work situations. Thus,
the concentration on wage and hour issues characteristic of Western
European collective bargaining, on the one hand, may have had the
effect of intensifying the problem of upward pressure on the wage
level by failing to exploit fully possibilities for settlement with non
wage benefits less inflationary in terms of costs and incomes. On the
other hand, it has been precisely this concentration on economic issues
which has made possible the type of centralized bargaining in which
considerations of national policy can be expected to play a role.
V. W a g e P o l i c y b y I n d ir e c t io n a n d D e f a u l t
From some points of view there is justification for the judgment
that postwar economic developments in Germany and France cannot
provide much insight into the policy problems posed by any potential
threat to economic stability of upward pressures on costs in a full
employment economy. For, as one observer has concluded,3 Germany
has not yet been faced with the problem of maintaining a stable price
level with full employment. In France, on the other hand, the domi
nant problems have been connected with establishing monetary and
financial stability in order to combat demand inflation rather than
the control of costs in a situation approaching monetary equilibrium.
Some features of economic policy in general and Government inter
ventions in wage-price setting in particular in the two countries,
however, may provide instructive illustrations of some of the impli
cations of different policy approaches.
G erm a n y
Postwar economic policy in Germany is often contrasted with that
in the countries we have been considering because of its avowed effort
to maintain economic stability and growth through reliance on free
markets and traditional instruments of monetary and fiscal policy.4
The performance of the German economy since 1948 in terms of the
increases in output, employment, productivity and real incomes, the
relatively low rate of price increases, and the achievement of a strong
foreign trade position has been impressive, to say the least. But it
is not easy to evaluate the precise role played by the structure and
policies of labor and management organizations in contributing to
that performance.
In general terms two main factors appear to have been of dominant
importance in preventing upward pressure on costs: (1) Rapid in
creases in productivity and (2) large increases in the labor supply.
The first has permitted money wages to increase at an average rate
of over 7.5 percent annually during the past 10 years while labor
costs and prices were rising by only around 2 or 3 percent. The
second has helped, in combination with restrictive monetary policies,
to avoid any serious generalized labor shortage. Despite the vigor
8B. C. Roberts, “National Wages Policy in Wage and Peace” (London, 1958)i, p. 144.
4 See, for example, Egon Sohmen, “Competition and Growth: The Lesson of West
Germany,” forthcoming in American Economic Review, December 1959.
SURVEY OP WAGE-PRICE PROBLEMS IN EUROPE
53
ous rate of economic expansion unemployment has been higher in
Germany than in most of the other Western European countries dur
ing the same period. The decline in both the rate of productivity
increase and flow of labor from Eastern Europe with the conse
quent reduction in the growth of the labor force may bring forth the
problems of wage-price stability in a full employment economy in
the form familiar in other countries of Europe. For it is not clear
that the monetary and fiscal measures which have been successful
ly employed in Germany to control inflationary pressures in a period
of extraordinary productivity and labor force increases will work
equally effectively under more normal conditions when the issue of
wage stability and trade union action are likely to become more
acute.
The German trade unions, in the years since 1948, have not pressed
their wage claims with a great deal of vigor. But this moderation
is not attributable to any sort of national policy of wage restraint.
The weakness of German unions, despite their membership and
centralized organization, has been advanced as one reason for the
lack of more vigorous wage action. This weakness shows up main
ly at the plant level. Plant organization is lacking and the handling
of grievances is performed by independent works councils for which
worker representatives are chosen in local elections by all the work
ers. This lack of local organization is connected with the general
union policy favoring uniform treatment of all employers which has
led them to support the practice of legal extension of contracts to
parties not involved in the contract negotiations.
Under the provisions of the law on extension of contracts, the terms
of any agreement between a union and an employers5association which
covers more than half of the employees in an industry and area may
be applied by Government decree to all employers and workers.
Through this law—
as Clark Kerr has put it—
a minority of employers in conjunction with a union representing a minority
of the workers, can, in effect, legislate for all employers and all workers. It
turns employers’ associations and unions into private governments, with the
enforcing power of public government behind them.6
The result has been to make the organization of employers almost
as important to the unions as the organization of workers since the
application of the law is not dependent upon the number of union
workers in the bargaining unit. This becomes significant in wage
bargaining since it accentuates union concern for the effects of in
dustrywide wage agreements on the maintenance of employer mem
bership in the employers association in general, and the position of
marginal firms in particular. Pressure for higher wages could con
ceivably result in withdrawals, even by profitable firms, from the
employers5 association sufficient in magnitude to reduce the employ
ment coverage below the 50 percent necessary for legal contract ex
tension. Wage settlements which threatened the marginal firms
in the industry on the other hand would entail not only a loss of
jobs and members but a possible reduction in contract coverage as
6 Clark Kerr, “Collective Bargaining in Postwar Germany,” in A. Sturmthal (ed.),
“Contemporary Collective Bargaining in Seven Countries” (Ithaca, N.Y., 1957),, p. 198.
54
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
well. It is not difficult to see why this system has been described as
“admirably suited to keeping contractual wage rates at low levels.” 6
Nevertheless, it would be premature to conclude that the structure
of bargaining institutions and the effects on union and management
policies of contract extension would have sufficed to keep wage de
mands moderate if the growth in productivity and real wages had been
less and the level of employment higher. The policy pronouncements
of the unions indicate that their “responsible” behavior has rested on
their desire not to interfere with economic reconstruction and growth.
But it might be dangerous to underestimate the importance that the
relative rapid growth in productivity and real wages has had upon
trade union policy. It remains to be seen whether the tendencies to
ward greater income inequality which have accompanied the tax and
monetary policies adopted by the Government as a means of encourag
ing a high rate of saving will provoke more vigorous action by the
unions both in wage bargaining and politically if the possibilities for
real wage advances decline.
F ra n ce
Although the new De Gaulle regime may basically alter the situation,
postwar France represents a case study of “a weak government, but
ubiquitous in economic life.” 7 Political instability, extensive govern
mental intervention, a divided labor movement with the largest seg
ment Communist dominated, and generally inflationary monetary and
fiscal conditions is not a combination likely to be conducive to wageprice stability nor to provide examples of effective techniques for
achieving such stability.
After a period of direct government control over wages following
World W ar II, the French Government attempted to establish free col
lective bargaining under a 1950 law intended to place wage determina
tion in the hands of unions and employers. In practice, however, gov
ernmental decisions on wages remained the dominant element in wage
fixing. Partly this has resulted from the key role played by the set
ting of legal minimum wages. Contractual wages have been so close
to the legal minimum, the unions have been so weak in collective bar
gaining, and the practice by employers of looking to the Government
for leadership in wage matters so widespread that changes in minimum
wages have been generally reflected in the movement of the whole wage
structure. In addition, the fact that over a fourth of the wage earners
in France are employed in government service and the nationalized
industries has intensified the influence of government action on wage
decisions throughout the economy. Finally, the level of social insur
ance benefits and family allowances (which amount to about a third of
total remuneration of workers) is set by the government.
The centralization of general wage movements through government
action, however, has been accompanied by “ an anarchy of actual wage
determination in the plant.” 8 The weakness of the unions has left
wages to a large extent subject to managerial fiat. Collective agree
ments, typically negotiated with employers associations on a district,
regional, or national basis, frequently are far from detailed in their
6Kerr, op. cit., p. 204.
7Val Lorwin, “Collective Bargaining in Postwar France,” in “The Annals of the American
Academy of Political an*1Social Science.” March 1957, p. 70.
8Lorwin, op. cit., p. 6&
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
55
provisions. Even when area or industry agreements contain a specifi
cation of wage rates these are minimum rates usually set low enough
to make effective rates a matter of negotiation, or often unilateral
management decision at the plant level.
Despite the apparent “anarchy” and anomalies of the French sys
tem of industrial relations and wage determination, the fact remains
that substantial increases in productivity and real wages have been
registered in the years since 1950. With the fading of the effects
of the Korean war, price increases were generally moderate and real
gross national product per capita increased at an annual rate of
around 4.5 percent until 1957. The paradoxes of the French economy,
if they do nothing else, should serve to instill a decent measure of
humility in those brash enough to make easy generalizations from
national comparisons.
V I. Conclusions
The brevity and incompleteness of this survey of wage-price prob
lems in Western Europe permits only the most tentative of con
clusions. And perhaps the most supportable of these is the generally
negative result that it is highly questionable whether Western
European approaches to the problem of wage-price stability would
have much applicability in U.S. conditions and circumstances.
THE PRACTICABILITY OF A NATIONAL WAGE POLICY
The greatest amount of attention has been devoted to those coun
tries in which the development and implementations of a national
wage policy has played some role in government efforts to maintain
wage-price stability. This choice of emphasis has been made partly
because of the frequency with which the necessity for government
action along similar lines has entered discussions of wage-price sta
bility in this country. Partly, however, it reflects the judgment that
the strength of organized labor and collective bargaining institutions
in Scandinavia, United Kingdom, and the Netherlands, makes their
experience more relevant to U.S. problems. In any event, experience
with national wage policies in those countries tend to the conclusion
that movements in this direction are not likely to be successful, except
perhaps temporarily during periods of grave national crisis. Com
parison of the conditions found to be controlling factors in determin
ing the possibility and effectiveness of national wage policies with
conditions in the U.S. economy leaves little room for any other con
clusion.
Primary among these conditions was the requirement that effective
national wage policy had to be part of a coordinated effort to achieve
a clearly defined national objective in which the relation between
national interests and trade union wage action may be given un
ambiguous and measurable significance. Eeconstruction and defense
emergencies have occasionally provided the clearcut national policy
focus about which national wage policies can be formulated, but only
in Norway and the Netherlands, where dependence on foreign trade
makes the balance of payments particularly crucial to national eco
nomic welfare, have national wage policies continued to be an im
portant factor in economic developments. And even in these coun
tries centralized control over the general wage movements has tended
56
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
to be eroded over time with the achievement of stronger positions in
their external economic relations. In the absence of acute national
defense emergency, no comparable policy focus exists in this country.
It follows that the second condition for effective national wage
policy— a high degree of central coordination of economic policies
and actions within the Government itself— does not now exist and is
not likely to develop in the United States. As we have seen, the
systems of detailed economic planning and national economic budget
ing in the Netherlands and Norway have been essential elements in
the process of formulating national wage policy. Without them it
is difficult to establish the clear relation between public interest and
private action, and to achieve the level of consistency between Govern
ment decisions in various areas, necessary to maintain the “good faith”
position of the Government in national economic bargaining. Our
system of government with divided congressional, executive, and
monetary responsibilities does not lend itself to centrally coordinated
decisions and comprehensive economic planning even if such were
desirable.
Labor and management “responsibility” in conforming to a national
wage policy can hardly be expected, unless matched by equally “re
sponsible” government behavior in coordinating its own actions.
With respect to collective bargaining institutions, it hardly needs
emphasis that trade unions in the United States lack the centralized
organization and tradition of worker “solidarity” that has made
peacetime national wage policies feasible in Europe. Moreover, union
policies in this country do not exhibit a concentration on wage issues
to the extent European unions do. Work rules, job standards, locally
negotiated fringe benefits, etc., are important or even dominating
factors in collective bargaining. The possibility of “trade-offs” be
tween these and other items such as union security are bound to com
plicate the inherently difficult task of judging the conformity of any
given agreement to a national wage policy, to say nothing of the fact
that introduction of such conformity as an issue is almost certain to
aggravate the problem of reaching agreements.
Management organization in the United States also differs sub
stantially from those European patterns which are favorable to imple
mentation of a national wage policy. The lack of powerful and cen
tralized employer associations in itself is probably sufficient to frus
trate efforts toward a national wage policy. This is perhaps most
clearly seen in connection with problems of the “wage drift.” The up
ward “drifting” of wages outside of contractual agreement is bound
to destroy the effectiveness of any control over the general wage level
sought by imposing labor and mangement responsibility to a national
wage policy. In the countries that we have considered, it would ap
pear that a major factor in limiting the corrosive influence of “wage
drift” has been the discipline exercised by employer associations
over their member firms in the matter of wage changes. Without
such discipline, competitive pressures would tend to bring upward
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
57
wage movements in response to the labor shortages which are almost
certain to arise in particular areas and occupations at high employment
levels. Neither management tradition nor organization in this country
manifest the unity of purpose and concern for marginal firms which
would be necessary to eliminate the effect of these competitive forces.
OTHERALTERNATIVES
I f effective implementation of a national wage policy as a means
of assuring wage-price stability is not feasible in this country, what
light does European experience throw on the possibilities of alterna
tive courses of action in the form of direct government intervention
in wage and price setting not coordinated with a general wage policy.
Here it becomes even more difficult to derive any general conclusion.
But it perhaps is fair to say that the experience of Western European
countries does not provide much evidence to indicate that much reliance
can be placed on specific government interventions as an anti-infla
tionary measure.
The role of the Government in Britain in determining wages in na
tionalized industries may be cited as having some relevance in this re
gard. While certainly not conclusive, the problems that arose in the
British railroads and their handling do not augur well for govern
ment attempts to exercise a general moderating influence over wage
increases via action in particular sectors. In a sense, the British
problem with wage setting on the railways simply illustrate the diffi
culties (familiar enough from our own experience with wartime wage
stabilization) of motivating specific action in a particular situation
by use of general objectives which have not been given clear defini
tion as part of a coordinated program. The same problem is illus
trated in a different manner in the development in the Netherlands
of a system which attempts to achieve national coordination of wage
structure in order to protect centralized wage policy from the ten
sions of relative wage movements. The difficulties encountered in that
attempt, involving conflicts between adherence to national criteria and
maintenance of sufficient flexibility to permit local adjustments to
economic circumstances, have their counterpart in the likelihood of
conflict between the demands of the particular circumstances in a given
sector and specific government action based on general policy con
siderations.
French and German experience contain little if anything which
might indicate direct government interventions in wage setting in this
country might be effective in helping to control inflation. France
probably provides better examples of the inflationary problems created
by extensive, uncoordinated government involvement in wage deter
mination than it does of problems solved. And the unique features
of German experience and the crucial difference between United States
and German collective bargaining structures make developments in
Germany less useful in providing “tests” of particular techniques of
direct intervention to control wages and prices.
58
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
FINAL REMARKS
The generally negative conclusions which have been reached in
this study should not be interpreted as implying that European ex
perience shows “nothing can be done” about the problem of wage-price
stability in a full-employment economy. The “lesson” of European
economic experience is the extremely simple one that government ac
tion and economic policy here will have to depend primarily on an
alysis of the structure and operation of private and public organiza
tions and institutions in this country. The study of European wageprice systems may be of some help in enlarging our perspective and
obtaining greater understanding of our own economic institutions.
But in general, systems of industrial relations and wage determination
tend to be so adapted to the social and economic environment in which
they have developed that they do not take well to transplanting— in
whole or in part— without substantial mutation.
S e le c te d B ib l io g r a p h y
1. GENERAL
American Academy of Political and Social Science, “Current Issues in Inter
national Labor Relations” (March 1957 issue of the Annals).
Jules Backman, “Cost-of-Living Escalator Clauses—Here and Abroad,” Labor
Law Journal, September 1950, pp. 615-622.
Edward H. Chamberlin (editor), “Monopoly and Competition and Their Regu
lation” (London, 1954).
John T. Dunlop, “ Industrial Relations Systems” (New York, 1958).
---------, “Policy Problems: Choices and Proposals,” in Wages, Prices, Profits,
and Productivity (report of the 15th American Assembly at Arden House)
New York, 1959, pp. 137-160.
John T. Dunlop (editor), The Theory of Wage Determination (London, 1957).
John T. Dunlop and Melvin Rothbaum, “International Comparisons of Wage
Structures,” International Labour Review’, April 1955, pp. 347-363.
R. Frei (editor), “Economic Systems of the West,” Basel, 1959.
International Labor Office, “Report of the Committee on Freedom of Employers’
and Workers’ Organizations,” Geneva, 1956 (mimeographed).
Joint Economic Committee, “Economic Policy in Western Europe,” Washington,
D.C., 1959.
Clark Kerr, “The Impacts of Unions on the Level of Wages,” in Wages, Prices,
Profits, and Productivity (report of the 15th American Assembly at Arden
House), New York, 1959, pp. 91-108.
Erik Lundberg, “Business Cycles and Economic Policy,” Cambridge, Mass., 1957.
“National Budgets in Western Europe,” Economic Bulletin for Europe, July
1953, pp. 63-81.
Organisation for European Economic Cooperation: Annual Reports; General
Statistics; Statistics of National Product and Expenditure, 1938, 1947-52
(Paris, 1954). Statistics of National Product and Expenditure, 1938, 1947-55
(Paris, 1957).
Lloyd G. Reynolds, “ Wage Behavior and Inflation: An International View,” in
Wages, Prices, Profits, and Productivity (report of the 15th American Assem
bly at Arden House), New York, 1959, pp. 109-136.
Lloyd G. Reynolds and Cynthia Taft, “Evolution of Wage Structure,” New
Haven, Conn., 1955.
B. C. Roberts, “National Wages Policy in War and Peace,” London, 1958.
Leonora L. Stettner, “Wage Pressures and Inflation Control in Western Europe,”
Monthly Labor Review, June 1956, pp. 664-670.
Adolph Sturmthal (editor), Contemporary Collective Bargaining in Seven Coun
tries, Ithaca, N.Y., 1957.
U.S. Department of Labor, Bureau of Labor Statistics, “Labor Developments
Abroad” (monthly).
United Nations, Department of Social and Economic Affairs: “World Economic
Surveys,” “Economic Survey of Europe.”
H. A. Turner, “Wage Policy Abroad: and Conclusions for Britain,” London,
1957.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
59
2. AU STRIA
Murray Edelman, “National Economic Planning by Collective Bargaining: The
Formation of Austrian Wage, Price, and Tax Policy After World War II,”
Urbana, 111., 1954.
Charles A. Gulick, “Austrian Labor's Bid for Power: The Role of the Trade
Union Federation,” Industrial and Labor Relations Review, October 1958, pp.
35-55.
---------, “ Collective Bargaining or Legal Enactment? The Austrian Develop
ment,” “International Review of Social History,” vol. 2, 1957, pt. II; vol. 3,
1958, pt. I.
United Kingdom Board of Trade, “Austria” (Overseas Economic Survey), Lon
don, 1957.
3. BELGIUM
L. Delsinne, “Trade Union Movement in Belgium,” International Labour Review,
May 1950.
United Kingdom Board of Trade, “Belgium and Luxembourg” (Overseas Econom
ic Survey), London, 1953.
4. DENM ARK
Walter Galenson, “The Danish System of Industrial Relations,” Cambridge.
Mass., 1952.
Poul Milh0j, “L0nudviklingen I Danmark 1914-50,” Copenhagen, 1954.
“ Samarbejdsproblemer I Danmarks 0konomiske Politik” (report of a special
committee to study problems of economic coordination), Copenhagen, 1956.
United Kingdom Board of Trade, “Denmark” (Overseas Economic Survey),
London, 1955.
5. FRANCE
Warren C. Baum, “The French Economy and the State” (Princeton, N.J., 1D5N).
Henry W. Ehrmann, “Organized Business in France” (Princeton, N.J., 1957).
Mario Einaudi, Maurice Bye, and Ernesto Rossi, ‘‘Nationalization in France and
Italy” (Ithaca, N.Y., 1955).
Val R. Lorwin, “Collective Bargaining in Postwar France.” Annals of the Ameri
can Academy of Political and Social Science, March 1957, pp. 66-74.
---------, “The French Labor Movement” (Cambridge, Mass., 1954).
6. GERM AN Y (FEDERAL REPUBLIC)
Clark Kerr, “The Trade Union Movement and the Redistribution of Power in
Postwar Germany,” Quarterly Journal of Economics, November 1954, pp. 535564.
William H. McPherson, “Labor Relations in Postwar Germany,” Annals of the
American Academy of Political and Social Sciences, March 1957, pp. 55-65.
Egon Sohmen, “ Competition and Growth: The Lesson of West Germany,” Ameri
can Economic Review, December 1959.
United Kingdom Board of Trade, “The Federal Republic of Germany” (Overseas
Economic Survey), London, 1955.
Adolf Weber, “Kapitalbildung und Lohnkampfe,” Berlin. 1955.
Henry C. Wallich, “Mainsprings of the German Revival,” New Haven, Conn..
1955.
7. IT A L Y
Gino Giugni, “Bargaining Units and Labor Organization in Italy,” Industrial and
Labor Relations Review, April 1957, pp. 424-439.
Joseph LaPalombara, “The Italian Labor Movement: Problems and Prospects”
(Ithaca, N.Y., 1957).
Maurice F. Neufeld, “The Italian Labor Movement in 1956,” Annals of the
American Academy of Political and Social Science, March 1957, pp. 75-86.
United Kingdom Board of Trade, “Italy” (Overseas Economic Survey), London,
1954.
8. NETHERLANDS
Ellen M. Bussey. “Experience With Wage Controls in the Netherlands,** Monthly
Labor Review, September 1958, pp. 982-987.
P. S. Pels, “The ‘Labour Foundation’ in the Netherlands,” International Labour
Review, May 1957.
60
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
C. Westrate, “Industrial Peace in the Netherlands,” Industrial and Labor Rela
tions Review, October 1952, pp.88-93.
John P. Windmuller, “Postwar Wage Determination in the Netherlands,” Annals
of the American Academy of Political and Social Science, March 1957, pp.
109-122.
Bert Zoeteweij, “National Wage Policy: The Experience of the Netherlands,”
International Labor Review (February 1955), pp. 148-222.
9 . NORW AY
Lars Aarvig, “ LpnnsUtvikling og L0nnspolitikk I Norge Etter Krigen,” Oslo,
1957.
P. J. Bjerve, “Planning in Norway, 1947-56,” Amsterdam, 1959.
Herbert Dorfman, “Labor Relations in Norway,” Oslo, 1957.
Walter Galenson, “ Labor in Norway,” Cambridge, Mass., 1949.
Mark W. Leiserson, “ Wages and Economic Control in Norway 1945-57,” Cam
bridge, Mass., 1959.
1 0 . SWEDEN
Bent Hansen and Gosta Rehn, “On Wage Drift: A Problem of Money-Wage
Dynamics,” in “Twenty-five Economic Essays in Honour of Erik Lindahl,”
Stockholm 1956, pp. 87-138.
T. Johnston, “Wages Policy in Sweden,” Economica, August 1958.
Richard A. Lester, “Reflections on Collective Bargaining in Britain and Sweden,”
Industrial and Labor Relations Review, April 1957, pp. 375-401.
Lennart Lohse, “Centralization of Collective Bargaining in Sweden Since 1939,”
Monthly Labor Review, November 1958, pp. 1230-1235.
Charles A. Myers, Industrial Relations in Sweden: Some Comparisons with
American Experience, Cambridge, Mass., 1951.
Gosta Rehn, “ Swedish Wages and Wage Policies,” Annals of the American
Academy of Political and Social Science, March 1957, pp. 99-108.
The Swedish Confederation of Trade Unions, “Trade Unions and Full Employ
ment,” Stockholm, 1953.
1 1 . UNITED KINGDOM
H. M. Douty, “Disinflationary Policy and Wages in Great Britain,” Monthly
Labor Review, March 1956, pp. 269-273.
---------, “Wages, Prices, and Economic Policy in Great Britain, 1954-57,” March
1958, pp. 260-264.
Allan Flanders (editor), “The System of Industrial Relations in Great Britain,”
Oxford, 1954.
---------, “Wage Movements and Wage Policies in Postwar Britain,” Annals of the
American Academy of Political and Social Science, March 1957, pp. 87-98.
P. Sargent Florence, “ Industry and the State,” London, 1957.
R. G. Hawtrey, “Cross Purposes in Wage Policy,” London, 1955.
A P P E N D I X
Comparative Notes on Wage-Price Setting in Western Europe
(By Donald R. Snodgrass,1Yale University)
A U STR IA
Unions
At the end of 1955, about two-thirds of all wage and salary earners were
organized into unions (1.4 million in 2.2 million). There are 16 national unions,
which fall into 3 groups: (1) Unions of manual workers (58 percent of total
union membership in 1955), (2) the large union of salaried employees in the
private sector (13 percent), and (3) the unions of public and municipal em
ployees (29 percent). All national unions belong to the Austrian Trade Union
Federation (OGB), a highly centralized organization which provides a common
financial base and joint departments of research, education, public relations, etc.
All activities of the individual unions are governed by general principles laid
down by the OGB and they may be required to consult with the OGB if their
actions affect the General interests of labor.
The Act for the Protection of Freedom of Work and Assembly of 1930 prohibits
the union shop and the use of force or intimidation to gain union members.
The unions have no party affiliation and the three leading parties—Socialist
Party, People’s Party (a business-agricultural group), and Communist Party—
are all represented on the main bodies of the OGB. The OGB has, however, a
definite policy on a wide range of social matters.
Besides the OGB and its constituent unions, there is a chamber of labor in
each Province. These are official bodes, membership in which is compulsory
for wage earners below the executive level. They are legally charged with
furthering the interests of wage earners; they examine proposed legislation and
make recommendations and do research on housing, nutrition, public health,
prices, etc. A one-half of 1 percent tax supports them. Another of their
functions is to cooperate with the unions in collective bargaining. Separate
agricultural labor chambers exist to represent agricultural and forestry workers.
Employers’ associations
There are several voluntary employers’ associations, the most important of
which is the Austrian Industrial Employers’ Association (VOI). The YOI has
some 3,000 members representing employment of about 300,000. There are some
20 voluntary associations limited to particular industries which are empowered
to conclude collective agreements.
Corresponding to the chambers of labor are chambers of industry and com
merce at the Federal level and by Provinces. The provincial chambers are di
vided into six sections: crafts, industry, commerce, banking and insurance,
transportation, and tourism. Chambers are legal corporations, membership in
which is compulsory; they can fine members and make collective agreements.
They are often consulted by Government on policy matters.
Collective bargaining
At present most contracts are made between trade unions and chambers of
industry and commerce. The overall coverage of collective bargaining is ex
tensive ; at the end of 1954 there were 87 national contracts and 102 supple
ments thereto valid in one or more Provinces. In addition, separate works
1It is the purpose of this series of brief notes to outline some of the main features of
wage and price setting institutions, procedures, policies, and controls in the various econ
omies of Western Europe. There is nothing definitive about these notes; they draw only
upon those published materials most readily available in this country and can serve only
as a basic introduction to the economic institutions and policies of each country covered.
61
62
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
agreements are often made between individual employers and works councils;
these, however, do not constitute collective agreements under the law and do
not have the same binding force.
Since 1957 the Wage-Price Commission, with labor, industry, and Government
representatives, has been in existence and has taken a broad overview of pro
spective wage and price increases w’ith regard to their inflationary consequences.
Originally a temporary and voluntary organization, in 1958 it was given more
permanent status and greater legal authority over price setting.
During the years 1947-51, five pacts were negotiated on a national basis which
not only increased wages but adjusted many other economic variables in a sort
of national economic planning via bargaining among the three main economic
interest groups: industry, labor, and agriculture. By these pacts wages, prices,
taxes, subsidies, public utility rates, and (on one occasion) pensions were all
adjusted in a bargaining process so as to be in a relation to each other which
was acceptable to the three interest groups.
Contracts
The provisions of contracts apply to all employers who are members of the
body making the agreement. They also apply to all workers in the enterprises
concerned, whether union members or not. Agreements made between indi
dual wTorkers and employers are not valid unless their terms are more advan
tageous to the worker than the relevant collective agreement.
Collective bargaining and disputes legislation
The Collective Agreements Act of 1947 provides for the conclusion of agree
ments by either the statutory bodies representing the interests of workers and
employers or by the voluntary associations of workers and employers. The
act also requires comprehensive factory rules in all enterprises employing more
than 20 persons and the approval of these rules by the works council.
The Works Councils Act of 1947 requires an election of shop stewards every
2 years in enterprises employing more than 20 persons; these shop stewards
make up the works council. The council supervises the collective agreement, sees
that employment legislation is observed, assists in safety, etc. Legally, the form
is one of codetermination, but in practice the role of labor is reported to be much
more limited.
In the Collective Agreements Act, conciliation boards were established. They
are tripartite, consisting of worker and employer representatives and inde
pendent chairmen (usually judges). They mediate disputes arising from collec
tive agreements when requested to do so by either side or by the Government.
They do not arbitrate unless both sides request them to do so.
There is no provision in the legal code which specifically guarantees or restricts
the right to strike. There have, however, in recent years, been attempts by the
courts to distinguish legitimate and illegitimate strikes; in 1954 the Vienna
Conciliation Board ruled that a strike called for a purpose not recognized by law
was illegal.
Government wage policy
Immediately after the war the Government maintained comprehensive wage
and price controls. These proved extremely ineffective, marked inflation ensued,
and the direct controls were replaced with the system of national bargaining
already described. Since 1951 Government wage policy has been less compre
hensive and more informal.
Minimum wages are set by conciliation boards in cases where collective bar
gaining does not exist (e.g. homework). No overall minimum wage exists.
Employment policy
There is a national employment service and private employment agencies are
illegal; the employer, however, is free to hire through any channel he chooses.
To combat a very high level of seasonal unemployment, the Government has in
recent years concentrated its construction activity in the slack season, the winter.
Price control
Extensive direct controls were employed in the field of consumer goods in the
dire circumstances immediately after the war. The system broke down, though,
because the farmers did not consider agricultural prices high enough and coerced
the Government by reducing deliveries to the city; also industrial prices and
credit were never significantly controlled. The outcome was the national pricewage agreement, the first of which, in 1947, was accompanied by a drastic
monetary reform.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
63
At present prices seem to be determined mainly by the chambers of industry
and commerce in a loose and quasiofficial system of controls. A number of
essential consumer goods (bread, milk, fats, sugar, etc.) were long under official
price control and may continue to be to some extent. Rents have been controlled
continuously since 1917.
The Government Priee-Wage Commission acts as a restraining force on prices,
as it does on wages. It must be consulted for approval of all price increases and
advises the Government on all kinds of economic policy.
Price supports and subsidies
Extensive subsidies existed at the end of the war. The largest were in agricul
ture and these have continued, though they were decreased in the early fifties.
There were also, in the early years, subsidies on the import of grains and raw
materials for fats to adjust for the fact that world prices of these items were
far above internal prices. Smaller subsidies existed on sugar, glass, drugs, and
hides.
The capital market and profits taxes
The capital market is still weak and the great bulk of business financing is
done internally. Profits are not taxed heavily.
Nationalization
About one-fourth of all industry came under government ownership in 1947
(most of the firms taken over then had had German owners). This included
the largest iron and steel works, electrical power, 95 percent of the coal mines,
and most heavy engineering, shipping, and oil companies.
In 1947 the industrial output of nationalized firms represented 22 percent
of the total value of Austrian production and 93 percent of the total output of
raw materials and basic products. In 1954 they accounted for one-fourth the
total value of Austrian exports and employed about 108,000 men. All this does
not include the many enterprises (public utilities, banks, insurance, slaughter
houses, hospitals, etc.) which are provincially and municipally owned. In 1951
some 304.000 persons were employed in the public sector as a whole out of total
employment for the economy of 1,674.000.
Many public enterprises preserve a high degree of autonomy. They often join
chambers and may occasionally belong to employers' associations. Their em
ployees belong to both chambers and unions. Wages and conditions of employ
ment are determined by legislation, but labor has substantial influence over the
terms of this legislation.
B ELG IU M
Unions
The two principal federations are the General Federation of Belgian Labor
(FGTB) and the Confederation of Christian Trade Unions of Belgium (CSC).
The former group had in 1951 some 638,000 members, more than half of whom
were in three large industrial unions: (1) Building and woodworking, (2) metal
working, and (3) public services; it also has numerous small craft unions. The
CSC is composed of 17 national industrial unions and had a membership of
534,000 in 1951; about half its membership was contained in three unions: (1)
Textiles, (2) building and woodworking, and (3) metalworking. There is also a
General Confederation of Liberal Trade Unions with some 38,000 members, as
well as a few independent unions.
Each federation is loosely and unofficially affiliated with a political party: The
FGTB with the Socialist Party, the CSC with the Christian Social Party, and
the Liberal Confederation with the Liberal Party.
Total union membership in 1950 was approximately 1.3 million; there were
at the time some 1.7-1.8 million wage earners and salaried employees, so about
70 percent of all those employed were organized.
Employers9associations
The Federation of Belgian Industries (FIB) has a membership of about 40,000
of the 79,000 enterprises in the economy; when the extremely small size of many
of the enterprises counted in the total is considered, it is probable that the
FIB represents employers of well over half of ail workers. There are also in
dustrial federations or associations in almost every industrial sector.
Collective bargaining
In many industries bargaining is decentralized, taking place at the enterprise
level, and private in nature, with the Government playing no role. A different
procedure applies, however, in the case of homework and in certain key industries.
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
An act of 1945 set up national and regional Labor-Mana geinent Commissions
in a number of industries; these are made up of equal labor and management
representation. In the coke, engineering, iron and steel, chemical, gas, electricity,
nonferrous metal, textile, macaroni, and paper industries the national com
missions have concluded collective agreements. These agreements, however, have
been loose and have only laid down the rules regarding the election of union
representatives in individual enterprises, the guarantees which they enjoy, and
the subjects on which thev can bargain with the employer. A commission can, if
it wishes and can obtain unanimous agreement within itself, get a royal decree
which makes its decision binding upon the industry and overrules any individual
or collective contract with which it conflicts. A fair proportion of all collective
agreements of the commissions are made binding and these have in the past
affected the rules for works councils, holidays, wages, etc.
Bargaining for homework is carried on in a manner similar to that just
described in the National Committee for Homework.
Whereas years ago great bitterness existed betwen the Socialist and Catholic
unions, since the war differences have been largely confined to the ideological
sphere and their bargaining policies have been similar, sometimes identical.
Union demands have been generally moderate, prompted by a fear of inflation.
Their main concern has been to keep up with price rises.
“ Structural reforms” agreed to by underground representatives of labor and
management during the war were enacted in 1948. They set up a central eco
nomic council, industry councils, and enterprise councils, all of which were
designed to give organized labor a voice in managing the economy. All these
bodies have equal management and labor representation. The Central Council
advises the Government when asked and can propose legislation. The industry
councils advise the Government on matters relating to individual industries.
The enterprise councils have elected worker representatives and bargain with
employers over conditions of employment; they must also be presented with
regular reports on the operation of the firm by management and have the right
to make proposals on work scheduling, productivity, and so forth. The effective
force of this codetermination law is probably not so great as the law makes it
appear and most traditional management powers are preserved intact.
Contracts
If contracts are made binding by royal decree (and only those made by labormanagement commissions are) they have the same legal force as a Government
order and apply to all the employers and employees in the industry concerned.
Other agreements made by the commissions, as well as those made by other
groups, are also legally binding, but only on members of the organizations sign
ing the agreement.
Cost-of-living clauses are common in contracts and have been recognized as
appropriate in principle by the Government.
Collective bargaining and disputes legislation
The laws providing for the various commissions and councils have been dis
cussed above.
Collective bargaining and strikes have only been legal since 1921. All collec
tive bargaining had been banned by the Le Chapelier law of 1891, though it was
later modified to allow unions to function as fraternal bodies.
The labor-management commissions, in addition to the powers previously
outlined, can conciliate disputes in their industries. If the commission can agree
unanimously on a solution, that solution may be made compulsory by royal
decree.
Other machinery exists for mediation and arbitration. Conciliation com
mittees may be appointed by the Government. All told, voluntary conciliation
is much used in settling disputes and arbitration is little used.
Labor courts exist which deal primarily with individual labor disputes (be
tween an employer and one or several workers, or among workers). They in
terpret the law to fit the case and also judge questions of equity. In any case
before the courts, an attempt is made first to conciliate the parties.
In various fields judged to be essential to the functionings of the economy by
the Government, once the labor-management commissions have reached agree
ments (which have been made legally binding) the right to strike is limited
by requirements to give advance notice, leave a certain percentage of the workers
on the job, and maintain certain services.
SURVEY OF WAGE-PRICE PROBLEMS IN EtfROPE
65
(Jfyvernmmt wage policy
There lias been no centralized Government wage policy. Aside from those men
tioned above, no Government interventions in the process of wage determination
seem to have taken place.
Employment policy
A national employment service exists, but most hiring is done on a private
basis. The service has tried especially hard to act against the problem of
structural unemployment by encouraging the movement of workers from Flem
ish labor-surplus areas to the Walloon shortage areas, but there has been little
success in his program. Also, there has been an attempt to alleviate specific
labor shortages (particularly of coal miners) by inducing the immigration of
foreign labor; some inflow, especially from Italy and other southern European
countries, has resulted.
Price control
Since a vigorous anti-inflationary policy brought price and balance-of-payments
stability by 1948, direct controls could be and were eased at an earlier date than
in other countries. By 1949, price control had been almost completely eliminated.
Iient control was still extensive at this time, but was gradually relaxed and by
1952 affected only the lowest rent categories.
Import and exchange controls
Though direct controls on foreign trade and payments were retained longer
than internal direct controls, the country was a leader among European nations
in trade liberalization. These controls are negligible today and import duties
are very low (except in the case of agriculture, which is substantially protected).
In 1951-52 proceeds from exports were temporarily blocked as an anti-inflation
ary device; extensive export licensing was also imposed briefly at this time.
Price supports and subsidies
Subsidies are relatively slight, the largest one going to the railroads. Belgian
coal received subsidies from the European Coal and Steel Community to aid its
transition to freer intra-European trade (because of the high-cost nature of the
industry).
Profits taxes and dividend limitations
In 1954, in connection with the Government’s program of investment stimula
tion, profits used for reinvestment in fixed plant in industry were partially
exempted from taxation. In 1956 this and other measures designed to encourage
investment were moderated. At present distributed profits are taxed more
heavily than undistributed profits, but the difference is slight, the maximum rate
on the former being about 45 percent, as compared to 40 percent on the latter.
Nationalization
The public sector is small, comprising mainly the usual services and public
utilities. No policy of nationalization has come into effect since the war, so that
power is only partly publicly owned and the coal mines, deposit banks, and all
manufacturing industries are under private ownership.
At the end of 1953, the total employment of the national, provincial, and com
munal governments was 260,000, 15.3 percent of the total number of wage earn
ers. In addition, undertakings in which the Government was concerned, either
because it had a share of the capital or becaues it appointed a governing body or
managers, employed about 161,000 persons.
DENM ARK
Unions
The Danish Federation of Labor is composed of 71 unions, both industrial and
craft unions, with the former predominating. Many of the craft unions are
very small. The federation is dominated numerically by the General Workers’
Union, which had at the end of 1953 247,000 members out of the total federation
membership of 693,000.
Outside the federation are three other central organizations: (1) the Joint
Council of Public Servants and Salaried Employees (a very loose confederation
representing 18 unions with about 87,000 members), (2) the Government Em
ployees Central Organization I (32 unions comprised of 35,000 low-ranking pub
lic servants), and (3) the Joint Organization of Foremen and Technical Em
60
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
ployees (eight unions with 28,000 members). There are also six unions with an
aggregate membership of 28,000 which are not affiliated with any central or
ganization. Total union membership is thus about 866,000. The proportion
of wage and salary workers organized is not known precisely, but appears to be
in the neighborhood of 90 percent.
A strong craft tradition within the Danish federation, with its economic orien
tation, has prevented official affiliation of the federation with the Social Demo
cratic Party, even though there are strong unofficial ties between the two groups.
Employer's1 associations
The Danish Employers' Association is the most important employer group.
Its members employ roughly 350,000 workers. Its numerical importance is
thus much smaller than that of the Danish Federation of Labor, but its influence
in the labor market is about as great as that of the federation. It has powers
to represent its members in collective bargaining far exceeding those of the
federation; it collects dues and pays strike benefits on the basis of size of pay
roll; it forbids its members to enter into collective agreements on many sub
jects (hours, wages, union shop, etc.) without the permission of the association's
executive committee.
Collective ’bargaining
Bargaining is conducted under general rules drawn up by the federation and
the employers’ association and altered from time to time. The general pattern
is for 2-year contracts to be signed (usually industrywide, but occasionally at
the enterprise level), most of them terminating at the same time. The Danish
Federation of Labor convenes in advance of negotiations and agrees on demands
(though it does not have the power rigidly to enforce its directives). If nego
tiations at the trade or industry level are not progressing well after about 6
weeks of bargaining, the two federations often intervene to settle the remaining
issues. If they also fail to agree, State mediators are generally called in.
Farmworkers are covered by collective bargaining (at least those on large
and medium-sized farms). They are mostly covered by one large agreement.
A distinction is made between permanent and temporary farmworkers, the
former being given greater guarantees.
Contracts
In 1948 there were some 2,000 contracts, some national and others local in
scope (the large number is accounted for by the commonness of agreements
along craft lines). While most contracts are of 2 years’ duration, wages are
adjusted semiannually to compensate for changes in the cost of living, by
agreement of the central organizations of workers and employers. Agreements
typically cover wages, hours, overtime, shift premiums, etc., while some provide
for the election of shop stewards and vacations in excess of those provided by
law.
Collective bargaining and disputes legislation
The labor law makes a distinction between disputes over the interpretation
of existing contracts and those involving the negotiation of new ones. In the
former case, a law of 1934 requires the inclusion of standard clauses in all con
tracts to the effect that such disputes cannot form the basis of a strike or
lockout, but must be referred to a mediation committee. If mediation does not
settle the issue, recourse must be had to a board of arbitration for the industry
(a permanent body with equal employer and worker representation and a
neutral chairman). There is also a permanent court of arbitration, which
judges matters concerning the validity of agreements and settles disputes if
requested to do so by the parties (though this is normally the function of the
industry’s own arbitration board). The court has the power to levy fines
on both individuals and organizations.
In the cases of bargaining on new agreements, Government mediation is
generally accepted as the final stage of the process if agreement has not been
reached previously. The mediator enters the case at the request of the parties
or may do so at his own initiative if a strike or lockout notice has been served.
He may force postponement of a strike for 1 week. He may withdraw without
submitting a proposal; if, however, he does submit one, it must be accepted or
rejected by a majority vote of the organizations concerned. Occasionally, upon
a negative vote of either organization, Parliament has required arbitration or
even enacted the mediator’s proposal directly into law. In general, though,
bargaining remains voluntary.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
67
Government wage policy
The Danish Federation of Labor is closely, if informally, allied to the Social
Democratic Party, which has been in power (either alone or in coalition)
almost continuously since the thirties. Through informal influence, as well as
the machinery outlined above, the Government has kept man-hours lost in indus
trial disputes extremely low since 1947. Also, since 1950, it has exercised its
influence to induce the federation to follow a policy of wage restraint. Govern
ment wage policy thus expresses itself mainly in an informal manner. There is
no legal minimum wage.
Price control
Extensive price control followed the war and was gradually being eased when
the rise of external prices in 1949-50 brought new problems and the reintroduc
tion of some price controls (an extreme example was the imposition of price
controls on grain, coupled with compulsory deliveries). In 1952, external prices
fell and output increased; both the old price controls and the newly imposed
ones were then largely removed. Rents, however, continued to be controlled.
Import and exchange controls
The Korean inflation blocked extensive trade liberalization in Denmark, which
was hit particularly hard, having no raw materials to export. In 1951 the level
of liberalization was well below the OEEC-prescribed level of 60 percent and
Denmark was given a period of grace. The country complained that its low
tariffs gave it a weak bargaining position in regard to the removal of quantitative
restrictions. Further liberalization has proceeded slowly. In 1952 the Govern
ment tried to stimulate dollar exports by allowing 10 percent of the proceeds of
such sales to be used for purchases of goods subject to import licensing. In
1951 a “deposit” system was briefly in effect whereby imports of textiles and
clothing were freed from quantitative restrictions on the condition of substantial
cash deposits by the importers and this greatly aided credit tightening.
Monopoly regulation
Before the war Danish industry was heavily cartelized (cartels and monopolies
accounted for 50 percent of industrial output in 1937) and there was no sig
nificant feeling that monopoly should be openly opposed. Since the war there
has been more interest in regulation. In 1955 a law to regulate monopoly and
anticompetitive practices was passed giving the Government the power to pre
vent “price gouging.”
Price supports and subsidies
Housing construction is subsidized and the degree of subsidization is tight
ened and loosened according to the severity of inflationary pressure on the
economy. Railway rates are another subsidized item; when they were allowed
to rise in 1953, a rise in the cost of living was prevented by reducing the income
tax in the lower brackets.
V ation alimti on
The Government has practically no interests in industry or commerce. It
operates the usual services and public utilities, as well as the naval dockyards
and all armament plants. In 1953, 6.6 percent of all workers employed in Den
mark were employed in public administration and another 2.2 percent worked
in industrial and commercial undertakings in the public sector.
FRANCE
Unions
The French labor movement is badly factionalized. Though no membership
statistics are available, it is evident that by far the largest federation is the
Confederation Generale du Travail (CGT), which is Communist oriented. The
other two major labor centers are the Catholic Confederation Franca is des
Travailleurs Chretiens (CFTC) and the Confederation Generale de TravailForce Ouvriere (CGT-FO). The bulk of unionists belong to these three feder
ations, but there are also a number of independent federations and unions:
among the former are the Confederation des Syndicats Independents (CGSI), the
anarchist Confederation Nationale de Travail, and others; among the latter is
the powerful Teachers’ Union, which has been unafiiliated since leaving the CGT.
There is also the Confederation Generale des Cadres (CGC), which commands
some support among supervisors.
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
The structure of all the federations is similar. The federations lay down
general policy recommendations but in fact have very little power over their
constituent bodies. These bodies are the federations, which are national groups
representing an industry or group of industries. Each federation is made up of
syndicats, which are local unions grouping together the workers of the industry
concerned in a given locality. The syndicats are also grouped horizontally in
unions locales and unions departmentales, which represent all the syndicats
affiliated to the confederation in each locality and department respectively.
The majority of workers in private industry are unorganized (the unions
are stronger in nationalized industry).
All unions are active in the political sphere. The CGT, of course, is Commu
nist, while the FO is close to the Socialist Party and the CFTC to the Catholic
MRP, though neither the latter two is controlled by the party.
One great weakness of all unions is that dues are very low and paid with
great irregularity. Also, the concept of membership in a union lacks precision
and voting prounion in shop elections may be considered proof of membership,
even though dues are paid seldom or never.
Employers’ associations
The Conseil National du Patronat Francais (CNPF) is the recognized organi
zation of industrial and commercial employers and represents them in bargain
ing and with the Government. Most large firms are represented in the CNPF,
which is made up of a federation for each important industry or group of indus
tries. There are also some smaller specialized employers’ associations, as well
as societies generally intended to improve human relations in industry (whose
memberships overlap that of the CNPF).
Policies within the CNPF are generally well coordinated. The regional and
national federations have considerable control over wages in individual estab
lishments.
Collective bargaining
Collective bargaining is still of limited importance in France. On the one
hand, a substantial sector of the economy remains unorganized and the more or
less unilateral decision of the employer governs wages and conditions of work
there. On the other hand, the state plays a large role. The continual and bit
ter wranglings among labor groups have made employers unwilling to put much
trust in them and the unions, recognizing their own weakness^ have often pre
ferred government intervention to really free bargaining. Bargaining is vari
ously conducted at national, regional, and local levels.
In deference to the interests of the smaller labor organizations, the principle
of multiunion representation in collective bargaining has long been recognized.
This has stimulated interunion rivalry and made more difficult the process of
arriving at an agreement.
The fact that the CGT is Communist dominated has led to the introduction
of many new and unrelated issues into collective bargaining. Strikes against
the Government or against other unions have been common and there has often
been little interest on the part of the CGT in an ultimate settlement of differences.
Aside from these union weaknesses, another reason for the poor functioning of
collective bargaining is that many employers accept it only as a lesser evil than
government control. In general, the employers are better organized than the
workers, are more unified, and have more money and information.
In the nationalized industries which are in sectors of the economy that are
not competitive with private industry, bargaining has consisted of unions bring
ing political pressure to bear on the Government in order to alter its decrees.
In the competitive sector regular collective bargaining occurs in publicly owned
enterprises.
Contracts
National agreements (and in some cases regional and local agreements) must
by law contain certain clauses on the exercise of union rights, wages for each
labor grade (including differentials for difficult and dangerous work and equal
pay for women workers), conditions of engagement and dismissal, shop stewards
and works committees, conciliation, etc. Cost-of-living sliding scales are rare,
but a number of agreements provide for reopening if prices rise by a specified
amount.
Wage contracts are often signed independent of complete collective agree
ments. Especially in the early years after the war was this so; interest then
centered on wages because of the sharp inflation and three times as many wage
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
G9
contracts were concluded as complete collective agreements. Since 11)53, though,
negotiation of complete collective bargaining contracts has spread considerably.
Collective bargaining and disputes legislation
The law presently regulating collective bargaining was passed in 1950. Pre
vious to that time (since 1940) conditions of employment had been subject to
bargaining, but wages remained under Government control. The new law gen
erally marked a return to free collective bargaining, but with three exceptions:
(1) The Ministry of Labor has the power to decide whether or not a collective
agreement should be ‘’extended” to apply to workers and employers not a party
to the agreement, (2) a Government-appointed Higher Commission of Collective
Agreements sets a national minimum wage for each occupation on the basis of
a family budget, and (3) in nationalized industry collective bargaining is prac
ticed only where there is no law regulating conditions of work ( in practice, only
where nationalized industries compete with private linns).
In regard to the settlement of disputes, the law states that all national agree
ments (and regional and local ones in special circumstances) must contain
clauses for the settlement of disputes. Either the parties or the Government
can initiate conciliation. Arbitration is strictly voluntary.
At the linn level in private industry, works committees are required by law
to be elected in all enterprises employing 50 or more persons. These committees
manage various social activities associated with the firm and have purely con
sultative powers in regard to the management of the firm.
Government wage policy
The national minimum wage is an important part of Government wage policy.
Its importance in the process of wage determination arises from the fact that
many of the rates set unilaterally by employers or jointly by collective bargaining
are at or just above the minimum and must be changed when it is altered. In
setting minimum wages, the Government consults the Commission Superieure
des Conventions Collectives, which is made up of employer and employee rep
resentatives. The wage is the same for men and women but is differentiated by
province. According to a law of 1952, when the family consumption price index
rises 5 percent, a proportional increase in the national minimum wage must be
made. The substantial lag in the process means that the maintenance of real
wages is by no means guaranteed.
The sizable benefits payments (pensions, family allowances, etc.) have been
used by the Government to bring about a substantial redistribution of income
among wage earners. The role of the Government as the largest single em
ployer in the economy gives it a device for influencing wage movements directly.
Price control
Considerable price control was used immediately after the war. Much of
it was removed in 1949 in favor of a policy of monetary and fiscal restraint
and prices rose sharply. This inflation brought on the replacement of some
of the price controls just removed, but from this time on they were used as a
supplement to other policies and not relied on so heavily as before. Beginning
in 1957, the Government began to remove wThat price controls remained, with
the aim of freeing prices entirely. Price control through most of the period
has been considerable, applying, even since the relaxation of 1949, to many basic
agricultural and industrial products, as well as to rent. In 1954 it covered such
essential products as coal, oil. electricity, gas, fertilizers, and sulfuric acid; in
addition, autos, glass, and tractors were subject to a measure of control.
Monopoly regulation
Large-scale organization has been fostered since the war by (1) the fact that
only large-scale firms can engage in self-financing, and borrowing has been dif
ficult or impossible; (2) the Monnet and second nationalization plan, which
were more easily applied to large firms; and (3) nationalization, which closed
down a certain number of firms. The highly organized nature of business has
produced a large number of agreements of various kinds between firms in regard
to prices, marketing, etc. There is legislation in existence which condemns re
strictive practices, but which seems to be rather ineffective in practice. Strong
er laws were considered in 1950 and 1951, but no new legislation was passed.
Price supports and subsidies
These have always been considerable in France relative to other countries.
Agriculture is the largest recipient, but many sectors of the economy have their
own niches, protected by tariffs, price supports, or subsidies, open or disguised.
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
There has been a program in effect since 1054 for the modernization of key
branches of industry (coal, electricity, steel, cement, etc.). This is supported
by subsidies, cheap credit, and the development of a capital market. Its aim
has been to stimulate research, reorganize marketing, and encourage the speciali
zation of firms so as to expand overall investment and aid internal and external
stability.
The system of agricultural price supports is elaborate but capricious. It covers
a wide range of agricultural products, especially those which form an important
part of French exports, but in the aggregate does little to raise the low level of
rural income.
Profits taxes and dividend limitations
Though corporate profits are at present taxed at a rate of 50 percent, there
are several provisions which soften the impact, providing that funds go into
capital outlays. One year's depreciation is granted in the year that an asset
is acquired, in addition to normal depreciation (this does not apply to assets
with lives of less than 5 years or to buildings). For certain types of assets an
additional 10 percent deduction is allowed in the year of purchase (this applies
to equipment intended to modernize facilities). A deduction from taxable in
come is allowed on dividends paid on new stock which has been issued to increase
paid-in capital (limited to 5 percent of the new capital) ; this may be claimed
in each of 7 years. The base of the value-added tax on new construction has
recently been decreased by 39 percent.
Restrictive taxes have been mainly those affecting consumption: The progres
sive income tax is steeply graduated in the low and middle ranges and there is a
myriad of indirect taxes on a wide variety of items.
Nationalization
The public sector is fairly extensive and perhaps accounts for 20 percent of in
dustrial output. Areas of the economy covered include 97 percent of coal produc
tion, the whole of the tobacco, armaments, aircraft building and explosives indus
tries ; parts of the refining and automobile metals industry; much of the con
struction industry; nearly all public utilities; most of banking and insurance;
transportation. In 1952 the Central Government employed some 965,000 per
sons ; employment by local government in 1950 totaled 368,500; neither of these
figures includes personnel employed by public or semipublic concerns having a
legal personality and financial autonomy.
GERMANY
Unions
The central organization is the Federation of German Trade Unions (DGB),
which is made up of .16 unions. Its membership was some 6.1 million in 1954,
of which 1.7 million were in the Metal Worker’s Union, its largest affiliate. This
membership represented 35 percent of the workers employed in the economy in
1954. There are also some smaller federations and unions which are not affili
ated with the DGB; though the exact membership of these is not known, they
probably raise the percentage of the working population which is organized to
40 to 50 percent. The metal workers and the three other large unions which make
up more than half the membership of the DGB are the only unions which have
organized more than one-half the workers in their jurisdictions.
Power is concentrated at the top level of organization. Basic social, economic,
anod political policy is all made by the DGB. The DGB has the power to remove
any elected or appointed union official from office (though it does not use it fre
quently). It also has a large share of the revenue from members’ dues at its
disposal. At the plant level, unions are not very active (there is no local union
in the plant). Worker interest is diluted by the fact that bargaining is not con
ducted at the local level, by the traditional German acceptance of leadership,
and by the greater emphasis on high-level political representation of labor than
on collective bargaining.
Within both the DGB and the individual unions there is organization on a
geographical basis with district and community bodies (the latter only in towns
where there are enough union members). Of these, the district officers of the
unions are the most important ; they sign contracts with employees’ associations,
represent workers in the labor courts, cnll strikes, lobby on state legislation, etc.
Employers’ associations
Employers are thoroughly organized and employers* associations are just one
type of body that serves this purpose. The central organization of employers’
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
71
associations is the German Confederation of Employers' associations. It is made
up of 822 member associations, organized auto 35 industrial federations and 13
provincial federations.
Employers’ associations include almost all employers and exercise a strict disci
pline over their members. The pressure exerted by the associations on members
is partly the force of convention and social pressure and partly such devices as
influencing prices and discounts, influencing credit terms and availability, etc.
These powers are seldom used, however, as the will to conform is great among
employers. The confederation similarly exercises some disciplinary powers over
its constituent federations, primarily by persuasion.
The typical association consists of the manufacturers of a single product in a
single state. Cases exist, however, where part of a state, more than one state,
or more than one product is involved.
Besides the employers’ associations, there are other organizations in which em
ployers band together to protect their own interests. Small employers belong to
“Innungen,” which are guild-like groups which regulate trade practices and ap
prenticeship. There are also chambers of industry and trade, which represent
the interests of employers on broad issues such as taxation.
Collective bargaining
Most contracts are signed by the district offices of the union and the district
employers’ association for the industry, though some are negotiated at the na
tional level. Local agreements are never signed, though amplification and sup
plementation of an agreement already signed may come at the local level.
There have been very few strikes since the war and this has affected the
nature of collective bargaining. Strikes have been few because union leaders
have had a feeling of social responsibility in regard to reconstruction, because
they have emphasized legislation over immediate economic gains, and because
the unions have been relatively weak financially and organizationally. Long
periods of negotiation and frequent acceptance of a pattern settlement are two
common results of the virtual absence of a strike threat. Conciliation and ar
bitration have also served as important substitutes for strikes. This willingness
of the German unions to wait for the achievement of long-run goals and their
reluctance to press for immediate gains appears to have hurt their popularity
among workers.
It is at the plant level that such issues as employers’ rights of discipline,
discharge, etc., the modification of wage agreements, and contract administra
tion have been handled. The character of the bargaining relationship here de
pends on whether the employer is strict or liberal in employee relations.
Master agreements commonly set minimum terms of employment and subsequent
variations at the plant level are all to the advantage of the employee.
Bargaining, in recent years, at least, has been annual with most contracts
expiring in the fall. The metalworkers have generally been the first to nego
tiate and their settlement has set a pattern which has been widely followed
elsewhere. This situation has been characteristic of the years since 1955,
w’hich have been marked by less restraint and more militancy on the part of
union leaders than previously.
Contracts
Contracts may be inspecific on points of detail or even on whole subjects,
leaving the matter to the “social judgment” of the labor court and avoiding
taking the responsibility on the negotiating parties.
Contracts are reached by a union and an employers’ association, usually in one
industry in a specific region. They do not automatically extend to nonmembers
of the signing organizations, but may be extended by government decree if re
quested by one of the parties and found in the “public interest” by the Ministry
of Labor (if they already apply to employers with more than 50 percent of
the employees in the industry and area).
Since contracts are so wide in their coverage, they must be broad enough to
cover all employers, whether direct parties to the agreement or not; they are
frequently at a minimum level (or else it might be possible for nonmembers of
the employers’ association to block the extension of the contract). The more
specific terms of the agreement are filled in by bargaining between the individual
employers and the works councils.
Collective bargaining and disputes legislation
Tripartite labor courts exist in much the same form in which they were estab
lished in 1926. They are open to all workers and employers, whether affiliated
or not, and judge only disputes arising from the interpretation of a contract
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For arbitrating contract negotiations (which is contingent upon the request of
the parties concerned) many of the same people who sit on the labor courts are
appointed to arbitration boards.
In addition to the labor courts, there are conciliation offices in each state
which can be used by negotiators. They are of little practical importance,
though, because there are few of them and almost every case they handle is
eventually referred to arbitration.
The law on extension of contracts (as outlined above) makes it possible for
a minority of employers to negotiate for all employers and also enhances the
importance of employers’ associations. Since it does not require unions to have
a membership of over 50 percent of the workers, it becomes to the unions’
interest to have a strong employers’ association.
The works councils were first established after World War I and are presently
governed by the Works Constitution Act of 1952, which requires a council in
all plants employing more than 20 persons. The works councils negotiate sup
plements to master agreements and handle grievances, generally performing the
functions of an American local union.
The Codetermination Law of 1951 gave a legal base to a relationship which
had sprung up in the steel industry immediately after the war and extended the
relationship to mining. It gave labor representatives (chosen by the works
councils and the unions) equal representation with representatives of stock
holders on the boards of supervision. The results of this innovation have ap
parently not been so striking as the unions hoped and the employers feared;
labor managers have usually taken a point of view close to that of the other
managers.
Many conditions, such as terms of dismissal, holiday pay, payment of educa
tional grants to apprentices, etc., are also set by law.
Government wage policy
Government policy since the war has generally favored slow wage increases
(or none at all). The facts that the employers’ associations have had greater
power than the unions and that they are especially anxious to hold the line
on wages have apparently made the most effective Government policy one of
nonintervention.
Price control
When the Allies took over Germany, the Preisstop of 1936 was still ostensibly
in effect, though the money economy had virtually broken down. This condition
continued up to the currency reform of June 1948, when as many of the direct
controls as possible were scrapped, including most of the price controls.
Monopoly regulation
In 1947 the occupying authorities all instituted strong decartelization laWs
designed to combat price fixing, market control arrangements, and similar
restrictive practices. Separate laws breaking up I. G. Farben and firms in the
coal and steel industries were also instituted. As an independent nation,
Germany has undergone a long battle over monopoly legislation which finally
ended in a law effective at the beginning of 1958. The new law is based on
the principle of abuse of economic power and sets up a cartel authority with
powers to act against such abuses. It exempts cartels formed to counteract a
structural crisis resulting from a permanent shift in demand, rationalization
agreements, etc., and those found to be necessary in the light of the economic
situation and the public interest (presumably in a depression). The vigor of
enforcement and the nature of court interpretation of the law are yet to be
seen.
Profits taxes and dividend limitations
In the early days of recovery, many special tax reliefs and depreciation al
lowances were used to provide a high level of investment at a time when the
capital market was nonexistent and personal savings were nil. Throughout
the postwar period the tax structure has strongly favored investment over
consumption. Tax policy has been important in stimulating investment, es
pecially a wide variety of accelerated depreciation schemes (though in 1968 it
was decided that reliance on internal financing was excessive and some of the
depreciation rates were retarded). A liberal dividend policy is encouraged
(so as to stimulate external financing) by taxing distributed profits at 15 per
cent and undistributed profits at 30 percent. This has led, in recent months,
to the development of an active capital market, the lack of which has long been
a problem.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
Nationalization
The state owns considerable industrial and commercial facilities, particularly
in the coal, steel, aluminum, power, and shipbuilding industries, and in certain
types of blanks. In 1954 the Federal Government owned 8 percent of the
nominal capital of all joint stock companies. The present administration has
announced itself to be opposed to nationalization and has made no attempt to
expand nationalized industry (though it has participated in transportation
projects). It has made some efforts to dispose of nationalized undertakings,
but little has been done in this field. In 1954, some 2.5 million persons were
employed in Government administration and in industrial and commercial un
dertakings without legal personality (out of 17.6 million employed in Germany
and West Berlin) ; in addition, 241,000 persons were employed in private com
panies in which public authorities had an interest.
IT A L Y
Unions
There are four important confederations in Italy. In order of size they are
the Communist-dominated Italian General Confederation of Labor (CGIL).
the predominantly Catholic Italian Confederation of Workers’ Trade Unions
(CISL), the mainly Social Democratic Italian Labor Union (UIL), and the
neo-Fascist Italian Confederation of National Workers’ Trade Unions (CISNAL).
Membership figures are highly uncertain, but estimates are: CGIL, 3.5 million;
CISL, 1.75 million; UIL, 470,000; and CISNAL, 80,000. It seems certain that
less than half of the working population is organized. There are also various
small federations and independent unions.
Though the four federations are mutually hostile, the CISL and UIL fre
quently combine against the CGIL; religious and political differences, however,
prevent their merger. In recent years the non-Communist unions have been
gaining membership at the expense of the CGIL.
As is the case in France, union dues are very small and, even so, are paid
very irregularly. In view of the competition among the confederations, “mem
bers” are kept on the rolls even though they do not pay dues.
Each confederation is made up of national industrial unions, which in turn
consist of local associations uniting all the members of the federation (i.e.,
national union) in a given locality. There are no true local unions. Ties
between the local associations and the federations are rather loose, the latter
having too few resources to render much aid to their affiliates.
Employers' associations
There are three main confederations of employers which have a national
character: (1) the General Confederation of Italian Industry (Confindustria)
with 103-member federations, (2) the General Confederation of Italian Agricul
ture with 6, and (3) the Italian General Confederation of Commerce with 59.
Members of the industrial confederation hire some 2.5 million persons; the
agricultural confederation has 1.8 million and the commercial confederation
about 300,000.
Collective bargaining
Collective bargaining is conducted at the national level in the great majority
of cases. It is in the hands of either the confederations of employers and
workers or the industrywide organizations (federations in Italian terminology).
Such agreements as are concluded by these groups tend to reflect the cost con
ditions of the least efficient producer within the given category (the employers’
associations have always successfully maintained their insistance that no one
should be forced out of the market by the agreement). It is assumed by the
unions that the terms of the contract are minimal and that upward adjustments
will be made at the plant level, but the weakness of the unions at the lower
levels makes this unlikely to occur). Commonly, in fact, the local association
finds itself unable to cope with mangements which refuse to honor the national
agreement at all.
Up to very recently, the employers’ association bargained for publically
owned firms as well as private ones, but this practice has been ended.
Contracts
Contracts signed at the national level are both very broad and minimal in
their terms. Because of their inability to enforce national contracts at the
local level, the unions have sought legislation to make collective agreements
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
legally binding and applicable to all workers in the category, but no such law
has been passed as yet. Contracts are typically of long or indefinite duration.
Cost-of-living bonuses are regulated by an agreement among all the confedera
tions which provides an adjustment every 2 months. The amount of the adjust
ment differs according to formula among provinces.
Collective bargaining and disputes legislation
Organizations of employers and workers do not seem to be granted auy legal
position at all, though a “complete trade union law” was said to be under
consideration in 1957. Likewise, no legal framework exists which gives the
collective agreement legal status or makes it binding in any way.
Government wage policy
Government mediation in disputes over national agreements is recognized.
Mediation also occurs occasionally at the local level. The Government has
made indirect attempts to secure better adherence to contracts, especially by
small firms. One such attempt has been the insertion of special clauses into
public contracts stipulating that contracting firms must observe the minimum
wages and conditions established by collective bargaining. Another is that
Government employment offices are instructed to refer jobseekers only to firms
which observe contractual conditions. There is no minimum wage legislation.
The Government has proclaimed itself to be interested in wage restraint but
does not seem to have done anything to further this goal. Actually, the problem
has not been too serious because the persistence of unemployment since the war
has kept serious wage pressures from developing.
Recently the Government took away from the General Confederation of Italian
Industry the right to bargain for the public sector. Government wage policy
since that time has generally been to grant its employees benefits comparable
to those given in the private sector.
Price control
Considerable price control was employed immediately after the war. As in
other countries, it was later eased considerably, but a substantial degree of
control seems to remain even now.
Import and exchange controls
Immediately after the war, imports were controlled very tightly. In October
1947 a new anti-inflationary program was inaugurated: credit expansion was
severely limited while import licenses were freely granted for many essential
goods to importers able to supply the necessary foreign exchange from their
own hitherto undeclared reserves. This policy proved to be remarkably suc
cessful in curbing inflation.
Imports and payments have been steadily liberalized ever since the war. By
late 1950, the 70-percent level of import liberalization had been reached. At
present the lira is freely convertible into a wide range of currencies. Trade
and payments with the dollar area have been much more slowly liberalized,
and in 1956 only 40 percent of dollar imports had been freed from the quota
system.
For a short while after the war, certain key exports were channeled through
State trading organizations so as to maximize their effectiveness in earningforeign exchange.
Monopoly regulation
Monopoly and cartelization have a long history of approval and even favor
in Italy; prior to the Fascist regime they were often favored to better Italy’s
international competitive position and under the Fascists they were encouraged
as an instrument of Government control. At present they are considered de
sirable in some circumstances and monopoly is not regulated per se. Voluntary
cartels are legal, though the Government can, under certain conditions, either
abolish them or make them compulsory; they are not supposed to be permit ted
where their pricing policies injure consumers. New legislation has been con
sidered for removing the provision for compulsory cartels and moving the
responsibility for administering public control out of the hands of the Gov
ernment and into those of the courts.
Price supports and subsidies
Budget expenditures for price supports and subsidies are considerable. In
efficient Government-owned firms which keep independent books are often
compensated for their losses. The Government hopes that structural changes
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
V
75
connected with its development plan will make these payments less necessary
in the future.
Profits taxes and dividend limitations
Tax policy has been investment-stimulating, particularly in regard to foreign
investment and in selected areas of the economy. The main devices in this
program at present are: (1) a 50 percent concession on the transactions tax on
materials and machinery used for the installation of new plant or the enlarge
ment or improvement of present facilities, (2) income tax exemptions for 10
years on income from newly established industrial plants, (3) income tax
exemptions for increases in income resulting from the enlargement or improve
ment of industrial plants, and (4) a concession of up to 50 percent from the
income tax for profits committed to investment in southern Italy. Investmentfavoring exemptions have also been granted on customs duties, registry taxes,
mortgage taxes, and regional taxes. Tax policy has stimulated investment in
directly, also; the great revenue needs of the Government after the war led to
heavy reliance on easily collected indirect taxes, thus discouraging consumption.
Nationalization
Direct state ownership is fairly limited, including the usual services, all
public utilities, and state monopolies in salt, quinine, tobacco, and lotteries.
Some 1.2 million persons work for public services and monopolies (these total
almost 9 percent of total employment in the economy). Indirect Government
influence, stock ownership, and control, however, cover a much broader field.
This influence is exercised through the Institute for Industrial Reconstruction
(IR I), which goes back to 1933 and now operates on an autonomous investment
trust. The IRI dominates heavy industry and in effect gives the Government
a very large measure of control.
NETHERLANDS
Unions
There are three major trade union federations, split along ideological and
denominational lines: (1) the socialist and nondenominational Netherlands
Federation of Trade Unions (NVV), (2) the Catholic Workers Movement
(KAB), and (3) the Protestant Labor Federation (CNY). There is also the
Communist Ednheidsvakcentrale (EYC) which is not recognized by the Gov
ernment, the employers’ associations, or the other labor federations and thus
takes no part in collective bargaining. The membership of the first three feder
ations in 1956 were 500,000, 350,000, and 200,000 respectively; no membership
figures exist for the Communist organization. Total union membership was in
1953 about 1.1 million. The three federations cut indiscriminately across in
dustry lines, being tied together by religious and social principles rather than
common economic interests.
Employers’ associations
As is true of the unions, there are three employers’ associations, split along
ideological and denominational lines. There is not, though, so much division
among employers as among workers; whereas the combined membership of the
denominational labor federations is larger than that of the NVV, the two
denominational employers’ associations are very small. The liberal and
nondenominational Central Employers’ Association (CSWV) represents about
80 percent of all employers. Various small miscellaneous employers’ associa
tions also exist. All the major and minor associations are represented in the
Council of Employers’ Organizations, which provides representation of the
employers on the Labor Federation.
Collective bargaining
During the war, employer and union groups in exile in London and under
ground negotiated with each other and decided to form a bipartite body, the
Labor Foundation, after occupation ended. This body was actually formed in
1945 and collective bargaining has centered around it ever since. Bargaining
is thus highly centralized; it is also closely connected with the Government.
The Board of Government Conciliators (see below) possesses sweeping powers
to decide labor matters. In practice, however, it does nothing which does not
meet with the approval of the Labor Foundation, whose opinions, in turn, have
been reached by bargaining and compromise of the interests of the main eco
nomic groups at the national level. National bargaining can also take place
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
independent of the board, via direct relations between the blocs which make up
the Labor Foundation and the top levels of Government and the political parties.
The system worked smoothly up to 1954, when some employers, feeling that
emergency conditions were over, began to seek greater freedom. Union opposi
tion to the system grew in the 1954 and 1955 prosperity as the share of wages
in national income suffered. To preserve wage control, the Government bought
union acquiescence by restoring direct controls on prices.
Strikes have been extremely rare since the war. This has been largely a result
of the centralized collective bargaining system, but also reflects the longstanding
policy of the Catholic and Protestant unions of striking only in extreme circum
stances.
Contracts
Contracts are binding only upon approval by the Board of Government Con
ciliators (which may, however, disapprove or alter them). Cost-of-living adjust
ments are standard and come semiannually. At the end of 1954, there were in
force 469 collective agreements, 71 of which applied throughout the country.
Collective bargaining and disputes legislation
The basic law regulating collective bargaining is the extraordinary decree on
labor relations of 1945 (intended as an emergency measure, it has remained in
effect). The law frames a scheme for comprehensive wage control. It set up
a so-called Board of Government Conciliators, which is really a wage control
board, with power to (1) establish general rules and principles of wage deter
mination, (2) set specific, wage rates, (3) approve, disapprove, or modify the
terms of collective agreements (which are not valid until the board has approved
them). (4) extend the provisions of contracts to parties outside the bargaining
unit, (5) grant specific exceptions to established wage rates, and (6) obtain
compliance with its regulations via court action. Its powers are limited (1) by
the fact that it is responsible to the Minister of Social Affairs, who is in turn
responsible to Parliament and (2) by the requirement that it obtain the advice
and opinion of the Labor Foundation “concerning matters of general importance”
(as seen above, this is not treated as a mere formality, but taken very seriously).
Government wage policy
In 1950 the Government established a Social and Economic Council to advise
it on policy. The council is composed of persons nominated by the unions, the
employers* associations, and the Government. It is intended to supplement
rather than supersede the work of the Labor Foundation.
The main goals of the comprehensive national wage policy have been (1) the
maintenance of economic stability through control of the general wage level
and (2) the establishment of an equitable and satisfactory wage structure. The
idea of achieving these goals through the market was deliberately abandoned.
In regard to the latter objective, a formula was accepted whereby semiskilled
workers’ wages were fixed at 10 percent and skilled workers’ wages 20 percent
above the level for unskilled workers. To allow for differences in the cost of
living, the country was divided into five zones and wages were graded acordingly. A minimum wage for unskilled labor was set at a level corresponding
to reasonable subsistence.
Up to 1950, the wage structure was simply adjusted upward at a rate equal to
the rise in the cost of living. With the Korean inflation, the unions agreed to
a cut in real wages and this was done by raising wages only 5 percent while
prices rose 10 percent. Since 1954 the general improvement of economic condi
tions has led to the sanctioning of wage increases in excess of the rise of living
costs.
Wage determination has in recent years remained under close central control.
The Government has, at various times, been instrumental in instituting economywide changes in specific fringe benefits, such as vacation pay, retirement benefits,
and bonuses.
Price control
A system of price control exists at present, having been forced on the Govern
ment in 1954 as a prerequisite to wage stabilization. The current price control
consists of an agreement that prices will not be raised without Government
approval. This control is entirely distinct from that which was in effect after
the war, which was progressively abandoned with the recovery of output in the
late forties: some relaxation preceded the currency devaluation of September
1949, prices were frozen for a short period afterward, and then further relaxa
tion followed.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
77
Monopoly regulation
There is fairly effective trust control legislation and the Government has acted
rather frequently to halt cartel abuses. In the 1956-58 period there were 46
such proceedings, 33 of which resulted in the abolition or adjustment of the
arrangements. The threat of inflation has been especially instrumental in
moving the Government to vigorous action, particularly against price cartels.
Price supports and subsidies
The volume of subsidies in the economy is substantial. The most important
of these go to agricultural producers (these were increased sharply in 1957 to
raise farm .incomes and again in 1958 to offset falling export prices). Also
important are rent and building subsidies. There are also consumer subsidies,
which are relatively small in amount.
Profits taxation and dividend, limitations
Starting in 1954, the Government was able to adopt the strong policy of favor
ing investment which it had long wanted to use (previously inflationary pressure
had stood in the way). The aims of the new program were to encourage
modernization and to provide for the rapidly growing population. The company
tax was reduced and tax concessions were made with regard to depreciation
and losses incurred in new industrial ventures. Limitations on dividends were
removed in 1954.
At present the policy of limiting consumption and favor,ing investment still
applies. The personal income tax is steeply progressive in the low and middle
ranges, but has a peak rate of 64 percent; there is a 5-18 percent turnover tax on
all goods except textiles and exports. The corporate income tax has a top
marginal rate of 47 percent but its impact .is softened by (1) accelerated de
preciation on one-third the purchase price of equipment, and (2) deductions
from taxable profits over the 1959-62 period for investment expenditures.
Nationalization
Despite the wide scope of Government influence in the economy, tlie area of
public ownership is not great. The Government confines itself to the conven
tional services and public utilities, except that it owns about 80 percent of the coal
mining industry and has a share in a number of metal and armament enterprises.
Employment in the Government sector in 1950 was 269,000.
NORWAY
Unions
The main federation is the Norwegian Federation of Labor (LO), which
had, at the end of 1956, a membership of over 550,000 in its affiliated unions.
Outside the LO are a number of independent unions with total membership of
about 80,000, almost entirely in the white-collar field (though LO has some
125,000 white-collar members).
The LO can claim the allegiance of only about one-third of the labor force,
but it is very strongly entrenched in some areas: approximately 90 percent mem
bership in shipping, mining, and manufacturing; about 50 percent in building
and construction.
The direct members of the LO are the national unions, of which there are at
present 44 in the federation. Approximately one-half of the LO membership is
made up of the large industrial unions in the iron and metal working, building
and municipal, shipping, commercial and office, chemical, and general workers
groups. The 11 top unions in the LO have 75 percent of the membership.
Organizationally, the union movement is made up of national unions, which
conduct negotiations and sign contracts, local unions, which deal with specific
plant matters (though it is not uncommon for national unions to intervene
here), and local committees, which comprise all unions in a given area and are
mainly of significance outside the collective bargaining field.
Since the war the role of the federation in conducting the industry-wide nego
tiations has been increasingly great. Part of its influence stems from its control
of strike funds, though a larger proportion of strike benefits are paid by the
national. More basically, the LO is closely lied to the Labor Party, which has
been in power continuously since the end of occupation, and this leads the LO
to try to interject a broad national policy into all aspects of labor relations
(though it is not always able to enlist this support of its member organizations
in this). In cases where several unions are involved in a negotiation, the LO
invariably takes charge of the negotiations, prohibiting individual settlements.
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
It may also order sympathy strikes to support disputes where single unions are
involved.
Employers’ associations
The main group representing employers is the Norwegian Employers’ Confed
eration (NAF). Compared with the LO, the NAF is less important in terms of
number of persons employed by member firms. However, despite the fact that
there are several large employers’ associations in particular industries (most
notably shipping) which remain outside the NAF, its practical influence on
employer policy exceeds its numerical significance. Employment in firms within
the NAF is over 200,000; in firms in associations outside the NAF it is more
than 100,000.
Like the LO, the organization of the NAF is highly centralized. All contracts
signed by members must conform with general policies of the NAF. No indi
vidual employer may negotiate outside the bounds of his industrial association.
Collectwe bargaining
As already noted, one of the prime characteristics of labor-management rela
tions is their centralization; general policies of the NAF and LO enter heavily
into all negotiations. The actual bargaining, however, is almost all conducted
at the industry level between the national unions and the industrial associations
of employers; they have individual positions independent of or at variance with
those of the federations, and it is possible to exaggerate the importance of the
latter.
Most agreements run for a period of 2 years and expire within a few months
of each other. Policy for coming rounds of negotiations is prepared well in
advance; the LO, for instance, meets in odd years to formulate a set of general
demands which, while not binding on its affiliates, form the real basis for nego
tiations. National unions must obtain the permission of the LO prior to asking
the industrial associations to open negotiations and the LO sometimes takes this
opportunity to achieve the moderation of demands of the union which it con
siders excessive. Not infrequently the federation insists that uniform demands
on certain subjects be made by all its constitutent unions. Since they are not in
general the one serving the demands, the employers make less of a formal
preparation for negotiations.
While bargaining starts as an interchange between representatives of the
unions and employers’ associations, often outside parties have to be brought
in before a final settlement is reached. If the positions of the initiating parties
are relatively close together, the intervention of LO and NAF officials is usually
enough to settle the issue. Where the positions are farther apart, Government
mediation is often used.
The issues involved in collection bargaining tend to be relatively narrow
because standards in regard to many fringe items are determined by legislation.
Contracts
Legally the collective agreement applies only to the groups which negotiate
it and their members. Unorganized workers are not covered, but legal decisions
have recognized their right to equal wages and wrorking conditions. If a situ
ation exists where unorganized workers are underpaid, the union with whose
members they are competing has the right (almost always exercised) of suing;
the unorganized workers themselves have no such right of appeal.
The total number of contracts is estimated at 100,000. The great importance
of national agreements is illustrated by the facts that fewer than 300 contracts
cover almost 400,000 LO members and 42 of these cover almost 300,000 workers.
To a great extent, the terms of all agreements in the economy echo those of
these 40 to 50 key agreements. The most important single agreement is that of
the iron and metal workers, which is influential in setting patterns and covers
38,000 workers.
In regard to wages, the national agreements often specify minimum scales,
leaving the actual wage to local determination, though specific rates or piecerate schedules are sometimes specified for the entire industry. Cost-of-living
clauses are generally included.
The basic agreement between the NAF and LO was first drawn up in 1935
and has been amended several times since; it forms the first section of each
contract signed by affiliates of the two federations. Its provisions concern
mutual recognition, no strike during the term of the agreement, the role of the
shop steward, and other general topics.
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79
Collective ’bargaining and disputes legislation
The Labor Disputes Act has been the piece of legislation regulating industrial
disputes since 1915. It makes the common distinction between disputes of
“right” and disputes of “ interest.” Disputes of right cannot be settled by
strike, but must be referred to labor courts whose decisions are final. Disputes
of interest are submitted to Government mediation but may become the basis
for a strike if not settled.
Contracts are interpreted as strictly binding on the organizations which con
clude them and they must be fulfilled, even by parties who leave the signing
organization during the term of the contract.
The importance of mediation in settling disputes of interest is illustrated by
the fact that in the first half of 1956 contracts involving 79,000 workers were
signed without the use of mediation while 91,000 had their disputes settled by
mediation.
Immediately after the war, wage boards were established to form a system
of compulsory arbitration as an alternative to strikes as an ultimate means of
settling disputes over contracts. This mechanism was gradually altered to per
mit freer expression of conflict and finally abandoned in 1952. Since that time,
compulsory arbitration has been used only in a small number of cases.
Government wage policy
As has been noted, close informal ties exist between the LO and the labor
policy. This relationship molds LO policies along lines desirable to the labor
government and correspondingly reduces the need for formal Government inter
vention in the form of wage policy. The prime goal of postwar policy has been
stabilization and this has been implemented mainly by calls for wage restraint,
which have been mostly supported by the LO (though it has not always been
able to restrain its member organizations or to prevent “wage drift” ).
Prior to 1952 the wage boards were used as the means of restraining wage
increases. No direct controls were employed (except for a brief period in 1947),
but, even at this time, the responsibility for control was left in the hands of the
central organizations of workers and employers.
Price control
Extensive controls over prices and rents existed throughout the late forties
and into the fifties. In 1954 a law came into effect which permitted the Gov
ernment to regulate prices and competitive practices whenever it considered
this to be in the public interest. With the introduction of this possibility of
general price control, many of the specific controls were removed, accompanied
by marked upward price movements. Since that time prices, especially those
like food prices which figure prominently in the cost of living, have been
generally controlled, with their upward movement coordinated with that of
wages. Essentially, the entire price-wage level is determined by bargaining
among the major economic interest groups. Most specific prices, however,
are free.
Import and exchange controls
Because of the extreme openness of the economy, stringent import licensing
and exchange control had to be employed in the early postwar years, both to
limit the volume of imports and to control their composition. Subsequent im
provements have brought forth a gradual slackening of these controls; at present
moderate import controls exist.
Price supports and subsidies
Subsidies were a key part of the control system in the early postwar years.
Food in particular was subsidized so as to prevent rises in the cost-of-living
index, which would have become the basis for wage demands. Beginning in
1950 the amounts of these subsidies were reduced. Once again in 1953, how
ever, an increase in the subsidy on milk was used as an anti-inflationary meas
ure; a similar step was taken in 1955. Today subsidies remain fairly extensive,
especially in agriculture.
Investment controls
One of the main goals of policy has been to stimulate investment and economic
growth; in the full employment postwar economy of Norway, however, it has
repeatedly been necessary to limit investment to combat inflation. Compre
hensive control over building through a system of building permits and (in the
early years) allocation of construction materials has been an important part of
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
the anti-inflationary program; at the same time, though, the Government has
been making loans of considerable magnitude to finance housing construction.
In the years of the fifties building controls have gradually lessened in their
importance as an instrument of policy.
Profits taxation and dividend limitation,
Corporate taxation has been tailored mainly to the desire for a high level of
investment in recent years. Depreciation policy has been used as encourage
ment here, with its impact being reduced when necessary for countercyclical
purposes. The Norwegian Price Act of 1953 empowers the Government to
regulate profit levels by industry to correspond with the desired level of in
vestment in the industry. In part this is done through selective price control.
Another device is the limitation of dividend payments to 6 percent on capital
holdings, except in special cases where exemption is granted. The limitation
is intended to encourage internal finance. In the cases where there is a need
to attract with outside funds, the dividend limitation is waived; in the fiscal year
1955-56 firms not subject to the limitation paid an average dividend of 11 percent.
SWEDEN
Unions
There are two union federations: the Confederation of Swedish Trade Unions
(LO), composed mainly of manual laborers, and the Central Organization of
Salaried Employees (TCO). In 1950, the LO had 1.3 million members and the
TCO had 272,000. Sixty-five percent of the 2.4 million labor force has been
organized, including over 80 percent of the industrial manual laborers.
The LO is made up of 44 national unions, most of which are organized on
an industrial basis, and 328 local central councils. It is a stronger organization
than its formal powers over its affiliates would seem to indicate. Member
unions may not involve more than 3 percent of their membership in a strike with
out LO approval, but the LO cannot expel a member union for an unauthorized
strike (it may, however, cut off strike benefits). The LO supervises the policies
of affiliated unions and attempts to harmonize them and encourage “solidarity,”
a prime union goal. All member unions of the LO have absolute power vested in
their executive councils to call strikes and sign agreements and membership
votes on these matters are advisory only. A close relationship exists between
the LO and the Social Democratic Party, though feeling for the party within the
LO is not unanimous (as witnessed by the failure of a resolution that all local
unions must affiliate with the party).
The TCO is less centralized than the LO and its members bargain independ
ently. Strike funds are generally collected at the national union rather than
the federation level. The TOO is politically neutral, though some of its leading
figures are prominent Social Democrats. In 1949 36 percent of its membership
was employed in the public sector. It frequently cooperates with the LO, often
holding joint conferences with it and the Government. Organization of salaried
employees has been greatly stimulated in recent years by a desire to maintain
traditional differentials over manual workers.
Employers' associations
The Swedish Employers’ Association (SAF) is composed of 43 associations
of employers organized along industry or handicraft lines. At the end of
1954 the firms affiliated with the SAF employed 597,000 wage earners and
155,600 salaried employees. Some 30 associations (centered in shipping, hotels,
and restaurants, commerce, agriculture, and forestry), employing 350,000 persons,
remain outside the SAF, but generally follow its lead.
The industrial associations maintain strict discipline among member firms,
requiring all to act together in bargaining and strikes. The SAF pays strike
benefits to member firms on the basis of employment. No association may con
clude an agreement without SAF approval and fines may be levied if this
provision is violated (though it has never been necessary to do so because the
influence of the SAF is brought to bear during bargaining and the end result
usually accords with its views). The great power centralized in the hands of the
SAF has been one reason for the centralized development of the LO.
Collective bargaining
The important negotiations take place on an industry basis, with the LO and
the SAF representatives present to aid their respective member organizations in
obtaining certain standard provisions. The various industry negotiations take
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
81
place more or less simultaneously and once the first Important agreement is
signed (usually that of the engineering industry) the pattern is set and other
contracts are concluded in rapid succession. TJse is often made of the Govern
ment mediation service, but arbitration is never used in negotiations. The
negotiations of the salaried employees (in both private and public employment)
generally follow those of the LO and usually take place at the firm level. Agri
cultural prices are then adusted by the Government in the light of the recent
wage increases. Collective bargaining thus encompasses nearly the whole of
the economy.
Solidarity in both the LO and SAF has expressed itself in attempts to hold
back wage increases in the most prosperous firms and industries (the LO wants to
do this to benefit the most poorly paid workers in the economy and the SAF
wants to minimize wage pressures). Since the war, this policy has resulted in
substantial “wage drift” above contractual rates.
Both the LO and the SAF are acutely conscious of the effects of their actions on
the economy (because of the high degree of economic literacy, the smallness of
the country, etc.). LO wage demands have been greatly restrained by its close
relationship with the Social Democratic Party, which has been in power, either
alone or as the dominant member of a coalition, continuously since 1932 ( though
this has not prevented wage increases considerably larger than those recom
mended by the Government from being negotiated at times).
The LO and SAF sometimes sign basic agreements themselves, usually on
particular items. Such an occurrence took place in 1956, when the two, along
with the TCO, agreed to a 4-percent wage increase to be effective virtually
throughout the economy. A 1938 basic agreement established a labor market
board, a bipartite group which arbitrates disputes over individual layoffs and
dismissals. A basic agreement in 1946 established enterprise councils, which
provide employee representation in immediate plant matters. In 1957, a 2-year
wage agreement was reached between the LO and the SAF which led to in
creased wage standardization as the LO decreased variations among the policies
of its constituent unions.
Local unions handle grievances, discuss plant problems via the enterprise
council, negotiate on piece rates (which are extremely prevalent), and under
take educational and local political activities.
Because many items which are included in collective bargaining in other
countries are regulated by law in Sweden, bargaining there has tended to
center strongly on the issue of wages.
Contracts
Though the majority of agreements are still local in character, over 70 percent
of LO members are covered by the relatively small number of national contracts,
which are amplified at the local level.
Union security clauses are forbidden by the rules of the SAF and therefore
do not appear in any agreements signed by its affiliates. They have been negoti
ated in some cases by firms and associations not members of the SAF. The
issue has not been a great point of controversy because of the SAF’s unquestion
ing recognition of the labor movement.
Contracts automatically apply to all workers, organized or not, employed by
the firm that negotiates them.
Practically all national agreements are of 1 year’s duration and are timed so
as to expire simultaneously. Cost-of-living clauses have not been included in
contracts because the annual and centralized nature of bargaining has assured
that there will be compensation for increased living costs.
Collective bargaining and disputes legislation
Disputes legislation distinguishes between “conflicts of interests” in discussing
or renewing contracts and “disputes over rights” in interpreting existing agree
ments. In the former case, a work stoppage must be preceded by 7 days by
notice given both to the other party and to the Government conciliation service;
conciliation may also be had by agreement of the parties. Disputes over rights
may not legally lead to a work stoppage, but must, if not settled by direct negoti
ation between the parties (and, if necessary, their central associations), be re
ferred to a labor court, which can give a compulsory and final decision, as well
as award damages.
There are laws on hours of work, vacations, sickness insurance, accident pre
vention, etc.; at least their minimum standards must be included in all contracts.
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Government wage policy
The nature of collective bargaining institutions in Sweden made it unneces
sary for the Government to adopt wage regulation by law, either during World
War II or after. During the war, wage increases were voluntarily negotiated
in relation to rises in living costs and compensated workers for only a fraction
of the rise. Strong upward adjustments took place in 1946 and 1947 in union
attempts to recover the loss in real wages. Then, 1948-50, a fairly effective
wage freeze was maintained; this was followed by a “wage explosion” of in
creases in 1951. The LO called for more restraint in 1953 and 1954 and got it,
but at the price of another explosion in 1955. Through all of this the func
tions of Government wage policy were exercised mainly by the L O ; when that
policy failed, it was mainly a matter of the national unions and their members
oppossing both the LO and the Government.
Government intervention into wage determination also take place through
mediation of negotiations (a common occurrence), one of the purposes of which
is to shape individual agreements along nationally desirable lines. This is less
important in years when a basic agreement is signed.
There is no legal minimum wage.
Employment policy
Because of the considerable labor shortages since the war, various measures
have been taken to aid the movement of workers to labor scarcity areas. Gov
ernment grants have been given for the traveling and moving expenses of workers.
Training schemes have been developed for scarcity occupations in the more
important industries. The housing shortage has, howTever, done much to frustrate
efforts to stimulate labor mobility.
Price control
Price control has been the rule since 1942, with the price control board estab
lishing maximum prices for all major commodities. Prices and wages are con
trolled simultaneously and “stopped” or raised together (agricultural prices in
particular being kept closely alined with wages). Far from abolishing price con
trol after the war, the system was actually strengthened in 1946 as world prices
rose.
Import and exchange controls
When world raw materials prices became inflated in 1950-51 export duties
were placed on some grades of timber, pulp, and paper. This policy was intended
to remove some of the inflationary effect of the immense profits in the industry
and also increase supplies and reduce prices of forestry products internally.
Strict controls over both imports and foreign exchange were maintained in
the early postwar years, but later imports were liberalized considerably in
advance of OEEC-prescribed levels. The liberal import policy has aimed at (1)
promoting exports, and (2) reducing internal costs. Dollar trade, however, has
continued to be a problem.
Monopoly regulation
Prior to 1953 the power of the Government to control monopolistic practices
was limited to its ability to investigate and publicize them. In 1946 a law was
passed requiring registration of all restrictive agreements. The public attitude
has been that these practices are not bad of themselves, but only if abused. In
1953 a somewhat stronger law was passed; it prohibits retail price maintenance
and certain kinds of price quotation cartels and also establishes a business
freedom council, which is to investigate and try to remove harmful practices by
negotiation.
Price supports and subsidies
Residential construction has been subsidized throughout the postwar period,
the object being to hold increases in rent to a bare minimum. Agriculture is
also subsidized; this, along with variations in controlled farm prices, has been
used by the Government to maintain farm incomes.
Investment controls
Tax policy has been varied according to the strength of the inflationary pres
sures at work in the economy. It has generally favored investment strongly
(see below) but in times of inflationary crisis has limited it severely. Thus, a
12-percent investment duty was first imposed in 1952, abolished in 1954, rein
troduced in 1955, and eliminated again in 1957.
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
S3
Building controls have been an important part of anti-inflationary policy.
The issuance of building permits (which are required for most types of building
construction) has been varied countercyclically. Control over investment credits
has also been used to control investment.
Profits taxes and dividend limitations
The general framework of profits taxation has been proinvestment. This has
been expressed primarily in special depreciation provisions. In the past, firms
were allowed to write off machinery and equipment at their discretion, as long
as the method of depreciation for tax purposes was the same one used in the
books of the firm. In 1955 this was limited to 30 percent in each of the first 2
years and 20 percent thereafter, but when business activity slackened late in
1957 this provision was liberalized again.
Up to 40 percent of net profits may be allocated to investment equalization
funds; the amount so allocated is deductable from taxable profits. The funds
are placed in a non-interest-bearing account in the Riksbank. They may be
deducted at the rate of 30 percent per year after 5 years, but only with the
consent of the labor market board, which decides whether the investment is
desirable in the light of its productiveness and the employment conditions preva
lent at the time. Use of the funds without permission makes them taxable and
also liable to a lOrpercent penalty tax.
A tax on the excess profits (i.e., more than 40 percent above the 1948-49 level)
of forest owners and all businesses made a brief appearance in 1951. By 19*12
a decline was underway and many exemptions from the tax were granted.
Nationalization
Government policy has not been strongly in favor of nationalization, except in
cases where a monopoly dominates an industry. The Government owns the
transportation and communications facilities, the tobacco and alcohol indus
tries, and 20 percent of the Nation’s forest area. It has some holdings in mines,
steel, sawmills, electric power, and oil, but only 5 percent of the labor force is
Government employed and 95 percent of industrial capacity is privately owned
and controlled.
In 1953, 351,000 persons were in Government administration and another
262,000 were in industrial and commercial undertakings in the public sector.
Together, these accounted for 14.4 percent of the economically active population.
UNITED KINGDOM
Unions
The central organization is the Trades Union Congress (TUC). In October
1955 it contained 183 affiliated bodies (some of which are Federal bodies, in
cluding a number of unions) and had a total paid-up membership of 8.1 million.
Some 13 percent of the total union membership belongs to unions not affiliated
with the TUC, but about a third of these unions are affiliated with bodies which
are in turn affiliated with the TUC. Out of the estimated total civilian employ
ment of 21.7 million in mid-1954, about 43 percent were union members.
Union organization is complex and often overlapping. At the end of 1954,
674 unions existed, 372 of which have fewer than a thousand members. There
has been a trend toward amalgamation during the 20th century, but many of
the old individual craft unions remain. Some have formed multiple-craft
unions and a few have admitted unskilled workers. The giant Transport and
General Workers’ Union and the National Union of General and Municipal
Workers together cast over a quarter of the votes at TUC conventions. Any
group of workers may form a union and over a dozen organizations may be rep
represented in a single firm.
Despite this disorganization, the TUC generally speaks for labor. The legal
powers of the TUC over members are slight. It has, however, considerable
moral weight and has strengthened this through Government participation in
economic affairs. The TUC can only advise member unions on collective bar
gaining and strikes and must support them in the event of a strike or lockout.
Union organization is unevenly spread through the economy, with coal mining,
transportation, and shipping being more than 80 percent organized and services
and distribution about 20 percent. The effect of unions on wage determination,
though, is strong in almost all industries.
While collective bargaining remains the prime function of the labor movement,
its political activity and interest is, of course, great. In 1950, labor was repre
sented on some 60 bodies and committees which advise the Government.
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British unions have neither tidy jurisdictions nod exclusive bargaining rights.
All the unions in a given area affiliate into larger groups, both for bargaining
and other purposes.
jEmployers' associations
Employers are organized along two lines. The respective central organiza
tions are the Federation of British Industries, which deals with commercial
and economic questions, and thet British Employers’ Confederation, which is
involved with labor matters. There are some 1,800 employers’ organizations,
but only 63 of them are represented in the conferederation and are therefore im
portant in collective bargaining. Formally the confederation is organized much
like the TUG and has no real power over its members; its actual role in
collective bargaining is less than that of the TUC and it never takes part in
negotiations or disputes.
Collective bargaining
The pattern of bargaining varies among industries, but generally it is con
ducted on an industrywide basis between the unions in the industry (all
unions having significant membership in the area being represented) and the
employers’ association or public authority. Usually (though not in engineering,
shipbuilding, or most of the poorly organized industries) there is a standing
joint body with a written constitution in which bargaining takes place. Where
there is no standing body, meetings take place at given intervals or at the request
of either party. While bargaining is industrywide in this sense, it is not in the
sense that separate contracts are signed for manual and nonmanual workers
and the pattern of bargaining does not conform to the generally recognized
outlines of an industry. Even where there is a joint body, unions may bargain
separately at times with individual employers on some issues. Also, negotia
tions on such matters as hours and holidays are often conducted on a wider
basis than those on wages.
The bindingness of the industrywide agreement also varies. In some cases
all is determined by the central agreement and in others regional and local
deviations are permitted; in others, only minimum rates are set nationally.
Conciliation and arbitration are often used in disputes, whether over contract
interpretations or negotiations (there is no clear distinction between these in
Britain). First a strong attempt is made to compromise the issue, then concilia
tion, and finally arbitration are used often in an attempt to reach a settlement
according to previously agreed-upon rules. Local disputes are almost always
handled by a prearranged procedure with the agreement that there will be no
work stoppage until the procedure has been exhausted; arbitration is used
much less here than in national negotiations.
The indefinite duration of contracts reduces the importance of “rounds” of
wrage increases and pattern bargains. The Amalgamated Engineering Union,
because of its size, has been the nearest thing to a wage leader since the war
(also because it is widely dispersed geographically and has been relatively
prosperous). The effects of its bargains on other negotiations are limited,
though.
Contracts
The great majority of contracts do not run for any fixed term, but remain in
force until one party gives a termination notice. Contracts are signed at works,
district or local, and national levels. Their coverage varies widely occupa
tionally, as well, and may relate to a single craft, several crafts, or all manual
workers in an industry. The contents of contracts also vary considerably.
Many unwritten practices are considered subject to collective bargaining as
well as subjects covered in written agreements. Wages and terms of employ
ment are the most important and sometimes the only subjects of written con
tracts, while the physical conditions of labor are more often regulated by law
than by contract. Union security clauses are seldom written into agreements,
but unwritten agreement on the subject is common; the same is true of the
seniority rule in hiring and layoffs.
Collective bargaining and disputes legislation
During the war all employers were required to meet rates and conditions
bargained or arbitrated in their industries and could be sued for failing to do so.
A national arbitration tribunal settled all disputes that could not be solved
otherwise and strikes were prohibited. In 1951 this law was succeeded by one
setting up an industrial disputes tribunal. Under this law, unsettled disputes
SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
85
may be conciliated by the Minister of Labor and National Service and the parties
urged to use voluntary arbitration. When all else fails, he can refer the case
to the tribunal, whose award becomes a compulsory part of the contract.
Strikes are no longer forbidden.
Government wage policy
Minimum wages have been set since 1909 by wage councils in particular
industries. These tend to blend aspects of collective bargaining into their
activities, especially in industries where other forms of collective bargaining
are weak. The boards are bipartite. They are abolished and succeeded by
true collective bargaining whenever a majority of workers and employers in an
industry decide that statutory regulation is no longer necessary.
Agricultural wages are set by tripartite agricultural wages boards. They
are linked closely with prices of agricultural commodities, which are supported
by the Government on a cost-plus basis.
Where collective bargaining does not cover an entire industry, the Govern
ment has often inserted “fair wage” clauses in purchase contracts. These re
quire all Government contractors to meet bargained rates in their industries.
In nationalized industry, firms are managed by quasi-autonomous public cor
porations (which are ultimately responsible to Parliament). Collective bargain
ing had in most cases been long established here and nationalization has made
little difference. Its main effects have been a tendency toward centralized bar
gaining and some elimination of interplant wage differentials.
The most successful Government plea for wage restraint was that of the
Labor government in 1948-50. Even then there was not a complete wage freeze,
though wages did lag rises in living costs. Considerable wage increases in
1950-51 followed the period of restraint.
Employment policy
A special problem since the war has been a shortage of labor for coal mines,
arising from full employment and a general dislike of work in the mines. An
effort has been made to attract foreign miners and some progress has been made,
though there has been union opposition and the program seems to have been
on a relatively small scale.
Price control
In 1948, while production and allocation controls were being relaxed, price
control was tightened up and a price freeze wTas instituted at 1948 levels; this
covered a wide range of goods, some of which had not been effectively controlled
before. Losening of this control has come in the fifties. Rents were also tightly
controlled. Pressure for rises in rents developed and finally in 1954 the Housing
Repairs and Rents Act was passed, permitting increases conditional upon the
performance of repair work by landlords.
Imports and exchange controls
There was some slight relaxation of import restriction in the late forties, but
substantial new controls were introduced in late 1951 and tightened in the
spring of 1952. New relaxation began in the spring of 1953, when the free list
was lengthened and some quotas were increased. With continued favorable
conditions, more liberalization took place and exchange controls also began to
be relaxed as a move toward the avowed goal of convertibility.
Material allocation
During the war the controlled allocation of industrial materials was operated
in conjunction with manpower controls. The latter were removed immediately
after the war, but material allocation (as well as most other controls) continued
for some time afterward. Controls over nonferrous metals were dropped in
1945 when the demand for war production ended. Forest products, steel, cotton,
and other goods continued to be allocated. In 1950 most kinds of steel wTere
freed (though allocation was reintroduced in 1952 and removed in 1953).
In 1948 most of the wartime production controls over miscellaneous consumer
goods were ended. Shortages of wood and fibers led to the retention of controls
over furniture and some textiles into the fifties.
Monopoly regulation
Before 1948, though it had public utilities laws and nationalization provisions,
the United Kingdom did not have a law relating to monopolies in general and
the old common-law doctrines were no longer effective. In 1948 the Monopolies
and Restrictive Practices Act set up a commission to investigate cases reported
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SURVEY OF WAGE-PRICE PROBLEMS IN EUROPE
to it by tlie board of trade. Action could be taken under this act only through
special action by Parliament in each individual case. In 1956 a stronger law
was enacted; it outlaws resale price maintenance agreements and judges other
restrictive practices on the grounds of their consistency with the public interest
(putting the burden of proof that the public interest is not violated on the par
ticipants). The law also includes compulsory registration and a special prosecu
tion and court mechanism.
Price supports and subsidies
Agricultural prices have been subject to continuous support. They have been
maintained on a cost-plus basis, all rises in agricultural wages or other cost
being the basis for price increases. A large low-cost housing program has been
subsidized in an attempt to make up war losses (at the same time as investment
in building has been controlled). There has also been subsidized industrial
construction in the development areas singled out by the program for postwar
construction and industrial relocation.
An attempt was made in 1954 to introduce more flexibility into the support
program for meats and cereals. The system was changed to one of “deficiency
payments,” with the market being left free, but farmers being compensated if
their average realized price falls below the guaranteed minimum standard.
Investment controls
No direct attempt has been made to regulate investment in industrial plant
and equipment (though the Government did enter into “gentleman's agreements”
with engineering firms on the percentage of their output that would go into ex
ports). Investment in building was, however, subject to extensive control. The
wartime system of licensing was continued and, during the first 5 postwar years,
Government allocations of steel and timber also had to be obtained. In the late
forties the Government channeled resources into its low-cost housing and indus
trial relocation construction programs. The system of building licensing was
greatly relaxed in 1949, though it continued into the midfifties.
Profits taxation and dividend limitation
Depreciation policy has been varied frequently. In 1954 an investment al
lowance in addition to normal depreciation was granted; it was removed in 1956
when it, along with other expansionary measures, generated an excess level of
demand. With the coming of the 1957-58 recession, depreciation provisions
were liberalized again.
Tax policy has favored investment over consumption. A purchase tax exists,
its rate varying with the type of good involved. Until 1958 a surtax had to be
paid by corporations on dividend payments. The current tax rate on profits is
52.5 percent, but this is considerably alleviated by liberal depreciation allow
ances. The declining balances method of depreciation is permissible. At present,
initial depreciation allowances of 30 percent on machinery and equipment are
allowed (they have in the past been as high as 40 percent) ; the 10- to 20-percent
investment allowance in addition to depreciation is no longer in effect.
nationalization
Government, Central and local, employs some 3.1 million persons in admin
istration and public services. In addition, about 2.1 million more are employed
in nationalized enterprises of an industrial or commercial nature: electricity,
gas, coal mining, transportation, etc. The public sector accounts for 22 percent
of civilian employment.
@FedFRASER