TWO SCHOOLS OF THOUGHT ON WAGE INFLATION
| DOI | http://doi.org/10.1111/j.1467-9485.1958.tb00360.x |
| Author | HARRY G. JOHNSON |
| Published date | 01 June 1958 |
| Date | 01 June 1958 |
TWO
SCHOOLS OF
THOUGHT
ON WAGE INFLATION
THE
problem of wage inflation, as it has come to be discussed in this
country in the past few years, poses a number of questions.
It
is, at
the outset, none too clear that the British problem has been
a
straight-
forward theoretical case of wage-inflation,
to
be identified with a too-
rapid rise of wages, for whatever reason. Assuming for the sake
of
argument that the nub has indeed been the rate
of
wage increase,
three questions then arise-the cause of the upward movement
of
wages, the desirability of stopping inflation, in the light of the possible
cost of
so
doing, and the method that should be adopted for doing
so.
Views on these matters tend to fall into two schools: that wage
inflation is due
to
excess demand, that inflation is a major evil which
must be stopped, and that the obvious method to follow is compres-
sion
of
effective demand
;
and that inflation is due largely to methods
of wage-determination inappropriate
to
a full-employment economy,
that it is a minor evil, the cost of stopping which may easily be too
great,' and that the obvious method to adopt is some
sort
of national
wages policy. These views are
of
course not always held in the indi-
cated combinations, nor do adherents of the two schools necessarily
disagree very strongly with one another. But the two schools serve
as a convenient reference system, and it would not,
I
think, be unfair
to place Mr. Parkinson in the first and Messrs. Robertson and Flanders
in the second.
So
far as the first problem (the cause of inflation) is concerned,
I
am inclined to agree with the view of Mr. Parkinson (and the Cohen
Committee and others) that the predominant factor has been high
demand. But
I
would emphasise more strongly that a prolonged
wage inflation sets up its own momentum through the establishment
of mechanisms of automatic wage increase, analysed by both Mr.
Robertson and Mr. Flanders, which will keep the inflationary process
going for a considerable time after demand-restriction policies have
been applied-especially if they have not been applied with convinc-
ing determination.
I
find it very difficult to accept Mr. Robertson's
view that the trouble lies in the central negotiation of standard rates,
which removes negotiation from the direct impact of economic pres-
sure
:
surely the gentlemen involved are capable of reading their news-
1
The view that the right way to stop it is the negative-cost one
of
in-
creasing productivity sufficiently rapidly to cover rising wages seems to rest
either on
a
failure to understand the Keynesian revolution
or
on the naive view
that wages are determined independently
of
productivity.
149
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