Wages, prices, and jawboning
If any one aspect of the new US administration's overall economic recovery package continues to be of concern, it is the lack of what is called an "incomes policy." Certainly there is little political support at this time for wage and price controls. President Carter had also rejected seeking formal controls. But in scuttling the Council on Wage and Price Stability (COWPS) and ruling out the use of jawboning, many economists believe the President inadvertently leaves the United States vulnerable to an inflationary spurt of wage and price hikes in the period ahead.
Take the tentative settlement in the coal industry, in which the union wrested a more than 36 percent increase in wages over the next three years. Given the fact that inflation is now running at around 11.3 percent, that can hardly be called anything less than a sizeable victory, despite the fact that miners are voting against the agreement. Yet the coal pact is only one of a series of contract negotiations that will come up this year, involving 2.5 million workers in major industries. Perhaps the most difficult bargaining will come later this summer, when unions representing 600,000 postal employees will face a late July contract deadline. There will also be negotiations involving airline employees and construction and supermarket workers.
The biggest series of negotiations, however, are farther down the road, in 1982 and 1983. Negotiations involving 4 million to 5 million workers will be coming up for settlement in 1982, many of them in unions traditionally inclined to hard bargaining. The point is that settlements obtained this year -- in 1981 --will in part become bargaining guidelines in the crucial 1982 negotiations. Thus, any overly large wage increases this year will skew future settlements.
On the other side of the coin -- price increases -- one need only look at what happened to gasoline and fuel charges after the administration moved ahead with oil-price decontrol earlier this year. Mr. Reagan is reported to have been privately outraged at the extent of the price hikes after decontrol (increases that came despite plentiful supplies). Unfortunately, the President's private unease was never made public.
Mr. Reagan argues that an incomes policy is not necessary in the framework of his overall economic plan. He reckons that, as the economy rebounds and the inflation rate drops, wages and prices will be moderated by market forces. We hope he is correct. But that, it seems to us, is taking an unnecessary gamble -- when a few tough words from a President with impeccable probusiness credentials could help keep the lid on prices (and therefore wages) while the economic package is readied for implementation.
In scrapping COWPS and rejecting controls the president should not give up the immense influence he has in persuading management and labor to exercise restraint. His communication skills are considerable. By turning private indignation into pointed public displeasure, the President might be able to moderate the i nflation push and thus begin achieving his economic goals.