Free To Choose? Dimensions of Private‐Sector Wage Determination, 1979–1994
| Author | Peter Ingram,Jonathan Wadsworth,Donna Brown |
| Date | 01 March 1999 |
| DOI | http://doi.org/10.1111/1467-8543.00117 |
| Published date | 01 March 1999 |
Free To Choose? Dimensions of
Private-Sector Wage Determination,
1979±1994
Peter Ingram, Jonathan Wadsworth and Donna
Brown
Abstract
Deregulation of the system of pay determination in Britain was started in
1979 with the removal of incomes policy. The objective was to give
employers the freedom to determine wage increases without the restrictions
of pay norms or statutory limits. Instead, companies would be able to link
changes in pay to the fortunes of the individual enterprise or establishment.
By the mid-1990s, had these attempts to decentralize wage negotiations
changed the determinants of wage settlement outcomes in Britain? We
address the in¯uence of industrial relations institutions and labour market
pressures on wage increases between 1979 and 1994 using evidence from
the CBI's Pay Databank. Despite the direction of the Conservative
Government's policy, the external institutional forces of the labour market,
particularly the rate of in¯ation and comparability, appear to exert an
enduring in¯uence, both qualitatively and quantitatively, on pay determina-
tion.
1. Introduction
The endemic tendency for the British economy to generate increases in
earnings in excess of both increased output per head and in¯ation has been
the root cause of its weakness. Incomes policies were repeatedly used as a
remedy until the end of the 1970s. From 1979 the Conservative government
left pay in the private sector to employers who were seen as the best judges
of what could be afforded. (Bayliss 1993)
A principal feature of the 1979 incoming government's economic philoso-
phy was the belief that the British economy would bene®t from less
intervention. One of the ®rst acts of the Conservative programme of
Peter Ingram is at the University of Surrey; Jonathan Wadsworth is at the Centre for Economic
Performance and Royal Holloway College, London; and Donna Brown is at the Centre for
Economic Performance.
British Journal of Industrial Relations
37:1 March 1999 0007±1080 pp. 33±49
#Blackwell Publishers Ltd/London School of Economics 1999. Published by Blackwell Publishers Ltd,
108 Cowley Road, Oxford, OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
deregulation of the labour market was the abolition of explicit incomes
policies from mid-1979.
1
With wage-setters released from this constraint
and seemingly `free to choose' in their decision-making, policy-makers
intended that the ability to pay should feature more strongly in wage
outcomes.
Yet 13 years after the abandonment of explicit wage restraint, the
Financial Times was still lamenting `the dismal failure of British industry
to bring wage in¯ation under control. . . . The government must do more
than urge private industry into delivering the kind of wage adjustment it
has so far been unable to deliver unaided' (Financial Times editorial,
`Time to get Tough on Pay', 15 October 1992). The Department of
Employment also bemoaned the role of the `going rate', comparability,
cost-of-living increases and attachment to an automatic annual round of
pay settlements as `outmoded concepts' in the determination of pay (DE
1988: para. 3.5). While unit labour costs in manufacturing improved
during the mid- to late 1980s and again from 1993, the UK's relative
position in a ranking of industrialized nations' hourly labour costs
remained constant over this period (Bamber and Lansbury 1993). The
rate of wage increases remained high relative to price in¯ation, and
apparently undiminished by the level of unemployment, well into the
1990s. So, while employers appeared to bene®t from greater freedom to
determine patterns of work and address considerations of productive
ef®ciency (Metcalf 1989), the suspicion remained that wage growth in the
economy was still determined by external pressures on ®rms.
2
Determination of pay at the level of the single employer or bargaining
unit, especially in manufacturing, was widespread in the 1980s. In the 1950s,
W. Brown and Walsh (1991) estimated that there were only a few hundred
separate bargaining units in Britain; by 1980, at the time of the ®rst
Workplace Industrial Relations Survey (WIRS), there were in excess of
30,000 bargaining units. WIRS3 indicates that there was a large reduction in
the incidence of multi-employer bargaining during the 1980s, particularly
for manual workers (Employment Gazette, September 1993). Plant and
establishment-level bargaining, however, remained rare outside manufac-
turing.
The apparent failure of reduced government intervention to slow down
the rate of nominal wage growth led to concerns that the decentralized
structure of wage-setting could itself be a contributory factor fuelling
in¯ationary wage growth (see Calmfors and Drif®ll 1988; Layard 1990;
NEDC 1991). The trend towards decentralized pay determination was
believed to make wage restraint harder to achieve, since local bargaining
units were unable to take account of the macroeconomic consequences of
their individual decisions. On this view, in¯ationary wage rises stemmed
not just from the power of trade unions to push for higher wages, but also
from the lack of co-ordination of managerial policy (W. Brown 1985, 1986;
TUC 1990; GMB and UCW 1990). Nevertheless, opponents of the idea of
#Blackwell Publishers Ltd/London School of Economics 1999.
34 British Journal of Industrial Relations
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