TRADE
I
A
Douglas A.
C/77-6
TRADE UNION POWER, LABOR MILITANCY AND WAGE INFLATION:
A COMPARATIVE ANALYSIS
Douglas A. Hibbs, Jr.
Department of Political Science
Massachusetts Institute of Technology
Center for International Studies
Massachusetts Institute of Technology
Cambridge, Massachusetts 02139
April 1977
I
CONTENTS
Sections
I
Pag
EXCESS
DEMAND MODELS
5
Simple Phillios Curve
5
Phillips Curve with Contemporaneous
Price Changes
8
Price Expectations Phillips Curves
II
'SOCIOLOGICAL,' COST-PUSH MODELS
10
21
Profit-Augmented Wage Change Models
22
Wage Inflation and Trade Union
Mobilization
24
Strike Activity and
26
Wage Inflation
III IMPLICATIONS FOP THE ACCELERATTON
AND STABIlI"Y OF WAGES AND PRICES
45
Peferences
65
Appendix: Data Sources
73
Appendix: Data
75
i
1
TRADE UNION POWEP,
LABOR MILITANCY AND
WAGE INFLATION:
A Comparative Analysis*
Broadly speaking
two views have dominated
postwar wage and price inflation:
(2)
Admittedly,
the distinction
more
so now than
in
excess
demand
models
of
'demand-pull' and
is
the past.
main body of the paper.
a point
Conventional,
essentially on the level of,
of change of,
excess demand
controversy in the
obvious
policy
long-run
trade-off
by
a
--
;;
implications)
nonlinear
the rate
--
of
for labor.
demand-pull
T pursue further
demand-pull
wage
of
in
inflation
money
wages
The principal theoretical
whether
between the demand
of
and in some models the rate
literature
is
results
are easily rationalized in
models imply that the percentage rate of change
depends
probably
Indeed, the emoirical
inflation
on
'cost-push.'
somewhat artificial,
cost-push or 'sociological' terms -the
the literature
(and
there
for labor
one
is
(usually
that
has
a stable,
proxied
function of the measured unemployment rate) and
and/or
price
inflation.
The
neoKeynesian
--------- -------------------- ----------------- %--------
*This is one
of
a
series
of
papers
from my
project
on
industrial
conflict
and
its
conseguences
supoorted
by
the
National Science Foundation.
I am grateful to Nicholas Vasilatos
for
able
research
assistance,
to
Henry
Brady
and
Hartojo
Wignjowijoto for
comments
on
an
earlier
draft,
to
Marilyn
Shapleigh for editorial
advice,
and
to
Suzanne
Planchon
for
typinq of the manuscript.
(1) A third view should also
be acknowledged:
the
monetarist,
quantity
theory.
Models
representing
the quantity theory
framework are not examined
in
this
paper.
However,
see
the
comparative
study
by
Nordhaus, 1972, who concludes "The strict
monetarist
hypothesis
is
rejected
whenever
the
evidence
is
sufficient."
(p. 439)
2
that
there
position
is
trade-off
(although
light
of recent
that
due to
ohenomenon
many have
trade-off
this
abandoned
whereas,
is
lags in
long-run unemployment-inflation
a
experience),
such
any
is
a
the
stance
the neoclassical
merely
in
position
is
transitory
short-run,
adjustment between expected and actual
rates of inflation.
International
factors
usually take
inflation
to
orientation
'sociological'
wage
idea that
of change
i.e.
to the influence of
poor performance
inflation
since the late
1972
1969 in
and 1974 in
Britain)
of conventional models in
1960's appears to
have
labor militancy, cost-push theories
May-June
the
the general
societies
the
orthodox
1%68
strikes
as well as
industrial
enhanced
among
Wage settlements
explaining
by most western,
experienced
pressure
nation-wide
Italy,
Great
upward
(e.g.
activity
outbursts of strike
of coal miners in
or
militancy
of excess demand for
market forces.
of
of
wage
core of the cost-push view is the
of wages independently
the "hot-autumn"
France,
wage
the
of
bargaining
especially trade-union
independently
following recent
in
point
trade-union action exerts significant
on the rate
labor,
theories
or collective
and
formation
At
cost-push
conflict
a social
variables --
'pushfulnress.'
labor
aside,
status
of
economists.
(1)
The main body of this
paper examine s
cost-push models of wage inflation
(1) See,
and r17.
for example,
Perry,
against
various
demand-pull and
annual postwar data on
1975 and the discussion
in
parts
II
3
hourly compensation of manufacturing employees in four industrial
societies:
Italy, France, Great Britain, and the
(1)
principal aim of the paper is to show that the "power"
The
and "militancy" of trade unions play an
dynamic
process
industrial
of
wage
societies.
the main assumptions,
summarize
paper here rather than at
(i)
to
in
the
(Phillips
(ii)
I
am
(b)
trade
persuaded
adjustment
to
(a)
usual
money
practice,
on
and
nontrivial
likely due to the
I
of the
a
weakness
argue
priori
episodes
of
that
of
inflation
illusion
union weakness in
position
implausible
the
a diverse group of
arguments and conclusions
requires
neoclassical-accelerationist
is
in
the end:
curve)
part of labor and/or
States.
role
The existence of a long-run unemployment-wage
trade-off
illusion
important
determination
Contrary
United
wage
grounds
that
on
bargaining.
by
widespread
less
than
the
full
the
money
wage
price inflation is most
organized
labor
in
that
the
collective
bargaining.
(iii)
The
coefficient
empirical
results
show
of adjustment of manufacturing wage changes to price
changes is less than unity only in the U7nited States,
in
the
long-run
U.S.
is
there
i.e.
only
any evidence of a non-vertical long-run
Phillips-curve.
(1)
-Th
rouqho ut
-T h ep paper-__
use_
"-wag_ es"11
interchangeably, although,
they
are
of
empirical results pertain to the latter.
and
Icompensation"
"
course distinct.
All
4
The rate
(iv)
at
of the adjustment
long-run magnitude
as
of
reflection
a
which wages adjust to prices as well as the
power
trade-union
in
qualitative
the
about
specialists
of
judgement
wage
bargaining.
is
consistent
relations
industrial
of
'power'
comnarative
the
interpreted
lines
Pank-orderinq of the countries along these
with
are
coefficient
various
the
trade-union movements;
particularly the comparative 'weakness' of
organized labor
United States.
In
(v)
should
in
all
distinguished from
be
trade-union
exerts sizeable
militancy
trade-union
countries
four
activity,
strike
the
as measured by
power),
of change of
effects on the rate
manufacturing wages independently of market forces.
cases
most
to accelerating
when
wages and prices,
wage
"real
relatively 'weak' trade-union
cannot
probably
form
(and
Outside the United States
policy
incomes
of
authorities
are
politically
infeasible)
experience
movements)
achieved
be
willing
without
that
contributed
face of chanqes
other
wage
and
Britain;
here
examined
even there
it
with
countries
price stability
union acquiescence to some
political
unless,
to
run the economy at a !erl low
of
barring
of
course,
with
has taken
the
the
(and
post-war
The
activity.
major political changes such
union cooperation is not likely to be forthcoming in any
countries
years
recent
--
level
suqqests
the
in
fuel producers.
in relative Prices in favor of food and
(vi)
perhaps in
except
has persisted in
resistance"
However,
systematically
has not
trade union action
(which
partial
of
the
exception of Great
conjunction
of
a
Labour
5
Government
voluntary
an
facing
trade-union
extraordinary
economic
crisis to elicit
restraint.
i
EXCESS
DEMAND MODELS
Simple Phillips Curve
The point of reference for most contemporary
wage
inflation
is
A.W.
Phillips'
seminal
relation between unemployment and the rate
wages
employed
somewhat
unorthodox
analysis, but his plots of the
against
the
association
unemployment
curve."
excess
is
Phillips rationalized
demand
argument
that
of
money
Phillips
procedures
in
his
percentage rate of change of wages
rate
studies and
change
1861-1957.
revealed
a
(convex towari the origin) which
subsequent
many
statistical
of
study (1958) of the
of
in the United Kingdom over the neriod
treatments
now wilely
his
nonlinear, inverse
was
work
in
known as the "Phillips
empirical
most
replicated
results
with
an
in this tradition has
adopted:
"When
the demand
unemployed
we
for
labour is
high and there are
very
few
should expect employers to bid wage rates up
quite rapidly, each firm and each industry being continually
tempted to offer a little
attract
appears
at
the
most
that workers
above
is
prevailing
rates
to
suitable labour.... On the other hand it
are reluctant
less than prevailing rates
and unemployment
the
to offer
when demand
high so that
wage rates
their
services
for labour
fall
only
is
low
very
7
(1b)
= bO
w' (t)
where:
=
w'
+ b1
1/U(t)
+ b2
AUJ(t)
the percentage rate of
change
of
wages
(hourly
compensation of employees in manufacturing) computed as 100 times
the first backward difference of the natural logs;
U
=
the civilian unemployment rate;
AU
=
the first backward difference of U.
For purposes of comparison with the
introduced
below,
estimates
more
those
at. the end of the paper.)
familiar
literature
with
that
the
the
hypothesis
does
a
inflation.
In
all
(The
determination
demand,
explaining
countries
wage
the
the
Phillips
-2
Y
post
's
is
The level unemployment
(positive).
properly
signed
(positive)
in
wage
low,
the
has
the
T(t)
rate
curve
war
are
reqressior standard errors relatively high, and
wrong sign
Tables
It will come as no surprise to
excess
job
four
lia-Id.
contemporary
simple
poor
models
of the simple Phillips curve model
are reported in the first column of Tables
appear
realistic
term,
1/U(t),
all regressions but reaches
conventional statistical significance only in
the
equation
for
Italy.
The
most
Phillips
model
prices.
hillips
advanced
a
obvious
is
that
empirical
no
shortcoming
account
did not ignore
is
prices
threshold hypothesis in
of
the
'naive'
taken of movements in
altogether;
rather
he
which price changes affected
the wage bargain only when they threatened
to reduce real
wages,
8
rate of change of
(p'
wages
waqes rarely
real
> w').
in
Since
over a sustained
fell
incorporated
not explicitly
than the
of change of prices was greater
the rate
only when
i.e.
Phillips'
sample
term was
a price
period,
into his wage equation.
Phillips Curve with Con tempor aneous Price Changes
equation
wage
was
Lipsey
and
details
here,
(i)
demand
an
he
to
most
the
tie
Without reproducing the
argument
showing
of change of money
excess demand ratio
the
to conventional
is
that
wages is
linear
a
labor supply,
of excess demand to total
unobserved
into
lipsey's
trade-off
developed
the proportional rate
t
curve)
analysis.
function of the ratio
(ii)
However,
economic
Lipsey
directly
attempt
his
(Phillips
inflation-unemployment
supply
(1960).
was
contribution
important
changes
to build price
Among the first
approximated
by
and
a
the
observed
Lipsey's disequilibrium wage adjustment model was
generally
negatively
sloped,
unemployment
rate,
function
nonlinear
of
U.
taken to be a strong theoretical rationalization of the empirical
Phillips
curve.
explanation
--
(1)
which centered
individual
market trade-off
aggregate
association
also
Lipsey
an
developed
on the consequences
curves
observed
across
by Phillips
grounds were,
(1) Objections on theoretical
See,
for example, Corry and Laidler, 1967.
argument is treated in the next section.
markets
ingenious
of aggregating
--
for
between the rate
of
The
the
of
raised.
course,
accelerationist
9
change of wages and the rate of change of unemployment,
The empirical form of Lipsey's model
Phillips
curve
equation
with
is
simply
(1)
[1.
the
naive
a term for contemporaneous price
changes.
2)
w'(t)
where:
by
bC + b1
=
p'
=
1/U(t) + b2 p'(t) + b3 U'(t)
the percentage rate of change of
prices
(computed
the difference-log method described previously) and all dther
terms are as defined earlier.
Since the Phillips
U'(t)
curve argument
does not depend heavily on
and this term was irsignificant in all regressions
using this class of models typically find
reported
in
the
second
column
of
b3 =
'"ables
0),
the
(studies
results
la-Id are based on
equations omitting the rate of change of unemployment term.
estimates
for
this
conventional Phillips
unemployment
wrong)
or
The
model yield little evidence in favor of the
curve
excess
argument.
The
demand term 1/U(t)
coefficient
of
has a perverse
the
(i.e.
sian in the equations for 'France and Great Britain, and is
insignificant
in
the
regression
for
Italy.
Moreover,
the
coefficient of the contemporaneous price change term p'(t) is not
significantly
and Great
different from unity in the regressions for France
Britain and is siqnificantly greater than unity in
the
(1)
Lipsey
used
the
proportional
rate
of
change
of
the
unemployment
rate
(U')
in his study rather than the simple rate
of change ( AU) used in equation 1.
Phillips appears to have had
the latter in mind, but I found that it made
little
difference:
regressions
using
U'(t)
produced results very similar to those
reported in column 1 of the Tables.
10
(1)
equation for Ttaly.
This result
the Phillips curve thesis for it
struck
in
real
rather
cannot be a trade-off
wage
inflation
(2)
This point is
money terms and,
than
nominal
qu'antity
column 2 of
estimate
for 1/U(t)
standard
errors
Price
1d
Table
show
the next section.
trade-off
a
of
(2)
view.
significant
support
unemployment.
the
(0.58)
parameter
that
is
many
less than unity.
Fxpectations
inflation
rate.
The results in
positive
and an estimate for p'(t)
there
Only for
Dhillips Curves
The Phillips-Lipsey trade-off model implies that high
of
deny
money
such as the unemployment
pursued further in
inflation-unemployment
therefore,
phenomenon
the United States do the estimates for equation
(wage)
to
sufficient
implies that the wage bargain is
between the
and a real
alone is
yield
This
long-term
view is
benefits
in
the
plausible on theoretical
rates
form of lower
grounds
only
if one of the following conditions is satisfied:
(1) A similar estimate of the elasticity
of
manufacturing
wages
prices for postwar Italian
data is reported by
with
respect
to
Sylos-Labini (19-74),
who surprisingly does
not
comment
on
its
implications.
As it turns out (see the following sections) , the
long-run elasticity is on the order of 1.C.
(2)
I am inclined to pay greater attention
to the coefficient
of
p' than U1 in evaluating the Phillips
curve thesis
since it
can be
some
justification
that during the postwar period
arqued
with
not
have
of aqqregate demand
unemployment and other measures
enough
to
permit
a sharp estimate of the excess demani
varied
study
the
For all
of the countries treated in this
coefficient.
coefficient
of variation ( s /X
) of p' is substantially
greater
than that of U.
11
1)
Workers
increases
suffers
2)
value,
alone;
least
to
some
extent,
nominal
wage
i.e. a significant fraction of the labor force
from 'money
Other
at
illusion.'
things
being
And/or
equal,
powerful
enough
adjustment
to price increases.
vis-a-vis
Among economists,
labor
management
the trade-off
first
(1968)
theoretical
the
to
obtain
debate has hinged
the plausibility of the
summarizes
organizations
condition.
For
are
full
waqe
largely on
example,
foundation
not
Tobin
of the Phillips
curve this way:
"The
Phillips
the
original
curve idea is
Keynesian
supply of labor.
money
wages
--
in
idea
a sense
of
a
reincarnation
'money
of
illusion' in the
The Phillips curve says that increases
in
and more generally, other money incomes --
are in some significant
degree prized for
themselves,
if they do not result in equivalent qains in
real
even
income."
(1)
PEconomists working
attack
this
money terms,
---
in
idea pointing
the wage
the
strict
out that
determination
even
neoclassical
tradition
though wages are set in
nrocess
is
essentially
a
---------------------------------------------------------
(1) In The General T heory (1936)
Keynes
wrote
"The
workers...
resist
reductions
of
money wages...
whereas they do not resist
reductions of real wages.... Every trade union will put
up
some
resistance
to a cut in money-wages, however small.
But since no
trade union would dream of striking
on every occasion of
a
rise
in
the
cost
of
living,
they do not raise
the obstacle to any
increase in aggregate employment which is attributed
to
them by
the classical
school."
(pp. 14-15.)
12
bargain
wages conditioned by
real
for
and sellers'
of buyers'
the forecasts
labor of the behavior of prices over the contract
of
period.
Hence Friedman
argued,
persuasively
Phelps
(1968),
in
my
view,
1968)
(1967,
that
any
and
steady
others
rate
of
inflation will eventually be anticipated fully by economic actors
that wage adjustment
and
prices will be unity.
a
short-run,
expected
the long-rIu
i.e.
complete,
to
price
of wages with respect
elasticity
In this view the Phillips curve is
"statistical"
phenomenon
adjustment between expected and actual
"There
always a temporary trade-off
is
unemployment;
temporary
of
to
merely
from
lags in
price
(and/or
stemming
rates
be
In Friedman's words:
inflation.
waqe)
will
inflation
is
there
no
permanent
comes
trade-off
inflation
between
The
trade-off.
from inflation
not
and
per se,
but
from unanticipated inflation, which generally means a rising
rate of
trade-off
permanent
confusion between
in
simpler
unemployment,
is
sophisticated
a
forms.
A
a high rate
rate
rising
will not."
where:
=
bO + bl 1/U (t)
p**
+ h2
= the expected
(1968,
of
rate of
a
the
recognize
p.
11)
theorists
be specified in the form:
p*I(t)
price inflation.
is
may reduce
of inflation
'exnectations'
then, that the wage equation should
w'(t)
version
"high" and "rising" that we all
The position of neoclassical,
(3 a)
there
The widespread belief that
inflation.
is,
1?
If
b2 can be interpreted as the parameter of money illusion.
=
0,
equation
(3a)
introduced earlier.
the
reduces to the simple Phillips curve model
For 0 < b2 < 1 we have what
Phillips-Lipsey
long-run
model
trade-off
unemployment
is
Phillips curve.
of
between
steeper
the
last
(wage
(less
or
1.
essentially
section
price)
favorable)
in which the
and
the short-run
strict
expectations
There is no money illusion in the
labor market, and the long-run Phillips curve is a vertical
crossing
the
U axis at the
only possible long-run
change of
real wages
between
the
(w'
-
=
p')
Any trade-off
unemployment
of
of unemployment.
therefore
of
The
between the rate
and the unemployment
acceleration
line
rate
inflation
of
and/or
and
the
(1)
(3a)
(1) Evaluatinq
implies
is
(w' - p')
rate
unemployment rate.
"natural rate"
trade-off
is
inflation
than
Friedman, Phelps and other
assert that b2 =
theorists
b2
(i.e. at p' =p**), h2
at steady state,
=
1
f(U).
is therefore between
(excess-demand).
changes
in
real
wages
and
Passing
a
price
function
through
(3a)
illustrates
the
acceleration
argument.
Suppose
p'
follows
the simple markup
scheme
p' = w' - x'
where x'
= rate
of change of labor productivity, and it
is
implicitly
assumed
that
any
asymmetry in the system (which is
necessary for the existence of a conventional
trade-off)
occurs
in the wage equation.
Hence, we have
o'
=
(bO
x')
-
+ b1
1/U
+ b2 v*'
which for b2 = 1 implies
d_-_
dt
1
p
d n
dtE
=
f(u).
The trade-off is therefore between the rate
of
acceleration
of
14
expectations
price
Since
The
variables.
observable
directly,
measured
terms
in
be specified
requires that p*'
empirical testing of (3a)
of
not
are
conventional practice is to use
For
some function of actual price changes p'.
data
annual
the
hypothesis
p'(t)
p*I(t)
(3b)
be
embodied
fully
of
hypothesis was effectively tested by the estimation
2.
support
strong
the second column of Tables
(in
results
The
the
for
neoclassical
or
la-1d)
equation
provided
expectations
strict
The hypothesis b2 = 1 was rejected only for the
argument.
in
This
changes averaged over a twelve month period.
price
actual
may
Expectations
is not unreasonable.
United
States.
A second model for price expectations is the
finite
autoreqressive
unconstrained,
scheme
r
(3c)
p*I (t)
a(i)
E
=
p' (t-i)
in which expectations are generated by the weighted,
finite
sum
of current and lagged price changes.
the employment rate, and requires
and
inflation
by new bursts of inflation
continually 'surnrised'
workers be
that
(p'>p*').
The "natural rate" of unemployment is given by the
the equation
p' -
ps"
=
0
=
(0
-
x')
+ bI
-bl/(b0-x').
1/U
root
of
15
The
third
model
tried
in
this
study
incorporates
the
adaptive expectations hypothesis
p*' (t)
(3d)
p*
-
(1-a) E
=
( p' (t)
-
p*'
)
(t-1)
i
co
p*S(t)
(1-a)
(t-1) =
a
p'(t-i)
i=O
p*'(t) =
where:
In
L is a lag operator.
the
linearly
(1-a)/(1-aL) p'(t)
adaptive
each
period
model,
in
period's forecast error.
governed
price
expectations
proportion
to
are
revised
some fraction of last
The model implies that
expections
are
by an exponentially weighted moving average of observed
price changes.
Estimatior
using
of the price expectations Phillips
former
(1)
1a-id.
States
do
scheme
The
not
are
results
reported
for France,
differ
appreciably
(1
heaapieprice
estimating
=
of
only
Great
Britain
from
expectations
the
The
and
the
United
estimates of the
unemployment
version
was
tested
term
by
the implied nonlinear equation
bC (1-a)
-b1
estimates
in the third column of Tables
Phillips-Linsey model shown in column ?.
W' (t)
models
the finite autoregressive and the adaptive schemes for p*'
rendered essentially the same results and so
the
curve
+ a w' (t- 1) + b1
a 1/U(t-1) + b2(1-a)
1/U(t)
p' (t).
The estimate of b2
was approximately unity
in the
regressions
for Ttaly France, and Great Britain.
T experimented with lags of
various lengths in the finite autoregressive expectations models;
the tables
report the best fitting
equation.
16
again
has
the
sign
'wrong'
in
the regressions
Great Britain and, more important, the sum of
coefficients
is
just
about
unity.
However,
price
Britain the sum of the autoregressive
exceeds
the
contemporaneous
price
for France and
the
price
in the case of Great
in
standard
expectations
model
essentially the same
equation:
coefficient
is
positive
the
estimates
as
parameter
the
of
error
of
regression.
the
for
the
(1.2)
coefficients
(1.843) by a large enough margin to yield an increase
decrease
change
in
F2
and a
The
United
price
States
those
of
of the
inverse of the unemployment
and significant,
and the
static
equation 2
elasticity
respect to prices is on the order of 0.6.
are
Phillips-Lipsey
of
rate
waqes
with
(1)
The estimate of the sum of the price change coefficients
Italy represents
most
equation 2 was
1.65,
important
of
The coefficient
results.
in
the
i.e.
This, of course, implies that
followed
result.
by
(2)
a sizeable
departure
contemporaneous
was substantially
in
The sum of the coefficients
real
previous
nrice changes
larger
every burst of price
increase
from
for
wages --
o' (t)
than unity.
inflation
is
an implausible
of the p' (t-i)
in
column
(1) I ran a number of additional experiments for the U.S. testing
that
the idea (which appears from time-to-time in the literature)
the coefficient of adjustment is closer to unity once a
critical
threshold
in
observed
rates
of price inflation
is reached.
I
could find little support for this appealing hypothesis.
Since on
argument
plausible
expectations
do not find the "rational"
lines
were not
along
these
grounds,
experiemnts
theoretical
tried.
to
the
of
labor
productivity
of
change
(2)
Adding the rate
contemporaneous price change model for Ttaly does not appreciably
is
1.6 and
this
result:
the parameter estimate of p'(t)
alter
to
Adding
productivity
the productivity term is insignificant.
17
3,
Table
respect
1.0.
la shows that
to
prices
the
long-run
The time path of the price
does indicate,
of
--
coefficients
negative at times
(1)
Why is the United
Phillips
curve?
leaders
in
the
(3)
think it
is
States
the
only
country
considered
in
this
1 doutt it
is
because workers
United States,
unlike
unlikely,
particularly
that a sizeable fraction of the labor
society
th~e
worth
is
fooled
and
(t-2)
by
in
there
of
the
study to exhibit
their
Italian,
in
four
a viable
and/or
union
French,
In
other
the manufacturing
force
is
(2)
British counterparts, suffer from money illusion.
I
(t-1)
Clearly
little evidence of neoKeynesian money illusion.
societies
substantially
however, that in the Italian system prices are
more or less continually chasing wages.
industrial
with
wages
in Italy is not significantly different from
greater than unity at time (t),
--
elasticity
any
and
words
sector,
industrial
(or prizes to a significant degree) money
uaTIon~s ~for~the~other -countriesdidnot
reporting either.
(1) The period-by-period price coefficients are:
p' (t-1) = -1.18,
and p' (t-2)
= -0.48.
yield anything
p'(t)
1.89,
(2) As in other studies of wage inflation there
is
some
danger
that
the
price
coefficients
reported
here
suffer
from
(simultaneous equations) bias.
It is unlikely that
this
accounts
for the pattern of results but the only way to
sort
the
matter
out definitively would be to employ a correctly specified 'large'
econometric
model
in which wages, prices, as well as employment
were jointly endogenous.
I take heart in the fact that according
to Ezio Tarantelli, economist at the University of
Florence
and
consultant
to the Bank of Pome, prices also 'chase wages' in the
Pank's econometric model of Italy.
(3) T do not mean to imply that the U.S. Phillips curve has been
stable
over
the
postwar
neriod
-there
is a great deal of
evidence that it has not.
See, for example,
the
comparative
analysis of Gordon, 1972.
18
wage
increases alone.
of targgt wages
the elasticity
very nearly so, at
unity,
or
If this
idea has merit,
and
A more plausible model
then international
prices is
of trade unions
to obtain target
the
in
variation
of observed
to some extent differences
reflects
labor markets.
that
least in industrial labor markets.
equilibrium magnitude of the adjustment
in
specify
to expgcted
with respect
price inflation
illusion
would
in
wage increases rather
rate
wages to
the
power
than money
(1)
Recall that the pattern of results for the
elasticity
of
wages
with respect to prices across the four countries was:
the
exist
not
did
unions
trade
if
(1)Iam not saying that
This
would I-e zero.
wages with respect of orices
of
elasticity
a
makes
presumably
power
union
Trade
is an absurd argument.
enough
difference on the margin; but the margin may be important
trade-off.
to determine whether there is a viable Phillips curve
number
large
a
for
in the form of 3 were estimated
equations
If
the
on
note
the
see
-of countries (or sectors or industries
princinle
in
sort
following
then analyses of the
following page),
could be undertaken.
a(i)
= A + g(Xki)
wages
of observed
elasticity
= the long-run
where: a(i)
industry)
or
(sector
country
ith
the
in
prices
to
respect
k =
with
nure "market" comoonent
g(Xki)
=
union"power"
component
Xki = a vector of variables
bargaining power of trade unions.
measuring the
(relative)
wage
wage
of
rate
the
for
A similar model might be specified
international
greater
exhibit
might
which
adjustment,
of
job
Obviously the
variation.
interindustry)
(intersectoral,
be
not
would
q
specifying
and
Xki
measuring
and
identifying
are undertaken,
Until serious studies along these lines
trivial.
the argument in the text will remain in large part speculative.
19
Italy
full wage adjustment to price
inflation in the long-run;
'prices
Great Britain
chasing wages'
in
the short run
full and more or less
and
instantaneous
France
(annual)
wage adjustment to price
inflation
United states:
less than full long-run
wage adjustment;
viable
Phillins curve.
If one adopts the hypothesis that
part
reflect
the
of
power
wage
organized
bargaining, these results imply that
at least)
Great
States.
trade unions are most
Britain
(1)
voluminous
France,
Without
literature
this rough rank
assessment
and
of
ordering
most
is
labor
in
and comparatively
to
discuss
I think it
is
consistent
industrial
dynamics
in
in
collective
(in the manufacturing sector
powerful
attempting
here,
adjustment
Italy,
strong
weak in
the United
or
reference
in
the
accurate to say that
with
the
qualitative
relations specialists about the
comparative strength in wage harqaining
of
organized
labor
in
(1) My interpretation of these results is
compatible with
intranational,
cross-sectional
studies
finding
that
the
elasticity of wages with resnect to prices is higher in strongly
unionized industries
than in
weakly organized sectors. Fee
Pierson, 1968 (United States) ; Vanderkamp, 1 966
(Canada); and
Thomas, 1974 (Great Britain).
20
these countries.
Perhaps
(1)
polar
cases --
Italy
in
months.
pressed,
of living,
every
place
and most innovative unions have tried
takes
It
response of wages
less ranid and less
place
is
wage
living
of
to bargain for cost
almost
hardly
employers'
on
trade
United
rights
(with very limited success)
escalator
wholly
via
surprising,
than in
to
and only the strongest
Wage
clauses.
contract
periodic
therefore,
that
to price inflation in the United 5tates
complete
to
(nearly all
By comparison, in the
find.
economic reasons,
for
workers
renegotiation.
takes
(scala mobile)
no constraints
virtually
States there are
adjustment
hard
More dramatic examples of institutionalized
union power are difficult to
discharge
if
even
are peqged to the cost
sector)
and escalator wage adjustment
three
In Italy it is
States.
Moreover, the wages of most workers
manufacturing
the
and the United
employers,
extremely difficult for
dismiss workers.
the
is to contrast briefly the situation in
in trade union power
two
differences
international
the best way to illustrate
the
is hoth
Ttaly.
------------------- -----------------------------
---- -------an
is
state
the
where
France,
and
Ttaly
in
(1) Note that
labor
sector)
public
as
well
as
(nrivate
the
in
actor
important
conditions
wages, hours, and
involved in setting
is
farket, i.e.
to
ability
the
means
extent
great
a
to
power
union
trade
of work,
induce concessions from the government.
21
'SOCIOLOGICAL',
I
COST-PUSH
It was noted in the introductory
demand
from
class
a
of
cost-push
perspective.
to
wage
(1)
section
or
collective
bargaining
some extent interpreted from this point of view.
the
or
the
excess
theoretical
The empirical results presented in
union 'pushfulness'
Labor
militancy
explicit
part I
were
The purpose
indicators
have significant
autonomous
money
influence
In
other
words
we
hope
to
learn
whether
trade union actions exert significant upward pressure
wages,
wilitancy
or
merely
whether
represent
discrete
a
form
expressions
of
ritualized
of
union
conflict
ratifying outcomes that market forces would have produced in
case.
of
rate of change of wages independently of price movements
and unemployment.
on
that
inflation models are easily rationalized
of this section is to determine whether
on
MODELS
A
variety
any
of direct and proxy measures have appeared in
the 'sociological' cost-push literature; the principal ones are:
(i)
(ii)
in trade
(iii)
(iv)
The
the level and rate of change of profits
the rate of change
of the proportion of the labor force
unions
subjective
strike
relevant
(ad hoc) estimates of labor militancy
activity.
models
and empirical
results
are presented
below.
(1) A more sustained argument along these lines is given by Rees,
1970.
22
Profit-A uamente d Wage Changep 4odels
the first to
Among
models of wage
theory
bargaining
on
depends
grant. them."
wages
and
is
the
to
related
meant
willingness
Kaldor's rather
casually
of labour
to demand
and ability of employers to
(p.
formulated theory
prosperity
Py
orginal).
profits."
in
of
prosperity
in
rise
"The
of change of profits:
the rate
by the rise
prompted
the
emphasis in
and bargaining
labor;
of
wages
money
in
rise
"the
strength
closely
the
293,
(p.
clearly
Kaldor
that
determines both the eagerness
which
wages
higher
is
played a central role was
profits
which
bargajning
the
strength, in turn,
industry,
in
Kaldor argued
(1959).
Kaldor
collective
and to propose an alternative
inflation
demand
excess
Phillips-type
challenge
294)
was
followed
by
a
series of empirical studies testing the impact of profits and the
rate of change
These
of
profits
on the
rate
wage
of
inflation.
(')
studies produced rather mixed results and hence the thesis
an
that movements in profits are
imoortant
influence
on
wage
changes remains problematic.
Comparative
wage
inflation
results
for
a
augmented
profits
model are reported
in
the
manufacturing
fourth column of Tables
la-Id and are based on the equation:
Perry,
1961;
Bhatia,
1Q6C; Lipsey and Stpuer, 1961;
(1) Powen,
There is no unigue measure of the level
Bodkin, 1966.
and
1964
as a percentage of stockholders' equity, the
Profits
of profits.
to
profits
of
ratio
the
ratio of profits to wage income, and
The various
total income produced are all accentable indicators.
measures generally point in the same direction.
23
(4)
w'(t)
=
bC + b1 1/U(t)
+
E a(i) p'(t-i)
i
P/Y(t)
(P/W)
+b2
where:
+ b3
(
AR/Y(t)
V/W)
R/Y
=
manufacturing profits as a percentage
gross income produced (Italy, Great Britain);
R/W
=
manufacturing profits as a percentage
of employee compensation (U.S.) ;
and all other terms are as previously defined.
The regression estimates give little or no support to the profits
thesis.
(1)
wrong sign
The
profit
level
term F/Y
is
significant
(negative) in the equation for
but has
Italy;
elsewhere
the
the
level of profits and the rate of change of profits variables have
negligible,
perversely
t-statistics.
(2)
Contrary to
the presence of
variables,
signed
Kaldor's
argument
unemployment
and
coefficients
and
these results
indicate that
(especially)
price
very
small
in
inflation
the profits terms have no systematic influence on the
rate of wage inflation.
Fither
union
bargaining
strength
and
militancy have no appreciable effect on wage movements or orofits
variables
are
poor
proxies
for
presented ahead suqgests the latter
these
concepts.
Evidence
is true.
--------------------------------------------------(1) I was unable to find manufacturing profits
data
and so no results are reported in colum 4,
Table lb.
for
France
(2) Models in which the profits terms were
lagged
performed
no
better.
Notice
also
the
large,
imolausible constants in the
equations for Italy and Great Britain.
24
Perhaps the most
trade
.nion Mobilization
and Trade
Wage Tnflatio
forceful
influential
and
that
argument
unions affect the rate of change of wages independently of
the demand for labor was made in a series of papers by A.G. Hines
(1964,
1968,
1969).
In
1964 article
his celebrated
in
the
-eview
of Fconomic Studies on wage inflation in the United Kingdom
the
period,
1893-1961
'pushfulness' --
variation
in
accounted
rate
the
of
in
"a
in
union recruiting
w'(t)
thesis
=
implies a
O + b1
+b2
where:
(1)
drives
the wage bargain."
Hines#
(5)
for a sizeable
of
wages.
of
the
of
fraction
the
Indeed, in the
be
Hines rationalized
the
most
the
use
the density of unionization as a proxy for labor
successful membership drive
success in
percentage
with the assumption that militancy
pushfulness
manifested
the
years, it appeared to
important explanatory variable.
changes
of
change
inter-war and early post-war
of
that one measure of union
showed
the rate of change
unionized --
labor force
Hines
over
1/U (t)
(is)
(1969,
is
and pressure
simultaneously
on wage rates:
a necessary accompaniment
pp.
of
67-68)
model of the form
+
Z a(i)
p'(t-i)
AT/L(t)
T/L = trade union membership
the labor force (L).
(T) as a oercentage of
The importance of
post-war observation was 1961.
(1) Hines' last
by
reported
Similar results were
this will become clear below.
study of manufacturing wage
in their
al.
(19'72)
et
Ashenfelter
changes in the fnited States luring the neriod 1Q4-1963.
25
Since union
membership
unreliable
and,
more
these countries is
mrovements,
and
(1)
data
for
France
and
Italy
are
very
important, the meaning of unionization in
not comparable
to that in
equation 5 was estimated
the United States.
other western
only
for
Great
labor
Britain
The results anoear in column 5 of Tables
1c and Id.
The regression estimates yield only
trade
is
union
properly
mobilization hypothesis:
signed in
both regressions
weak
support
for
the
the coefficient of
is
hut
AT/L
insignificant
in
the equation for Great Britain and only marginally significant in
the U.S.
model.
Why
do
impressive
The reason
results
as
a
bargaining.
indicators
is
in
very
estimates
contrast
of the Hines and
undoubtedly is
mobilization
fluctuations
these
more
or
sharply
or late-
proxy for variations in
Models
incorporating what
of labor militancy are
the
1950's
union
complete and the small observed
the density of union membership no
good
with
Ashenfelter et al. studies?
that by the midless
so
longer
serve
labor militancy in
I think
introduced
in
are
more
wage
direct
the next section.
(1) in Great Britain, the United States and
most
other
western
systems
union
'members' include all workers covered by contract
who
merely
pay
dues,
typically
via
an
automatic
check-off
(payroll
deduction) method.
In
contrast,
'members' of
the
largest
(communist)
unions
in
France
and
Italy
are
usually
militant
activists.
(Although in recent years the French CGT and
the
Italian
CGIL have tried to become mass organi7ations.)
The
strength of French and Italian unions are probably judged
better
by the number of workers they can mobilize for an activity rather
than by the number of their
official
members.
26
Strike Activity and Wage Inflation
1 960's
Dramatic outbursts of strike activity since the late
in
Ttaly,
France,
to
renewed
Britain and several other countries
Great
to
attempts
labor
incorporate
explicitly into models of wage inflation.
is
Perry's
comparative
2291192.p Pp2rs on
-----
agqressiveness
The most recent
study done for the 1975,
9 Activi-y.
1970's,
interpretation
of labor unrest,
hypothesis
shares
introduced
the
dummy
equations
the "shares"
Perry called attention to
value.
not
and
on
the
1960's
income
argument
wage
that
generally
increased
the
variable
explosions
the seven countries in his sample.
dummy variables
the
and
shares"
by a continuous
be captured
variables for the years of
for
over
in
Although
fits
and
models, Perry's
is purely ad hoc and therefore is of limited
scientific
(1)
A much
more
or pushfulness
of
could
"battle
the forecasting performance of his wage
enhanced
approach
a
formulated
effort
71 issue of the
the increased militancy over wage issues in the late
early
led
earlier
in
straightforward
waqe bargaining
papers
incorporated
measure of trade
is
strike
strike
activity.
indicators
union militancy
A
into
numher
wage
the
test
of
charcter of Perry's
(1) Predictably, the arbitrary
militancy-shares hypothesis was nointed out during the discussion
See
the comments by Ackley and Nordhaus, EPFA,
of
the
paper.
4975, 2.
For an earlier
attempt to build subjective estimates of
inflation
models,
see
militancy
into
wage
trade union
Dicks-Mireaux and Dow, 1959.
27
determination
rodels and
militancy
hypothesis.
important
one,
the
(1)
results
The
typically
supported
principal
exception,
six
countries
strongly
the
Actually,
and
is the comparative study by Ward and Zis
They concluded from their analysis of postwar wage
that
"the
cost-push
evidence...does
not
an
(1974).
inflation
in
seem to support
hypothesis...."
(strike)
the
(p.
55).
Ward and Zis' conclusion is somewhat misleading: their
regressions
showed
siqnificant
variables
The Ward and
Zis study suffers
one
or
in
more
strike
three of the six countries.
from
to
indicators
at
least
three
he
Morover,
important
limitations:
(i)
an explicit scheme
introduced
developed
(ii)
strike
measurement
is
never
and heavy reliance is placed upon the arbitrary index
by Galombos and
Fvans
(1q66) ;
(2)
data on the strike indicators pertain
aggregates
whereas
the
wage
data
are
to
for
economy-wide
the manufacturing
(?)
sector;
(iii)
wage
for
Onlv contemporaneous strike
equations,
activity
appears
in
the
yet strike induced wage increases are often not
fully observed until a year or more has elapsed.
(1) See Ashenfeter e1 al. , 1972
(United
States) ,
Knight,
1972
(Great Britain), Sylos-labini, 1974 (Italy), Taylor in Parkin and
Sumner,
eds., 1972 (Great Britain), Taylor, 1974 (Great Britain,
United
States),
and
Swidinsky,
197?
(Canada).
An
extended
qualitative discussion of British case is provided by Jackson, Pt
al.,
1972.
(2) See Knowles, 1966 for
Evans indices.
a thorough critique of the Galombos and
(3) This is also true
of
other
inflation.
Cf. the sources citied
studies
of
in the earlier
strikes
note.
and
wage
28
The
before undertaking empirical analysis.
industrial conflict that
involved
number
the
ministries:
International
are
supplied
by
of
strikes,
the
Arrual
on
data
this
In
activity.
paper we are interested
in
lost
workers
strike
are reported
for
economic
of
sectors
separate
economy-wide totals and for nine
of
number
components
these
labor
national
the
(strikers), and the number of man-days
activity.
Labor
and publishes data on three basic components of
complies
Otfice
is
it
that
suggests
above
develop a conceptual scheme for strike measurement
to
important
raised
objection
first
The
manufacturing
only in
strike activity.
Knowles,
Followinq the earlier, seminal work of Forcheimer,
and Goetz-Girey and the more recent
basic
the
(1)
conjunction
to
form
the average
involved
per
strike;
wan-days lost per
of
strike
workers
average
freguency,
involved
(1) Worcheimer,
Shorter and "'illy,
the
of
the number
i.e.
strikes,
duration
and
worker involved;
number of manufacturing
Size:
of
size
in
used
are
dimensions
distinct
theoretically
Tilly,
wage and salary employment
with data on manufacturing
three
and
Shorter
variables
conflict
industrial
activity:
treasure
work of
i.e.
a
the
of
labor
strike
of workers
strikes, i.e.
force-adjusted
number of strikes ner
employees.
(strikers)/strikes
Knowles,
194P;
1971.
19r2;
Goetz-Girev,
1963;
and
29
man-days lost/strikers
Duration:
Freguenc:
It
(1)
strikes/civilian wage and salary workers.
is
advantageous,
to
array
these
variables
into
a
three-dimensional
solid or cube depicting the typical profile or
"shape"
activity
of strike
particular
time
in
period.
Fiqure
hypothetical strike shapes.
overall
concept
strike
activity
1
nation
displays
during
Perhaos the most suitable
is
a
quantity
Voluire
'iqure
akin
index
strikes
employees
of
to the physical
of
the
1:
Frequency
=
an-days lost
per number of
employees
in
a
two distinctive,
of volume, which of course is simply the product
three dimensions depicted
Strike
particular
a
X
X
Duration
X
Size
man-davs_
workers
involved
X
workers
involved
strikes
(1)Noti~e
that stikIe~duration is calculated from the
available
aggregate
data
by
dividing total
man-days
lost by the total
rumber of strikers,
which yields a
"weighted"
average
duration
(as opposed
to
a simple
arithmetical
average
computed from
individual disputes) -- the weights being
proportionate
to
the
number of workers involved in the strike.
For example, if wl,
w2
w
are
the
number
of
workers
involved
in
strikesl,2...n,
and if
d2
...
dn are the corresponding
durations
of
these
strikes
(in aays), the number of man-days lost m,
m2
*..
mn
d 1 w ,1 d 2w 2 , ...
d w .
The Total number of man- days lost
is M =
mi +m 2 + ...
+mn, Rn'd the total number of workers involved is W= w.
text
+wn. The weiqhted average duration defined in the
+w2+
is therefore
M
Duration = - =
d w +d2 2+...+dw
1 2 .n
m+M2 ... m
1
Wwe2 ''
n
1 2+.n'
where the weights are the number
of
workers
involved
in
each
dispute.
The Practical
significance of this
is that the duration
measure is heavily influenced by large-scale strikes.
30
both
Man-days lost from strikes per number of employees has
three-dimensional profile that characterizes strike
any time or place)
appeal
intuitive
and obvious
Fiqure 1
of
a
activity
at
volume
the
(being
justification
theoretical
as a
About Here
comprehensive index of industrial conflict.
dimension
strike
the
incorporating
models
Cost-push
variables as the indicators of labor militancy in wage bargaining
were estimated in the following
(6)
bC + bi
w'(t)
general form:
+ E a(i)
1/U(t)
p'(t-i)
i
+ Z
ci)
S (jt -i)
ii
experiments
Regression
sector strike
Sj = manufacturing
where:
based on
grounds
expected
T
manufacturing
strikes
per
biqqest
effects
is
the most
number
actions of
(1)
Te
(mandays
and
strike
frequency
of
comprehensive
whatever
lags.
volume
manufacturing
on movements
frequency because it
time
strike
employees)
in
for various
equation 6 were tried
combinations of strike variables and
wages --
variables.
dimension
lost
a
per
number of
(the
employees)
priori
On
to
number
of
have the
strike volume because it
indicator of labor militancy and strike
represents the number
duration and size.
(1)
-o--c-u-r--nce---of--a--s-t-r-i-ko---f----o-u-r-se---
of
aqgressive
Strike
size
labor
depends
31
Figure 1:
S ize
Hypothetical Strike Profiles
I
I
Frequency
so
-
Duration
(a)
(b)
32
scale of firms or, more important, the scalp of
the
on
largely
the bargaining unit and
Increases in
exhibit any systematic influence on wage inflation.
substantially
T think in
and
(and
influence
to
unlikely
are
threshold
certain
a
beyond
duration
strike
to
anticipated
not
was
it
therefore
probably
rather low)
wage
settlement
the
most cases reflects the stuborness
So I did not
of the oarties in accepting the inevitable outcome.
wage
charges
Although the logic of these a priori hunches may be
faulty,
expect duration to be a very strong
of
predictor
either.
they
supported
strongly
were
by
the
empirical
each
the
that
in
show
la-id
coefficient estimates in column 6a, Tables
results:
the four countries strike volume or strike frequency or
of
both had sizeable
effects
and significant
case
every
inflation.
in
substantially
higher
corrected
the
on
strike
rate
the
equations
and
multiple correlation
of
wage
yield
a
lower
a
standard
error of the regression than the rival models discussed
earlier.
With the exception of the strike
the
regression
France,
for
(1)
best fits.
produced
the
activity
in 1968
a one year
official
frequency
variable
terms
lag on the strike
statistics
in
on French st-rike
have never been published and therfore the model
for France includes
a dummy
(binary)
variable
----------------------
to
pick
up
the
----------
labor and manaqement (and/or
both
of
behavior
the
on
extent
strikes are labor initiated.
of
government) but the vast majority
data
Frequency
(1)
France
for
available
used as a proxy.
for
and
not
were
sector
manufacturing
the
therefore the economy-wide frequency is
33
effects
of
the
great
May-June
1948
general
coefficient of the dummy variable implies that
wave produced an increase in manufacturing
and
8
percent
equations
rate
demand
excess
the U.S.
term
regression.
(Estimates
(2)
for
the
strike
have
otherwise been
1/U
remained
insiqnificant
is,
from the equations
in
the
to insiqnifi.cance in
the
unemployment
for these countries.
revised waqe models are reported in columns
Tn the strikes
however, the 1/U term
(for the
model
for
Great
Britain,
first time) achieves significance.
net of strike volume and strike frequency, the level of
excess demand
for labor appears to exert significant influence on
of wage inflation.
example,
Feldstein,
unemoloyment-wage
was
would
Hence the inverse of
was deleted
6b-6c of the tables.)
the rate
what
1968
hourly wages between 7
for italy and France, and dropped
variable
That
than
the
The
(1)
expected.
The
greater
strike.
first
inflation
noticed
Tt
1973)
has
been
that
the
connection
in
suggested
(see,
breakdown
Great
Britain,
the
which
in the late 1960's, was due in part to upward
adjustments in unemployment compensation initiated by the
Government
of
for
in the latter part
of 1966.
Labour
However, the results for
(1) This estimate appears to be right on tarqet.
The
aqreement
which
ended the 1968 workers' strike,
the Protocole de Grenelle,
provided for wage increases of 4.5 to 5 percent on
June
1, and
another ?.5 to 3 percent on October 1.
(2)
Since large fractions of the italian
and French labor
forces
were
until
recent
years
employed
in
agriculture,
a
nonagricultural unemployment rate
variable was also tried
in
the
equations
for these countries.
This alternative measure of the
demand for labor did not yield significantly
different
results,
however.
model
are
6b
the
over
stable
show
ic
Table
in
Britain in
Great
in
down
unemployment
change in
Great
Thus
others).
1
face
of
of
strike
does the excess demand-wage
therefore,
the regressions.
Britain show up in
of
tightness
labor
markets
unemployment.
inflation
linkage
in
Great
that
the
demand)
has
prices
are
in
the
are
not
implies
aggregate
of
(level
netted out,
are
This
and
increasing
steadily
activity
(2)
broke
Feldstein
by
measured
rising
inverse
because of the
(perhaps
960's
experienced
Britain
effects
the
after
Only
the mid-
1/T(t)
(1)
militancy
and labor
compensation emphasized
the
in
activity
strike
unermlovment
between
the usual
that
I believe,
of
The reason for the
period.
1967
postterm is,
revival of the 1/11(t)
association
the location and slope
that
contributed to the postwar British inflation.
of
The coefficients
smaller
generally
in
equations
strike
the
expectations models discussed earlier.
surprising
and
is
These
(More on
that
this
in
a
Britain,
the United
(1) On
this
results
What
moment.)
the more or less complete adjustment
prices observed in the pure expectations models
Great
than
among the strikea
view of the sizeable correlations
variables.
price
suggest
in
of
change
of
rate
the
as
States,
well
depend
imnortantly on
--------------------1
point see Hibbs,
of wages to
ani
Prance
for
as the part-ial adjustment
they
estimated for
labor militancy
as
well
---------------------------------
976a and the sources cited
therein.
strik-a
and
unemployment
measured
between
(2) The correlation
in
years
postwar
latter
the
during
positive
strongly
is
activity
readily
is
text
the
in
conclusion
"he
Britain.
Great
demonstrated using standard specification error algebra.
35
as
trade-union
In
"power."
other
words,
trade-union strike
action is an essential mechanism for the adjustment of
prices
in
wages
these countries.
In contrast, the results of the strike equations
show
that
unity -wages.
for
Italy
the sum of the price coefficients is still essentially
indeed as I noted earlier prices typically
(1)
This implies that full wage adjustment
hinge
not
to
directly
on
the incidence of strike
are
chasing
in Italy
activity,
squares with our earlier observations about the power of
does
which
Italian
trade-unions.
Since strike activity is known to be influenced
and
lagged values of unemployment and
strike
terms
omitted
(2)
variables.
appropriately
Quasi-reduced
form
to quard against this
(3) The results appear in column 7, Tables la-id.
these
perhaps
the
of
the
regressions,
(1)
1.0
That is,
the
and the p'(t-2)
(2)
See the
strike
it
is
possibility.
Although
the
variables are generally smaller in
clear
p' (t)
coefficient
coefficient
evidence
reqressions
lagged umemployment and price inflation
terms were therefore estimated
t-statistics
current
in Equation 6 merely register the effects of these
economic
including
prices,
by
is
and references
that
the
strike
activity
is substantially
greater
sizeable and negative.
in
Hibbs,
than
1976a.
(3) Prior work
indicates
that
the
untransformed
unemployment
best predictor of strike activity and so this
rate,
U,
is
the
U
The time
index on
regressions.
in
the
variable is used
corresponds
to
the index and the index lagged one period of the
strike
variable(s).
For example, if the strike variable
appears
in
the
original equation at time (t-1), U(t-1) and U(t-2) enter
The price inflation variables
the quasi-reduced form regression.
are specified at time (t) , (t-1) , and (t--).
36
the effects
merely reflects
inflation
labor militancy on wage
test.
influence
estimated
(1) Tt seems very unlikely, then, that the
of
severe
the face of a rather
robust in
very
are
coefficients
of present or past states of aggregate economic activity.
Just
variables
macroeconomic
the
to approach
are several ways
look
of these
best
Although
of
smaller than those
sizeable
in
is
wage inflation
However,
--
show that
and
much
this
tha strike
due
was
the
for each
to
macroeconomic
Table 2.
variables,
they
clear
in
strike
(2)
are
from earlier
activity.
results
wage equations exhibited substantially higher 12
than alternative
the
proportion of the variation
fluctuations
already fairly
in
term in
terms are somewhat
of the strike
a nontrivial
to
variance
that can be uniquely attributed
Beta coefficients
beta coefficients
the
(The
regression coefficients.
wage equation are renorted
strike-augmented
to
is
method
One
gives the proportion of the
coefficients
variable.)
particular
There
wage inflation?
question.
this
of the rate of change of wages
a
explaining
in
or standardized
at the 'beta'
square
to
how important are the labor militancy terms relative
's
models.
Perhaps a better way of assessing the relative importance of
labor
militancy
is
to compute the products of ordinary
regression
real
in
movements
prior
(1) Cince strike activity responds to
1976a
Hibbs
in
cited
wages rather than morey wages (see the study
wage change
quasi-reduced form regressions in which real
above) ,
the
Again,
estimated.
also
terms renlaced the price terms were
robust.
were
strike activity coefficients
6c
Ttalv,
for
models from Table I are 6h
The "best" strike
(2)
States.
United
the
for
6c
and
Britain,
Great
for
6a
for Prance,
37
coefficients
times the means
time
intervals
show
the
of
interest.
resulting
of
the
associated
The second and
effect estimates,
third
i.e.
for two periods:
1955-64
over
rows of Table 2
the average
unemployment, prices, and strike activity on
inflation,
variables
the
impact of
rate
of
wage
and 1965-74.
Again, it is obvious from the biXi quantities
Table
2 About
that the strike variables have
rate
of
increase
of
Here
manufacturing
wages
period.
Contrary to what I had expected,
general
sign
that
effects on the
(1965-74)
the
strike
upward movement
than
the
during
importantly
contributed
during
though,
pattern
earlier
that
process.
wage inflation
the
era
(1955-64).
reinforces
The pattern
taking the ratio of the strike activity
to
effects
terms,
i.e.
2.
suboeriods
no
period
However, the
do
exhibit
power
trade-union
is
best revealed
average
a
remarks
previous
wage
by
inflation
by calculating
(macroeconomy).
Table 3 gives the results, which are based on
Table
is
averaqe impact attributed to the macroeconomic
the
(strikes)/biXi
biXi
there
of wages during the recent
concerning the role of labor militancy versus
in
the postwar
terms have had greater relative
relative effects of the strike activity variables
cross-national
the
to
The
averaqe
strike
aacroeconomic
impact
activity
variables
in
was
ratios
more
explaining
indicate
important
wage
the
data
that
in both
than
inflation
on
the
in the
38
Table 2
Relative Importance of Unemployment, Prices, and Strike Activity
in Structural Models of Wage Inflation ( based on results of equations
6-6c)
F(t)
F(t-1)
Italy
beta coefficient
V(t-1)
p'(t)
p'(t-l)
p'(t-2)
0.411
0.576
0.152
-0.302
(1955-64)
1.38
4.91
1.23
-2.12
b X. (1965-74)
3.27
7.87
1.77
-3.54
0.375
0.319
0.644
4.51
5.03
0.900
1.03
3.09
3.69
b.X
France*
beta coefficient
b.T
b.i
(1955-64)
(1965-74)
Great Britain
beta coefficient
b.i
(1955-64)
b.iX
(1965-74)
United States
beta coefficient
b.X
(1955-64)
bX
(1965-74)
0.529
0.392
0.460
0.578
1.28
3.80
1.27
2.18
4.48
2.98
2.04
4.55
0.406
3.45
3.71
*
excludes contribution of 1968 strike wave
key:
1/U(t) '
F = strike frequency
V = strike volume
p'
=
percentage rate of change of prices
U = unemployment rate
b iX
=
regression coefficient x mean
0.591
0.716
2.30
39
United States and
Table 3 About Here
less important in Ttaly.
France and Great Britain
fall
between
these polar cases, although, the French ratio implies that, as in
the
United
States,
macroeconomy in
wages,
Italy,
whereas,
strikes
generating
the
the reverse.
upward
British
more
imoortant
movements
ratio
in
than
the
manufacturing
implies, as in the case of
(1)
Since the impact ratios
effects to
were
price effects,
essentailly
are the ratio
(2) if one accepts
the
of
strike
interpretation
presented earlier that the price coefficients reflect in part the
power
of trade-unions
in
wage bargaining,
rough quantitative estimate of
relative
to
union
rank order in Table 3
power:
the
the influence of
power on wage
is
in
inflation.
inverse
greater the effect of
(3)
labor
give a
militancy
Hence, the country
relation
to
trade-union
(reliance on?) strike activity
in wage determination, the less the power
conversely.
then the ratios
of
trade-unions,
and
Table 3 therefore implies that
-----------------------------------------(1) Unless the contribution of
unemployment
(excess-demand)
excluded
from the
calculation
of
macroeconomic effects
is
in
Britain.
(2) With the partial exception of Great Britain, where the strike
model includes 1/U(t).
(3)
The
results
in Table
3 are
of
course
not
altogether
independent
of
the pattern in the price coefficient estimates.
To a certain extent the Table is just another way of
making
the
earlier
point
about
international
differences
in trade union
power.
40
Average Impact Ratios from Strike Augmented Wage Equations
(Ratio of Strike Effects to Macroeconomic Price Effects)
Table 3
1955-64
(1)
United States
(2) France
(3) Great Britain
(4) Italy
4.81
1.75
0.39
(1.25 )b
0.34
a1968 strike wave not included in strike effects
bexcluding 1/U(t) from macroeconomic effects
cexcluding 1/U(t) from macroeconomic effects
method:
see text
1965-74
1.61
1. 64a
0.79
(1.31 )c
0.54
41
Italy > Great
Britain > France
with respect to the
> United States
relative
power
of
trade
unions
in
wage
bargaining.
Cross-national differences aside, the
activity
pointed
on
out,
wage
movements
for example,
substantially
greater
Of course,
time lost
movements
in
that
than
from
wages;
may
cause
working
time
time
lost
wage
of
is
from illness
not
disputes.
lead
to
upward
In
a more
strikes does.
serious vein, there are at least two reasons why strike
exerts sizeable effects on the rate
strike
It is often
from industrial
does
from
of
surprise.
time lost
lost
sickness
influence
inflation.
(1)
activity
First,
settlements obtained by one union or unionized sector often
become the wage bargaining targets of other unions, either in
an
absolute sense, or in a relative sense as other groups of workers
attempt
to
maintain
established
been emphasized in
Phelps Brown's
and
and Wilson's
wage
in
Eckstein
movements
settlements
have
in
not)
wage rates
are
the
one
proportional
Second,
or
in
U.S.
wage differentials.
(1962) work
(1962)
Great
Britain
'key industries' theory of
manufacturing
sector.
Wage
industry or sector of the economy therefore
effects elsewhere
negotiated
known
on
This has
in
through
unionized
parity
plants
bargaining.
(strike-induced
to influence nonunion wage settlements.
If
employers of unorganized workers did not raise wages in line with
the pattern established by union
workers
(1)
and,
Taylor,
perhaps
1974
more
settlements
they
risk
losing
important, expose themselves to the
covers similar
ground.
42
force remains
unorganized.
the
The estimation range for
not
intentionally
was
la-1d
regressions
wage
the year
beyond
taken
and forecast values of manufacturing wage
equations
well,
which
the
rise
extraordinary
quadrupling
in
of
points from
countries
prices
except
the
United
large
(where
the
less severe
than
States
onrice increases was
induced
why the strike
is
No doubt this
the
--
OPEC
the
and
in
forecast errors
either
the 1975 forecasts are uniformly mor.e accurate.
A better way
strike-augmented
to evaluate the predictive performance
wage
of an alternative
equations
model.
is
to make comparisons
The leading
of
exogenous
magnitude
unnrecedented
gererate comparatively
1973 or 1974;
rather
in view
with
coincides
range
prices.
oil
of international
the
performance of
the forecasting
food
in
of petroleum
for all
Europe)
forecasts
forecast
shocks
inflationary
impact
data
the relatively high multiole correlations
More important,
that
fact
models
(The Figures apnear at
2a-2d.
models is also reasonably good, especially
the strike
The
four
the
the actual wage change observations
reflects
earlier.
reported
the
track
1972.
in
changes
the fitted
Clearly,
the end of the paper.)
strike
Figures
in
plotted
are
Tables
in
Actual, fitted,
1973-75 observations were saved for forecasting.
countries
labor
nearly one half of the manufacturing
where
States
United
the
in
apparent
particularly
This is
of unionization.
threat
rival
(1)
of
the
with
the
model
1977
for
available
not
was
France
for
(1) Strike data
forecast.
19175
a
generate
to
thereforc it was not possible
is,
andA
43
of
the price expectations Phillips curve of equation 3.
course,
Table 4
reports the average and root mean square forecast
for each model.
The strike models are clearly superior to the
Table 4
About
Here
price expectations equations for Italy,
terms of
the
PMSF the United States.
expectations
errors.
Perhaps
approximation
Great
Britain,
the
pure
(1973-74)
frequency had to
Tndeed,
in
I
expectations
model
serve
as
somewhat
of the four countries
major
in
inflationary
international
prices
(short-run)
oredictive
models.
performance
of the strike
nodels of
a
proxy
a
for
the
better
that
My
particular
economy-wide strike
manufacturing
for France underlies this
surprised
militancy
wage inflation.
forecastinq
impulse
which
exnectation
that labor
is
the
strike
outcome.
strike
equations
outperformed the pure exnectations equations for three
generally
The
and the fact that
the regressions
was
in
equation yield lower average and .MSE forecast
of the wage formation process in that country.
range
frequency
and
Only in the case of France does
own helief, or more accurately prejudice, is that
forecast
errors
over
during
would
seem
advantage
Therefore,
to
I
the
1973-75
years came from
these
to
give
the
equations to be rather
should
be
considerable
autoregressive
take
incorporated
period.
price
forecasting
strong evidence
into
structural
44
Table 4
Forecast Errors from Expectations and Strikes-Augmented
Wage Equations, 1973-75 (percent per year)
Expectations (eq.3)
Strikes (eq.6)
Italy
-2.08
-0.78
4.61
4.37
average error
1.04
2.13
RMSE
1.59
3.01
-3.42
-1.03
3.73
1.52
average error
0.83
1.19
RMSE
1.68
1.34
average error
RMSE
France (1973-74)
Great Britain
average error
RMSE
United States
RMSE = Root Mean Square Error
45
III
Do the strike model
labor
militancy
AND STABILITY OF WAGES
FOR THE ACCELERATION
IMPLICATIONS
AND PRICES
regressions
yield
any
evidence
has contributed to the acceleration of wages and
prices experienced by all four countries since the
Insofar
the
as
declining rate
change
of
words,
of inflation can be
wages
does
changes
in
if
maintained
not
the
rate
of
exceed the rate of change of
of change of labor
he rate
barring
1 960's?
late
domestic labor market is concerned, a steady or
money
plus
prices
that
productivity.
employment,
In
other
nonlabor costs and the
factor distribution of income, a sustained escalation of the rate
of
inflation will occur when the rate of
chronically
runs
ahead
of
the
rate
change
of
of
change
real
wages
of
labor
productivity.
To clarify matters consider
The
rate
augmented
(7)
of
change
wage model
w' (t)
of money
discussed
bo + h1 1/U(t)
=
+
the
wages
in
following
is
simple
determined
system.
by the strike
the previous section.
E a(i)p'
(t-i)
+ E c (ii) i~i
5(t-i).
j,i
Short-run price changes are assumed to follow the mark-up scheme
(8a)
p' (t)
where:
=
(w -x')
x'
m
principally
raw
(t-1)
+ m' (t-1)
the rate of change of labor productivity
=
=
the
rate
materials;
of
and
change
other
of
terms
nonlabor
are
as
costs,
definer
46
earlier.
Substituting for w' in the pricing model gives
p' (t)
(8b)
b! + hl 1/U(t-1)
=
-
(t-i-1)
c(11) S
+
+ E
+ m' (t-1).
X' (t-1)
Taking aO p' (t-1) to the
left
side
hand
and
subtracting
P't-1 from both sides of the equation yields an expression
(1-aO)
Ap'
for the rate of acceleration of prices
= hC + b1
Ap' (t)
(8c)
1/U(t)
-x'(t-1)
it
where:
useful
=
S*
rewrite
to
the
price
acceleration
F* = .
+ m'(t-1)
+ Z
I,j
c(ji) F(t-i-1)
Z = bO + b1
+...+
source
c(ji)S(t-i-1)
as follows
6 p'(t)
is
(1-a") p' (t-1)
(t-1)
will prove
function
(8d)
+ m
-
ak D' (t-k-1) + ..
+ai p' (t-2) +...+
It
p' (t-i-1)
a (i)
p' (t-1)
x'(t-1).
militancy
can
accelerating
change effect)
(1-aO)
ak p' (t-k-1) -
now clear that labor
of
-
1/U (t)
prices
is nonzero and
if
be
as
pinpointed
a
S* (the strike activity wage
(S*+Z) >
0.
(1)
To
illustrate,
(S*+Z) > 0 does not necessarily lead to accelerating
(1)
Two other outcomes are rossible:
Ap'>A.
share)
profit
(falling
P/Y < P
or
unemployment)
erployment, rising
(falling
AU > 0.
prices,
47
Ea(i) = a^
suppose
=
and m'
h) = hi = 0, which leads to a price
acceleration function
(8e)
AP'(t) =
S*
+ Z
Ec (Ii)
(The French and 11.S.
form,
for
S (t-i-1
-
acceleration
example.)
(I)-aO)
p'(t
-1)
expressions
Equation 9e implies that
-
x'I(t- 1)
would
take
trade union strike
activity contributes to the acceleration of prices to the
that
the
strike activity wage
aO
Put
and the rate
extent
effect on average exceeds the sum
of price changes not compensated
coefficient
this
for
by
the
of change of
price
adjustment
labor productivity
x'.
another way, labor militancy underlies accelerating prices if
S* pushes real wages up faster than x'.
The relevant
strike
activity
appear in Table 5.
data for assessing the direct
to
contribution
accelerating prices over the period
To smooth out cyclical
of
1963-15
fluctuations
Table 5 about Here
in wages, prices,
productivity and
averaged
three
over
decelerating
period
prices in
so
subperiods:
all
Alont
te arg-ument -conce.rning
data
(S*4Z)
have
(a
the U.S.),
countries),
of the (OPFC - induced inflationary
ht
the
1963-67
countries except
accelerating Prices in all four
(the period
on
been
period
of
1968-72
(a
and
1973-75
burst)
and
Ap'I
does
not
hinge
on
the
precise
form
of
the price mark-up scheme (8a).
Related pricinq equations -- for example,
the
"normal"
averaqe
cost
model -- would yield similar results for p' averaged over a
few periods.
Table 5 Average Rates of Change of Wages, Prices, Labor Productivity and Strike-induced Inflationary Impulses
1963-1975
t-1
'a
c0
t-1
t-1
t~
t-1
t
y*
z
S*+z
Italy
1963-67
11.09
5.59
5.50
7.07
-1.58
-0.71
2.29
-3.54
-1.25
1968-72
11.92
3.98
7.95
5.04
2.91
0.70
3.69
-1.49
2.19
1973-75
19.45
10.74
8.70
7.68
1.02
3.19
3.67
-2.47
1.20
France
1963-67
8.12
3.60
4.52
5.51
-0.99
-0.42
4.63
-6.65
-2.02
1968-72
9.74
4.75
4.99
5.95
-0.96
0.67
6.63
-7.46
-0.83
1973-75
14.33
8.42
5.91
4.53
1.37
1.82
7.25
-7.23
0.03
Great Britain
6.71
1963-67
3.54
3.16
4.24
-1.08
-0.32
3.16
-4.12
-1.03
1968-72
8.88
5.50
3.37
3.53
-0.16
0.88
5.76
-5.49
0.27
1973-75
13.92
10.18
3.73
3.57
0.17
4.95
8.09
-7.36
0.73
United States
3.65
1963-67
1.65
2.01
4.27
-2.27
0.31
3.23
-6.29
-3.06
1968-72
6.20
4.41
1.79
1.98
-0.19
0.10
3.93
-5.39
-1.46
1973-75
7.32
6.58
0.74
1.33
-0.59
1.83
3.57
-5.84
-2.27
Key:
Ap' = the first difference of p'; the mean rate of acceleration of inflation.
w' = mean rate of change of manufacturing hourly compensation
mean rate of change of consumer prices
mean rate of change of real manufacturing iourly compensation
mean rate of change of manufacturing labor productivity
I
see text
see text
49
The data
subperiod,
presented
in
Table 5 show
that
during
the
first
1963-1967, the rate of price inflation was falling in
Italy, France and Great Britain, and rising
by
percent
per
(see column 6 of the
Table).
However,
year
iin
in
all
the
United States.
countries the rate
just
of
under
change
of
real
wages laqqed behind the rate of change of labor productivity
was dramatic
lag
+
z
in
was less than zero.
militancy
--
the U.S.
contributed
see column 5) ,
the
steady
acceleration
experienced by the United States over the
For the
Prices
second
accelerated
acceleration
modest
period,
the
in
United States.
United States (as is
+ Z is
r'-x'),
Italy,
the
picture
in
greater than zero,
columns
France
and Great
which
again
implies
of
qrowth
but too small to explain
up real
in
(1)
of labor productivity.
Italy
most
Also
notice that
The
Britain;
that
labor
in
fully
the
Italy
the
labor militancy
than
the
There is good reason to
important
source
of
price
during this period was trade union "cost
push."
(1)
However,
wages much more rapidly
conclude, therefore, that the
acceleration
mixed.
In Great Britain
5 and 9 of the Table show that
was on average pushing
rate
is
T* + T is negative in France and
sharo rise in the rate of inflation.
data
prices
1963-67 period.
frilitancy did not generate the acceleration.
S*
of
S*
labor
in all four nations during these years.
was substartial
in
1968-72,
(the
and everywhere
Clearly there is no evidence that
to
1/3
(r'-x')
is
negative.
50
The
nearly
1973-75
five percent
per
percent
France and
in
the
as
no
average
international
In
prices of
surprise
For
strike
the
the
pressure
union strike
action
to keen real
wages growing
the
+ Z,
S*
as
fast
as
and Great
the
is
Z
are
strike-induced
wage escalation
post-OPEC burst
of
"dmittedly,
conservative
sector,
labor
in
was a
Tn
but
it
U.S.
the
productivity.
Britain,
C-
not
is
+ Z
large
especially
In Italy
(1)
which
1.
calculations
the
estimates
whereas,
(1) Notice,
France.
labor
significant
Both
r'-x'
suggests
that
component
of the
inflation.
Wages ani
impulses.
the
money wages from trade
price acceleration;
than
qreater
to
negative.
evidence again poin t s to a different conclusion.
+
comes
that
attributed
recent acceleration of British consumer prices.
and
it
5 indicate
not great enough
was apparently
enough to account for much of
the
be
on manufacturing
France
for
positive
increases
Ftates the estimated net effect of
United
otherwords,
is
cannot
Table
three
per annum in
food and fuel since 1973,
on price acceleration,
activity
than
more
view of the dramatic
that the data in
general acceleration of prices
iTilitancy.
Britain,
and almost two percent
Italy,
the United States.
great
Great
per annum in
annum in
was enormous:
of price acceleration
rate
however,
of
average
productivity
prices
r'-x'
in
are
is
Eable
strike-induced
pertain
based
substantially
5
on
to
the
might
inflationary
manufacturing
economy-wide
greater
yielt
consumer
than zero
in
51
inflation
activity
implies that only in
have
goods
price indices in
action
has trade union strike
Italy
over
systematically contributed to increasing rates of inflation
the
1968-75
acceleration
of
financing
Although
the
manufacturinq
results
the
show
general
the
factors;
macro-policy
Vietnam War,
mismanagement,
and so on.
paper
this
indicate
rates of inflation,
that
(2) the data in Tables
the combined effects of
that
countries.
(3)
Two
implications
(2) Consumer pricesofcourseare
2
union power and union
militancy effectively index manufacturing wages to prices in
four
9 7 0's
changes in the relative
commodities,
of
1
labor militancy has not been an important proximate
cause of escalating
5
explain
to
and prices of the late 1960's and
other
to
order
In
of fuel and agricultural
prices
and
(1)
wages
of
look
one must
deficit
period.
be
may
effects
as a whole, however, the evidence
Taken
somewhat.
understated
consumer
the
than
strike
the
recent years,
strongly
less
increased
generally
manufactured
of
prices
the
Since
(2)
indices.
follow.
First,
more -relevant -for
all
any
model-ingq
wage determination.
(1) Italian unions are not only powerful, they also are among the
lost
For example, the Postwar average of mandays
most militant.
strike activity per worker is higher for Italy than any other
in
and
1976a
Hibbs,
See
society.
capitalist
major industrial,
1976b.
(2) Except
in Italy to the extent noted above.
(3) That is, the combined effects of price adjustment and strikes
only
The
positive.
wages
real
of
change
of
keep the rate
exceptions over the 1950-75 period are 1969 in France (real wages
0.-% following a 13% increase the previous year)
by about
fell
and 1974 in the United States (a decline of about 1%).
52
of
rate
received
inflation
price
he
to
tends
Pferpetuated.
Second, and perhaps more important, inflationary shocks requiring
income to the protiucers of oil and
food redistributing
and
fuel
generate
can
agricultural commodities,
of
prices
real adjustments, for example changes in the relative
inflation
accelerating
rates if both labor and capital are in the short-run unwilling to
can
lead. to a "home-grown"
trade
resistance."
outcome,
particularly
maintain
a
steady
is
inflation
increasing
political
if
of output
level
and employment
the perpetuation
to
irfluenced
is
of inflation
and
about
brinq
should be
done.
inflation
is
As
by tradp union
wage and
Tobin
not the worst
price
(1972)
action,
stability?
and
in
real
interim
attempt
and
to
"validate"
(2)
some circumstances
in
the
in the terms of
decline
authorities
the inflation by expanding the money supply.
If
Until
an inevitable
almost
Hicks
what
(1)
and settle the problem of allocating the
income,
done
of
actors acknowledge the shift
domestic
principal
wage
inflation
"imported"
as a result
inflation
"real
called
has
(1975)
Therefore an
real income loss.
the
accent
others
the escalation
what
can
he
Perhaps nothing
have
observed
way of resolving group rivalries and
British
the
before
tiestimony
(1) As G.O.N. Worswick put it in
all
of us
"If
Cowmittee:
Fublic Expenditure
Commons'
of
House
ba
would
that
the
chin
on
of
oil
ir the price
took the rise
just
is
incorme
'Our
say,
we
do
not;
us
of
but
most
thing,
one
our
real
restore
to
We wish
unchanged and prices have risen.
income.'" (cited in Miller, 1976, p. 511.)
(2)
out
1964.
workel
beer
already
idea has
A rough formalization of this
work of Sarqan,
1976, who builds on the earlier
by
Miller,
53
social
Moreover,
conflict.
much
if
not
of
all
the
pain
attributed to the recent inflation is actually due to the massive
income loss caused b-y the shift in relative prices in favor
real
Had the real
of producers of food, fuel and raw materials.
absorbed
urban, industrial societies
by
loss
(or sectors of society)
not
taken place around a stable price level the pain would
have
been any less unpleasant.
A "do
nothing"
posture
may be viable
in the
United
Inflation
has been runninq at below double digit figures
for 1974),
the balance
of payments
constraint
is
not
States.
(except
severe
by
international standards, and trade unions are comparatively weak.
In
Italy
France,
reached
almost
and
outside
results
Britain,
must be brought
presented
earlier
however,
For
proportions.
runious
economic reasons it
The
Great
under
in
as
has
well
as
control.
the
paper
showed
that
the United States there is little evidence of a Phillips
curve and that
the
impact of strike
independent of market forces.
action on
of
for
activity
wages
is
largely
Yet there isn't much doubt that if
political authorities were willing to run
levels
social
inflation
the economy at very low
a prolonged period of time the power of
unions to obtain wage increases equal to or in excess of the rate
of
price inflation
killing
the
would
patient
be broken.
This of
to cure the disease.
policies of this sort are
simply
not
course
amounts
to
In any case suicidal
politically
feasible
in
54
modern caoitalist democracies. (1)
If it is necessary to
alternative
of
cooperation
voluntary
the
In a
Healey's
trade unions.
the
that
shows
experience
(1970) pathbreakinq study of the postwar
is
hinges
democratic society the success of a national wages policy
on
and
inflation,
national wages or incomes policy.
of
form
some
only
the
acceptable,
effective or politically
probably
about
something
macroeconomic policies are unlikely to be
deflationary
orthodox
do
two conditions are critical for trade union cooperation:
the state
Whether or not
(i)
the wages
coordinates
directly
policy, the government must command the confidence of the unions.
means that
In practice
this
Communist)
political
control of)
the government.
the trade
(ii)
degree
union based
must
parties
be
(Socialist,
labor,
share
in the
(or
control
union movement must
peak
the
that
trade
to
centralized
the
organizations exercise effective control
over the principal bargaining demands and strike decisions of the
unions.
rrajor constituent
None
satisfies
of
the
Heady's
countries
treated
conditions.
Government has been able to sell
unions
--
indeed
severe
wage
in
this
However,
wage
the
restraint
restraint --
entirely
study
British
to
the
Labour
trade
for two successive
Nixon-Pord
the
by
pursued
policips
macroeconomic
the
For an
in this way.
1972 election
the
after
Administrations
my
see
considerations
political
tha
of
analysis
extensive
Policy Makers So 'Tolerant of
U.S.
Aro
"Why
paper
forthcoming
of Tnflation."
Unemployment and Intolerant
55
years, even though the TUC
exercise
To
be
sure
it
organization)
pressure
promise
not
outlined
does
not
(1)
above.
took an extraordinary domestic economic crisis,
from the international
of
tax
relief
union's cooperation.
does
labor
the kind of centralized authority
external
the
(peak
have
a
to
Although
long-run
alleviate the short-run,
economic
low
community,
wage groups to
a national
future in
wages
Britain,
post-OPEC crisis.
elicit
policy
it
and
the
probably
has helped to
Perhaps this
is
all
one should expect.
Even a
post-19 7 2
and
policy of short-run
wage and
Italy
unless
government.
Italy,
price
the
annual
four consecutive
left
been
pressing
years
(the
for
in
have
Christian
Democrats
continue
Italy
may
slide
union
from
in
brought
20
but
rejected
to
thus
PCT
far
PCI
in
percent for
(PCI)
has
for several
the
overtures.
oppose
the
acute
Party
the government
France
into
particularly
have exceeded
coirpromise"),
trade
is
The Ttalian Communist
Democrats
and
is
increases
Christian
participation,
not feasible
opposition
participation
"historic
is
situation
wage
years.
designed to reverse the
acceleration
The economic
where
restraint
ruling
If
the
government
wage pressure is unlikely to abate,
economic
crisis
into
economi-c
catastrophe.
(1) In August 1975 the trade unions agreed to
hold
weekly
waga
increases
to
99 6 -- a rise
of about 10 percent.
Wage restraint
was even qrea+er the following year:
The August
1976
aqreement
held
wage
increases to an average of 4.5 percent.
The increase
in both years was substantially less than the rate of
inflation.
It
is
clear
that
a
Conservative Government could never hav3
pulled this off.
56
Regressions
Italy: Manufacturing Average Hourly Compensation (w')
Annual Data 1954-1972, t-statistics in parentheses
Table la
(1)
(2)
(3)
(4)
(5)
(6a)
(6b)
3.463
(3.76)
-2.272
(-0.54)
-1.019
(-0.45)
1.697
(0.83)
23.055
(3.35)
3.333
(2.90)
l/U(t)
46,904
(2.96)
15.349
(1.50)
10.533
(1.30)
-2.421
(-0.36)
0.518
(0.10)
AU(t)
0.442
(0.50)
Constant
2
P'(t)
i=0
2.55
(1.20)
0.043
.(0.20)
Z U(t-i)
i=1
2
E0
(7)
1.649
(4.52)
1.226
(3.18)
p.(t-i)
0.591
(1.67)
APY(t)
-0.104
(-0.81)
P/Y(t)
-0.160
(-3.02)
Strike Volume
(mandays lost per
worker in manuf.)
t-1
.774
.888
0.942
(3.38 )
0.931
(3.60 )
1.041
(3.33)
1.910
(3.99)
1.953
(4.34)
2.108
(3.85)
.914
.917
.910
.273
.690
DW
1.85
2.00
1.85
2.18
1.99
2.01
1.94
SER
3.474
2.381
2.302
1.986
1.750
1.749
1.823
rI= +.500
r1 =+.281
r =-.372
r =-.383
r1=-.406
r1 =-.415
GLS*
r1, r2 are autoregressive coefficients from a generalized least-squares estimation.
57
Table lb
France:
Manufacturing Average Hourly Compensation (w') Regressions
Annual Data 1951-72, t-statistics in parentheses
(1)
(2)
Constant
7.260
(1.35)
6.851
(3.77)
6.640
(3.17)
0.715
(0.31)
1/U t)
2.421
(0.65)
-1.404
(-1.05)
-1.411
(-1.01)
-0.469
(-0.04)
AU(t)
0.834
(0.13)
(3) (4) (5) (6a)
Dum 68
(=1 1968)
7.399
(3.05)
(6b)
.
(6c)
0.643
(0.40)
7.433
(3.31)
(7)
-1.741
(-0.53)
7.989
(4.60)
7.820
(3.29)
2
Z U(t-i)
i=0
2.012
(0.59)
0.889
(6.34)
p(t)
2
0.664
(5.40)
0.663
(5.64)
0.681
(6).38)
0.927
(4.95)
E p'(t-i)
i=0
Strike Volume
(mandays lost per
worker in manuf.)
t-1
Strike
Frequency
(Strikes per
10,000 workers
economy-wide).
0.0
.645
.632
0.683
(3.12)
4.236
(2.97)
4.233
(3.06)
4.134
(3.12)
6.593
(1.82)
2.381
(2.69)
2.389
(2.85)
2.698
(7.87)
2.571
(1.87)
.836
.845
.826
.714
DW
1.93
1.72
1.91
2.00
2.00
1.99
1.86
SER
4.347
2.633
2.681
1.782
1.729
1.689
1.787
GLS*
r =+.600
r =+.196 r 1 =+.198
r =+.200 r1=+.613
r1 , r2 are autoregressive coefficients from a generalized least-squares estimation.
58
Table 1c
Great Britain: Manufacturing Average Hourly Compensation (w')
Annual pata 1951-1972, t-statistics in parentheses
(1)
(2)
(3)
(4)
(5)
(6a) -
(6b)
Regressions
(7)
Constant
5.306
(1.57)
4.521
(2.46)
2.948
(1.41)
9.815
(1.09)
2.092
(1.04)
-2.874
(-2.32)
-2.699
(-1.84)
-5.287
(-2.67)
l/U(t)
4.432
(0.92)
-1.327
(-0.54)
-0.763
(-0.34)
1.221
(0.42)
1.157
(0.48)
6.721
(4.54)
6.637
(4.07)
6.694
(2.76)
AU(t)
0.504
(0.36)
2
U(t-i)
U
1.941
(1.45)
i=1
Dum 68
(=1 1968-72)
1.013
(0.24)
Dum 68 xl/U(t)
-2.585
(-0.27)
p'(t)
0.683
(7.41)
i p'(t-i)
i=0
1.207
(4.17)
AR/Y(t)
1.080
(3.44)
0.669
(5.59)
0.710
(4.33)
1.090
(3.90)
0.417
(1.08)
-0.371
(-0.82)
R/Y(t)
AT/L(t)
0.935
(1.78)
Strike Volume
(mandays lost per
worker in manuf.)
t-1
4.332
(3.62)
4.064
(2.51)
4.040
(3.85)
Strike Frequency
(strikes per 10,000
workers in manuf.)
t-1
2.080
(4.85)
2.080
(3.45)
1.161
(1.63)
n
0.0
.451
.640
.662
.683
.911
.899
.938
DW
2.07
1.87
1.96
2.00
1.79
1.83
1.86
SER
2.514
1.90
1.754
1.785
1.646
1.152
1.220
.996
r1 =-.565
r1 =-.555
r1 =-.600
GLS*
ri=+.7 2 0
r,=+.26
r =-.100
1.98
r1 , r2 are autoregressive coefficients from a generalized least--squares estimation.
59
Table ld
United States:
Manufacturing Average Hourly Compensation (w')
Regressions
Annual Data 1951-1972, t-statistics in parentheses
(6a)
(1)
~ (2)
(3)
(4)
(5)
Constant
2.471
(1.39)
1.816
(2.15)
1.753
(1.90)
1.991
(1.40)
2.100
(2.56)
-1.181
(-1.48)
I/U(t)
12.330
(1.63)
8.343
(2.44)
8.283
(2.29)
8.874
(2.03)
7.400
(2.07)
2.988
(1.00)
AU(t)
0.034
(0.13)
(6b)
(6c)
-2.807
(-1.01)
-1.190
(-1.56)
2
E U(t-i)
i=1
0.026
(0.11)
0.583
(5.83)
W(t)
P
(7)
2
E p'(t-i)
i=0
0.563
(3.42)
0.514
(4.56)
0.464
(6.01)
0.467
(6.32)
0.496
(5.91)
0.336
(4.55)
0.620
(3.44)
a
A R/W(t)
-0.064
(-0.57)
R/W(t)
-0.021
(0.21)
0.413
(1.98)
AT/L(t)
Strike Frequency
(strikes per 10,000
workers in manuf.)
t-1
.074
DW
2.13
SER
1.323
GLS*
r1 =+.484
.684
.654
2.06
2.06
.792
.828
.647
2.11
.875
3.514
(4.18)
4.050
(6.23)
3.062
(14.74)
5.520
(3.47)
.714
.855
.865
.822
.793
2.08
2.03
.779
2.07
.674
.673
r1 =+.196 r1 =+.203 r1 =+.246 rg=+.275 r1=-.141
r2=-.060
r2 =+.349 r2=+.355
r1 =-.191
r2 =-.094
2.09
.687
r1 , r 2 are autoregressive coefficients from a generalized least-squares estimation.
2.17
.709
r =-.300
Figure 2a:
w'
Italy: Actual, Fitted, and Forecast Values of Manufacturing Money Wage Changes, 1954-1975
From Eq. 6b.
28.
21.
14,
C'
7.
0.0.
1950.
1955.
1960.
1965.
1970
5. Or-
-5.
Residuals
1975.
Figure 2b:
wI
France: Actual, Fitted, and Forecast Values of Manufacturing Money Wage Changes, 1951-1974
From Eq. 6c.
26.01
actual
20.0
A&&
fitted to 1972, forecast 1973-74
A
14.0
A
A
a
0~)
&A
8.0
r2L
1. 5
1950.
1955.
1960.
1965.
1970.
14
.A
V-0"41
-4.O'
Residuals
1975.
a-
Figure 2c:
Great Bri tai n:
From Eq. 6a.
Atua,
Fitted, and Forecast Values of Manufacturing Money Wage Changes,
1951-1975
22.actual
AA
17.0
-
fitted to 1972, forecast 1973-75
12.0
A
A
7.0A
12.0
1950.
2.0
1955.
1960.
1965.
1970.
Residuals
1975.
Figure 2d:
w'
United States: Actual,
From Eq. 6c.
Fitted, and Forecast Values of Manufacturing Money Wage Changes, 1951-1975
10.0
actual
6.0
&&A
fitted to 1972, forecast 1973-75
A
4.0
2.0
195.
2.0
1955.
1960.
1965.
1970.
0 0
-2.0O
Residuals
1975.
65
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APPFNDIX
Data Sources
(except where noted, all variables pertain to manufacturinq
Hourl
_
I!.!1
Coii!ato
Output~ pgr H1our _(__l
All countries:
Statistics,
Per Hour,
Employed
U.S. Department of Labor,
Office
Bureau
of
Labor
of Productivity and Technology, "Output
Hourly Compensation, and
Unit
Labor
Costs,
All
Persons
in
Manufacturing,
1950-1975"1 (September
1976)
Consumer Prices
italy:
Period
p.
Quandri Della Contabilita Nazionale Italiana Per
I.
1951-1923 (Rome, 1974) and I.L.O., Yearbook of Labor
statistics, 1974.
France:
years.
I.L.P.,
Yearbook
of
Labor
3tat istics,
Great Britain:
Dep2arment of Fmployment
1975 and supplementary sources.
United States:
unqmlu.211e1
I.L.O.,
United States:
Share
Italy:
December
jUI
Yearbook
of
Labor
of
Statistics,
Labor
Great Britain:
DQ2ertment of Empioyment
1975 and supplementary sources.
Profit
Gazette,
NBER, TROLL Time-Series Data Bank.
Italy:
T.L.O.,
yearbook
supplementary sources.
France:
years.
various
NBEP,
TROLL
1973
Statistics,
Gazette,
va rious
December
Time-Series Data Bank.
(2/'W. _fY) :
Sylos-Lahini, 1474, p.
122.
Great Britain:
M.A. King, "The U.K. Profits Crisis:
Reality," Economic Journ al, March 1975.
United
and
States:
NBER, TROLI Time-Series Data Bank.
Myth or
sector)
74
Trade
Union Membership
Department of
Great Britain:
years.
United States:
various years.
("IL)
as a Percentage of the Labor Force
of
Handbook
B.L.S.,
Gazette,
EMp.1oment
various
5 tatistics,
Labor
Strike Volume [Vj and Strike Freq.uency _1:
Strike
Statistics,
labor
all
data,
countries:
various
force data:
I.L.0.,
Yearbook
of
Labor
years.
O.E.C.D.,
France:
Ttaly,
main
Economic
Indicators, various years.
Great Britain:
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Statistigs,
DgargtMpnt
Engiolmegt Gazette, various years.
United States:
NPER, TPOLL Time-Series
Data Bank.
of
v
f
Appendix:
Data
1.Ti
()LY
w'
U
(A
9.24i
195 (
1952.
1951.
64
:1.956
19 55 .
64
-
e2:207
3.41..602
4 .969980
11 to- -::>-.-'
5 7.
15.823
196.
19.. . 4
171. 415 ISE
1.1 . 7176
7.82652
2 ,66094
19 ..:>.
j
Cl64.
19
196.S
1
8),
9 9
2t 4C)
6 .95257
9. 25932
1 .l 21179
16. 1917
13.1419
1 966 .
119.
?70 ,
.
197:1.,
1972.
.1973+.
".
2 74 :1.5 3
25. 5 )1
V
R/Y
NA
2.
7. 021825
8.786835
7.)07306
6 3.191 3
45.294
4 . 0 119:
3 42532w
2.9519 5 j*
2.- 5 2 32'8
2.76783
3. 6559 :.
3., 94831.
3 . :1.086
3. 54569
3 .43399
3 . 18* 4 6 5
3.1945
3.'70016
3.5
2.95
.30
-.
'0.1
,139
1.
4 87035
-xl
A9
0.67219
0. 4:1524
3.39042
1959.
+
715 621
772546
0 6
43
195/4.
.19
_p'_
100.3
1
5.'
11.3
15.1 3
:109.
105', 5
1
C'
J
3.83559
4.16e 7 27
5V.29919
0.*526 1
o 18 e93
S e. 701.6
o . 1995
0. 9 !:567
5
0.925
9.43327
6).25792
3.73771
3 . 47362
7.25193
0 0.8262
.53318
3. 4371
2 * 5 1.0
2.5.4953
B
4 4 0l1 2
97
Mean
10.792
4.840
5.128
Coefficient
of Variation
0.595
0.422
0.779
0
5 1.
.84751
1 . 1 6762
0 , 46581.
1 . 649-4
2. 92377
2. 0 99
3 . 15)471
5) . 3.2'74
6. 7409 '.
6 0789
10. 56E5
15.578
15 . 659
0
91. 4
92. 6
88 . 2
83 1
NA
NA
N Aot
0.94175
4 . 41506
1. 35572
1. .1261.
1. 74932
2.76694
.91989
'j.
j
;
3.47204
9.47704
3. 18756
6. 33125
11 . 6328
4 . 69 1'
4.0822
E8. 0659
3 . 445.43
4 , 87051.
4.72536
7. 48596
9.66072
4.7945
N1A
NA
99 .964
1.161
5.993
0.105
0.846
0.438
-v
-v
n
0
-4
'C
0
-1
43
U
w
F
V
p
x'
'iA.
N'A
. 9 '%-
S-.
1 4j
14 0E
- 7
4.,
'
-
'z.
o C
3. 1 4531
4
344 49 79
1 * -
, 01
'
82'1.5
.14736
-7
"0
.D
1
3 6
10
ii
.
*9
ej
3
15625
7 -14.
19 e
6
2
1-'9
04 4
. 494 1
6 ./4 6J
5. 4486
NA
NA
S9
.4 .......
I 4
10
A 315
4
A
7 41041
5.4
(
4,
21145
..
,:)'iy,
4 4
1
60:2
314
197.
19 -71. 9140
Mean
10 .140
1.080.
Coefficient
of Variation
0.476
0.685
a
3 .Y416
NfA
N-- A
a
0.772
0 .295
1.709
5.089
1.082
0.358
0.350
0
0
GREAT BRITAIN...
__
1950.
1951.
1952.
1953.
1954.
1955.
1956,
1957.
195.
1959.
1960.
1961.
1962.
1963.
1964.
195
1966.
1967.
1968.
1969.
1970.
1971.
1972.
1973.
1974.
1975.
4:
Mean
NA
8.27856
9.1567
4 . 87909
5.55696
6.95934
8.26244
6.18753
6 .34022
3.02544
6.56757
7.46613
5.05018
4.54626
6.9428444
7.97512
8.03003
2.83995
6.95257
7.71635
13.698
13.1742
12.283
12.2894
17.1768
23.7989
T/L
V
14.8881
21.717
24.3
23.9
18.7
19. 1
22.5
2117
X20
19.7
1948
21.7
215
19.6
18.9
21.1
21.9
2.5
2.4
19.9
20.7
18.4
17.4
16.4
17.9
21.6
NA
NA
45.9839
46.7
47.1055
46 . 5277
45.99
46.1239
45.7447
45.7894
45.2613
44.9316
4 4. 921
44.6104
44.6117
44.7323
44.7922
44.7357
44.1319
44.6773
45.0022
46.2973
49.7486
50.2983
51.3065
50.4986
51.5796
NA
0.04006
0.06849
0.10377
0.20593
0.10377
0.10466
0.17611
0.81698
0.08233
0.57304
0.20765
0.19063
0.5622
0.1162
0.17314
0.23397
0.11382
0.19522
0.45534
0.51622
0.77887
0.81641
1.0126
0.72841
0.95261
NA
R/Y
U
1.5
1.2
2.
1.6
1.3
1.
1.1
1.3
1.9
2.
1.5
1.4
1.9
2.3
1.6
1.6
1.4
1.4
2.2
2.4
2.4
2.5
3.4
3.8
2.6
2.6
4.2
2.8676
9.4346
8.32529
3.20263
1.7046
4.40836
4.73776
3.78361
2. 92702
0.4796
0.95234
3.49283
4.03643
1.94941
3.22914
3, +r2914
4.65622
3..84998
2.45886
4.58345
5.29718
6.17847
8.99782
6.6455
8.7924
0.33562
0.44324
0.30245
0.33852
0.36772
0.47794
0.39649
0.43576
0.46643
0.60835
0.83(69
0.83187
0.85856
0.86518
1.14556
1 .237
1.01584
1.41603
1.72573
2.30217
3.10349
1.81852
2.14837
2.37225
2.47237
NA
NA
0.964642
-4.249
4.56848
3.29447
3.18928
0.
2.36349
1.73664
3.93867
5.76181
0.778198
2.4251
5.28059
7.04269
2.96564
3.50914
4.3952
6.48508
1.30358
0.920773
4.56867
4.03309
6.74782
0.31395
NA
8.646
2.019
5.531
20.4
46.481
0.373
1.133
3.014
0.539
0.406
0.826
0.096
0.049
0.846
0.722
0.853
Coefficient
of Variation
F.._
UNITED-STATES
R/W-
Y/L
1.05772
R7. 64 34 1
2.25592
0 . 7719
0.35267
24.3 72
17*2276
13 -3 2
13 .5 ?';*
14.3735
31.1656
33. 5939
33.0107
1 .4636
3. 34024
16. 1 7Q4
.) 9
14 79
U
1950.
1951.
NA
9.53102
5 .208333
1952.
6.26431
5.53646
4.39043
2 402"
1955.
10 +6102
Mean
of Variation
5.59r~166
'4>66
3,71046
6.25706
b;?:4169
4. 31108
,
3 9977:1.
1956.
1957.
1558.
1959.
1960.
1961.
1962.
1963
1964.
1965.
1966 .
1967.
1968 .
1969.
19~0.
1971.
1972.
1973.
1974.
1975.
Coefficient
3.2333
^>97
4.12499
4 . 3:'
6 . 4:166
5 . 54 :1.6-.
6* 6916
56666
5.64166
5 . 1.5.03 3
. 5 0f33
3,.79166
406
2.94323
3.95603
3. 1.0287
4+ 365
2,
i.')
2 24
.;:.--,-4A
4.6219a
2
9442
+0212
0.92049
1. 06611
1. 16539
1..24264
1..3001.6
1.*56394
'2.94724
1
(.. 7,)*63
E 10
3.8001
5).249
1.7 . 5164
16.5409
:1.4 *, -714
3.,55333
3.49166
6 .765 84
6.33698
6.53601
6.4436
4.12321
52816
13.6099
10 . 9288
35.0,4108
3 3.-7 238
33.8835
33.3551
33.1742
32. 3879
31.5863
3().*0328
29. 7443
28.9483
28.6723
28.4453
2 '.(51
27. 83V.'2
27.,3377
27.5134
26.8415
26.9734
26.3654
25.7725
25. 6284
NA
F
1.77482
1.55432
1.60233
1 .4884
1.. 04 3,29
1.43348
1.15177
1 .14475
1.22609
1 * 2251.9
1.02719
1.06153
). 99083
1..03855
j.15159
1.19444
1 . 1970.
1.34675
xI
NA
3.34377
1.48373
1.89648
1 .57709
4.99411
-0.815201
2. 15931
-0.535488
4.59099
1 .02043
2.25859
4.4882S
6.65383
5. 0849
3.42178
1+71814
0.200176
3.,5367
1 .39931.
1.28224
1 28742
1.077
1. 13713
1. 408 26
NA
1.3423
-0.477314
5 t 31092
4. 87041
1.79873
-4.07152
-0.620842
8 . 50833
3.2522 2
6 ,*,' 4 281
10*4677
8.73871
.2577
71506
-11 .6429
1.2 695
N
NA
5.541
4.938
3.137
14.285
30.179
1.248
2.209
0.374
0.262
0.868
0.229
0.101
0.167
1.120
4 4 9 833 3
5
4. . 915
8333
).
6C
5 ,
7 .45249
4 . 3533
9.12371
f.
A
S./
--4