Differentials and incomes policy‘

by Derek Robinson Senior Research Officer, Oxford University Institute of Economics and Statistics

THIS paper will raise a number of issues about differentials and their consequences for incomes policy. It is not possible to undertake any detailed analysis of factual material, as satisfactory data in a form suitable for integration with the type of presen- tation adopted are not available. Attention will be focused, therefore, on the type of problems and difficulties that have arisen over differentials in incomes policies and which seem to be of fairly general applicability almost irrespective of country or specific policy content, providing that the in- comes policy adopts certain broad common charac- teristics.

M EANlNG OF “DIFFERENTIALS”

Differentials can be taken to mean the relationship of the pay of one group of workers or employees to those of other groups. A stricter definition might distinguish those occupational comparisons which refer to internal comparisons referred to as differ- entials, and those which refer to external comparisons or “relativities”. We could then speak of differentials as reflected in an internal wage structure, and of relativities when referring to the rates of pay re- ceived by members of the same, wide or narrow, occupational group employed at different locations. Thus, while the relationship of the pay of, for in- stance, all adult male manual workers in one industry to that of a similar amalgamation of workers in another industry is sometimes referred to as a differential, we would describe this as a relativity.2 The crucial variable, therefore, is the coverage of the group under consideration. This can be a plant, company, industry or sector of industry. Once this is given the internal relationships are differentials and the external relationships are relativities. The

1 This is based on a paper presented to the Royal Economic Society Conference on Pay Structures held at Durham in September 1972.

2 Even here there would be some difficulties in that corn- parison of the pay of large groups of workers, without differ- entiation or reference to occupational classification, limits the uses to which the results of the comparison a n be put.

distinction is perhaps more useful when the differ- entials in question refer to a single plant, in that the concept of relativities might be used to explain some pressures for increased pay for certain groups asa result ofthe level ofpay received, or believed to be received, by members of a similar occupational group employed elsewhere; and the concept of differentials would be useful to examine what effects there might be on the pay of other occupational groups within the plant as a consequence of a par- ticular group receiving an increase in pay following the external comparison. The distinction between “internal” and “external” can be made according to the coverage of the bargaining unit, so that differentials refer to those relationships existing within the bargaining unit and relativities to those between the members of the bargaining unit, or some of them, and members of other bargaining units.

It is common usage to refer to a collection of differentials or relativities as a wage structure, so that reference is made to an occupational wage structure within a plant or an industry or to the inter-industry wage structure. In this sense, “structure” means no more than the observed relationships between the pay of specified groups on an occupational or industry basis. However, it is a question for dis- cussion whether we ought to use the term “structure” in this way.

It might be better to confine the term structure to those relationships which have been deliberately designed to reflect certain judgements of the parties to wage determination. Thus, the relative wage levels determined by collective bargaining might be called a wage structure, but the actual wage levels that result from the inter-play of market forces, institutional pressures and the payment system, which can differ from those set out or implied in the collective agreement, could be referred to as some- thing else. The difficulty is that these too might well be a structure in the sense that they are the result of conscious decision-taking by all the parties con- cerned at the various plants or companies. Thus, while the negotiating parties at industry or sector level might not have determined the “structure” or

4 INDUSTRIAL RELATIONS JOURNAL, Spring Vol. 4 No. 1 0 1873 Mercury House Business Publications Ltd., London

relationships of actual earnings, the parties to a series of negotiations at lower levels may have actually determined their “structure”. The mere observation of a set of relationships does not inform us how they were determined or whether they are the result of deliberate decision-taking or of haphazard forces.’

An important factor in an assessment of the determination of a set of relationships is the coverage of the bargaining unit for the effective level of pay. British collective bargaining is characterized by multi-level bargaining. In addition, with fragmented bargaining, the plant-level wage structure in terms of the differentials in actual hourly earnings ex- cluding premia that are observed, may not be the result of a deliberate decision by the workers in the plant collectively (through their union representa- tives), but merely a consequence of a series of inter- related but separate agreements , or decisions. The only common agent to the decisions may be manage- ment as a whole, but in some cases even this is misleading as different parts of the management structure are responsible for the wages of different groups, or for some of the components of some of the wages, and there may be little or no common a p proach between these various management groups.

While it would be advantageous to differentiate between the planned and the actual wage structures, it is seldom possible to do so. The practice of estab- lishing only minimum rates at industry level means that at best only an implied structure can be obtained from that series of bargains. In the case of inter- industry comparisons, the concept of a structure is even more difficult to apply. There is no agency or body which seeks to establish a set of relationships between the average earnings of adult male manual workers in, for example, pharmaceutical chemicals with those of average earnings in oil refining and motor vehicle manufacture. Observed relationships are present and these might or might not be con- sidered stable through time and might be brought into the negotiations in any one sector, but there is no

3 The question of whether the relationships were actually determined or not may therefore depend on the level of aggregation or coverage of the statistics.

negotiating body that can determine the relationships in such a way that the outcome is agreed by all those concerned or affected. Relationships that are the result of decisions within a single bargaining unit, no matter how small or large, are different from those that appear as the result of decisions taken by a number of bargaining units. This is not to suggest that the results of one bargaining unit do not affect the actions of others. Indeed, it will be argued that they can exercise crucial influence, certainly in terms of perceived fairness, size of claims and willingness to accept certain policy decisions, although the observed connections in the results may be weaker than the parties would like.

It is not intended to discuss wage theory in any depth in this paper, but a few comments on some aspects of wage determination, and in particular on the role or importance of differentials and rela- tivities, will be made. It is assumed that neither differentials nor relativities are determined by purely economic forces; institutional forces or collective bargaining pressures influenced by concepts of “fairness”, “justice” or “equity” are also relevant.+ It is assumed that wage determination is the result of collective bargaining between trade unions and employers at industry and/or company level, and that in a number of cases there is plant bargaining, or processes not necessarily included in the usual view of collective bargaining, whereby the pay received by individual workers can be influenced or altered by the actions taken at plant level. Wage drift can be the result of market forces; it can result from plant bargaining deliberately intended to supplement the industry-determined wage rates and foreseen and provided for in the industry agreement; and it can be the result of informal pressures or the actual working of the payment system. One consequence of the variety of pressures influencing wage levels and movements is that in many cases there is no single collective body that can be regarded as

4 The effects of particular wage levels, or changes in levels, on the level of employment, while part of any comprehensive approach to wage issues, is regarded in this paper as a secon- dary question; it will sometimes influence wage bargainers, but in an unquantifiable way.

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Dtferentials and incomes policy

responsible for the resulting set of wage differentials, ie in many cases the wage structure cannot be regarded as the outcome of a collective decision for which the responsible parties can be identified. Different parts of the structure or different aspects of the differentials are the result of decisions taken by sections of the plant, company or industry in question. Where the bargaining unit for effective wage determination is smaller than the coverage of the groups of workers for whom differentials are regarded as having inter-relationships or connec- tions, then the problems of providing a set of wage differentials that are accepted as fair by those in- cluded in the coverage increase considerably. Where relativities outside the bargaining unit exercise strong influence on wage developments inside the bargaining unit, a stable set of relationships can prove difficult to establish. Where a number of bargaining units exist and take into account external wage levels and changes in each other’s wage levels when deciding whether their own wage levels are fair, no stable relationships or equilibrium may be possible.

We do not really know very much about how workers form their attitudes to what is fair in an internal wage structure. We d o not, for example, know why workers in the same occupation, and presumably with similar qualifications and training, working in different plants in the same industry, in the same locality, appear satisfied with different internal wage structures and differentials. It would seem that different plants can establish and maintain independent views of what is a fair relationship in the pay of specified occupations.

If the reality of wage levels and structures are determined at plant rather than industry level, it might appear reasonable to concentrate attention there rather than on the excessive formalism of the decreasingly important industry negotiations. While this may be true for some purposes, this approach would ignore certain areas of decision-taking which

5 Some examples of widely different wage structures in engineering plants in the same town are given in Robinson, D. and Conboy, W. M., “Wage structures and internal labour markets”, Local Labour Markets and Wage Structures, ed. D. Robinson, Gowcr Press, ~ 9 7 0 ,

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are vital to the success of an incomes policy. As long as there is industry-level negotiation, the rate of change of wages as set out in industry agreements are an important variable in incomes policy. Negotiators see the equity and effectiveness of incomes policy, in part at least, in terms of what happens to their negotiations at industry level. They are often publicly judged by their results in those negotiations, and inter-union rivalry and the application of coercive comparisons are often strong forces leading trade union negotiators to place considerable importance on the industry-wide bargaining process, even though there may be wagegap and wage drift. But for present purposes what is important is that the increases in wage rates from industry bargaining affect the earnings of the members covered by the negotiating group and therefore incomes policy must take them into account.6 In addition, the formal provisions of incomes policy might be geared to industry or company bargaining with less control provisions for the forces causing wage drift. For the policy, if it is to have control mechanisms, will seek to use those which are easiest to incorporate into agreed formal machinery and not necessarily those which are the most effective in controlling the movements of actual wages.

The importance of differentials Differentials fulfil a number of purposes. They

are intended to reflect differences in the economic cost of entry to certain occupations; to act as alloca- tive mechanisms by inducing new entrants or discouraging admission to an overcrowded occupa- tion; to reward different effort contributions, where effort is taken in the broadest sense so as to include the various factors for which labour is rewarded; or they may reflect attempts to provide allocative mechanisms to the external labour market and reflect not just shortages or surpluses in the occupation generally, but in the plant’s supply and demand conditions for that particular occupation. They can reflect social values too. Some differentials may

6 To the extent that industry negotiations switch to guaran- teed minimum earnings agreements this argument might be- come weaker.

indicate society’s assessment of the value of a par- ticular job, and they are frequently interpreted by individuals in specific occupations as indicators of status and a sort of general esteem. Indeed, differ- entials and relativities are the only way in which a worker can decide whether he is fairly paid. The concept of fairness when applied to wages is inevi- tably a concept which requires comparisons. It is not possible to decide whether someone is fairly paid until one knows what other people are paid. These other people may be doing the same work perhaps in different surroundings or may be doing different work in the same or different surroundings. Differentials and relativities lie at the very heart of the concept of equity as applied to wage determina- tion’. Further, a worker or group of workers may be satisfied that their wage level is fair at a particular time, but if another group of workers receives an increase they may no longer believe their own wage level to be fair.

The importance of comparability, be it internal or external, often increases as workers become organized into trade unions or similar organizations. For this emphasizes their collective identity and common interests while also creating an organiza- tional situation such that the organization, in order to survive and grow, must reassure its members that it is in fact protecting their common interests. The institutional or organizational pressures emanating from within an organization can emphasize the common sectional interest of the group and will be encouraged to do so by its desire to continue in existence as a viable organization. The wider the membership of the organization, the more difficult it might be to satisfy fully the sectional interests of each small occupational grouping, although there might well be compensating advantages in the form of larger resources, greater power and so on. I t would appear that within an industry or plant, differentials provide more problems for collective bargaining when there is more than one organization

’The comparisons may be extended beyond wage differentials and relativities to bring in considerations of the income received by other members of society, such as the self-employed, interest or dividend recipients or speculators.

representing the total workers concerned than when they are all in a single organization. When there is only one trade union in the bargaining unit, there are still difficulties in the workers arriving at agreed differentials or an agreed common view of what differentials should be. However, these differences tend to be settled within the union itself. Where there is more than one organization the differences become formalized and public commitment to a position can raise problems if a compromise solution needs to be found. The adoption of public positions on differentials is not the same as taking up a public position about the size of an increase that a union is seeking from an employer. In the latter case, it is generally recognized that some compromise is to be reached. In the former case, failure to secure the publicly-declared differentials might be seen not as a victory for the employer but for the other union. It may be that “losing” a differentials argument with another union is considered more serious than “losing” a wage claim to an employer.

Trade unions compete either for members or for prestige. It may be that the closer the unions are in terms of membership covered, the greater the potential competition. However, there can also be wider competition between trade unions in wage bargaining. It is thought that union leaders are influenced by the successes of others.* Their prestige is affected but, in addition, the appeal to equity, on the grounds of keeping up with the rest and receiving the same sort of increases that others are getting, is deep and widespread. Moreover, it has the apparent advantage of not seeking to establish any new principle. The maintenance of past relationships is often sought just because they are past relationships. The appeal to history is frequently a strong one in

SThis is not to claim that everyone actually gets what everyone else gets. It is possible to believe in the fairness of genernlized equitable treatment, and even in the existence of it, without the results actually demonstrating that it occurs. It is possible to believe that something exists when it does not, or, recognizing that it does not exist, or not to the extent considered desirable, to believe that it ought to exist. In wage questions beliefs and value judgements are both numerous and of crucial importance. Beliefs differ not only about what should happen but about what does happen.

Dzfferentials and incomes policy

collective bargaining: it avoids the creation of new and untested principles. Within wage bargaining, references to changes in the cost-of-living also encourage the application of the concept of general- ized equity in that it is argued that if one group’s cost of living has gone up 5%, so has mine. On other occasions this can lead to claims for equal amounts of increase.

At the level of the official trade union leadership and bargaining representatives, therefore, there are strong pressures to take account of what other groups are doing and have achieved. Where there are a number of unions competing, or providing potential competition, for the same groups of workers, this concern will be greater, although it will still exist where membership lines are clearly drawn and respected. If a trade union is seeking to recruit new members it will frequently pay attention to the wage increases received by unorganized groups. While higher pay is not the only attraction oftrade unions, it might be one ofthe more important ones for those not currently organized.p

At plant level, differentials are probably seen more in terms of actual earnings, either standard hourly or weekly, or gross pay. There are differences in atti- tudes and behaviour stemming from the type of collective bargaining and wage procedures and systems operating at plant or company level. As a general rule, the more formal the plant or wage collective bargaining and the greater the prevalence of a time-based payment system, the more differ- entials are likely to be influenced by the same sort of factors as operate at industry level. Trade union competition can exist at plant level and may be an even stronger force. The demarcations between various groups of workers are seen more clearly at plant level. Workers frequently have more knowledge of the work performed by members of other occupa- tions in their own plant than they have of the work of members of their own occupation employed else- where, and certainly more knowledge than they have of members of different occupations employed

9 In some other cases job security, for example, might be the effective recruiting agent.

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elsewhere. Proximity not only provides knowledge, it also creates attitudes and the basis for value judgements’and opinions on the relative worth of different occupations, so that it is probably the case that, while trade unions as organizations at national level pay considerable attention to what happens to wages everywhere in the economy, workers are more concerned over the fairness of the perceived relation- ship between their own pay and that of groups with whom they are in closer contact. This is not to draw a sharp distinction on the lines that trade unions nationally are concerned only with relativities, while workers in their plant are concerned only with differentials. Both are concerned with both questions, but the degree of emphasis is different.

With a time-based plant payment system, where there is a formal collective agreement, the problems of differentials necessarily arise. The existence of a plant agreement on wages means that the levels, and possibly the occupational classifications, vary from those set out in the industry agreement. The plant agreement may be comprehensive in coverage, ie cover all manual workers in the plant (it is rare for an agreement to cover blue-collar and white-collar workers), or may be partial in that it covers only certain grades or occupations, in which case there may be more than one formal agreement; although there are cases where there is a formal plant agree- ment on time-based wages for some occupations and no formal agreement for other grades who are working on piecework. With a comprehensivelo agreement it is necessary for the signatories to agree between themselves on differentials. Where more than one union is involved this requires them to reach some settlement on the differentials which are tolerable, at least for the life of the agreement, to their members. In some cases regard must also be paid to the rights of members of the same union employed elsewhere. For example, even if the members of a craftsmen’s union were persuaded that some traditional differential should be reduced or

10 It will be noted that the terms “comprehensive” and “parual)’ or “fragmented” are used here to refer to the coverage of the work-force and not to the coverage of the content or subjects included in the agreement.

abolished in a particular plant, they may be un- willing to sign an agreement to that effect because of the consequences this may have for their fellow craftsmen employed elsewhere. As with productivity bargaining, some rights may be regarded as belonging to the whole craft and not to the particular individ- uals employed at a particular plant.

The need to not only reach agreement with other unions and groups of workers but to publicly demon- strate and express that agreement by signinga formal collective agreement may be one of the major difficulties in the way offormalizing plant bargaining. With informal, unwritten bargaining, a set of re- lationships can be created and can survive for a considerable time, even though the trade unions concerned refuse to endorse them publicly and may even criticize them publicly. The bargainers are not formally responsible for the relationships that result from a set of fragmented bargains in the same way that they are for differentials that are included in a formal agreement. They can, therefore, avoid responsibility for the results and advocate or accept views from their rank and file members which advo- cate a change in the relative wages. Two trade unions can each accept such views even though they are inconsistent or diametrically opposed. Thus union A can claim to be seeking to widen differentials while union B adopts a public policy ofclosing them. The leadership, perhaps aware of the realities of the situation and the difficulties, if not impossibility, of changing the actual differentials, can nevertheless avoid conflict with their members. Everyone can disassociate themselves from the principles of the wage structure. As no-one has formally created the whole structure and set of differentials, no-one is formally responsible for them. Formality in general introduces a number of features into plant bar- gaining: certainty, perhaps logic and a rational wage structure, sometimes inflexibility, and occasionally disputes as the parties seek to repudiate the estab- lished differentials; however, it also brings responsi- bility. A comprehensive plant wage structure agreement therefore requires a certain amount of consensus on differentials. There must be some common ground before the agreement can be made.

With fragmented bargaining, the question of differentials is dealt with implicitly rather than explicitly. Each fragmented agreement is influenced by the terms of the other agreements, but often in a unilaterally interpreted way. Thus, one group will seek to establish a set of differentials which it considers fair. Management may be influenced in its bargaining responses by its views of the future reaction of other groups to particular settlements, but this need not influence the unions concerned. Their view may be that if a subsequent settlement by another group disturbs what they see as a fair differential, they will return to re-establish it. The see-sawing effect is often found in plants with some groups on piecework and others on time-rates but also exists in some purely time-based plants where the craftsmen have their own bargaining committee, independent of the process workers. With piece- work there are numerous difficulties in determining differentials. Piecework systems are frequently so loose, or capable of manipulation, that it is difficult to determine what the resulting level of earnings will actually be. Agreed or planned differentials can therefore be distorted or even reversed.

INCOMES POLICY OBJECTIVES

One of the main aims of an incomes policy is to reduce the rate of increase of money-incomes, although real incomes in aggregate may well rise at a faster rate. On the assumption that the policy is a voluntary one, in that it is accepted to a greater or lesser extent by the trade unions and employers and does not consist solely of legislative regulation of all prices and incomes, it will be a necessary pre- condition for the acceptance of the policy that the parties, and particularly the trade unions, believe that their objectives will be better achieved with a policy than without 0ne.I' We are concerned with a policy that is expected to last for at least a year, is accepted by the trade unions and employers broadly as being, if not desirable, at least tolerable and perhaps preferable to the next most likely alternative

11 For our purposes a short-term, overall freeze or stand- still is not regarded as an incomes policy.

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Dtfferentials and incomes policy

set of policy measures, and relies on consent for the major part of its acceptance and implementation. In these conditions, trade unions will, in effect, seek to make a bargain with government. They will require certain promises or assurances that certain other things will happen in return for restraint in money-wage increases. These other things will vary from country to country and from time to time, but can be expected to centre round the types of econo- mic and social objectives that the trade union movement places high on its list of priorities.

In the British context it is almost certain that the redistribution of income will be one of the priorities. This will refer to distribution between factors and also within factor incomes. The question of low- paid workers is now an essential ingredient of any package of policies associated with a prices and incomes policy. Recognition of the undesirability of permitting all differentials and relativities to be maintained, following preferential treatment of the low-paid, means that both differentials and rela- tivities will have to be changed. This can now be regarded as one of the necessary conditions for the success of an incomes policy. This means that the whole approach rests on the view that it is possible to change differentials and relativities, in response to views of social justice or equity, without there being adverse consequences, ie consequences which are considered worse than the results of not intro- ducing an incomes policy. Most advocates of incomes policy believe to some extent that it is possible to interfere with relative wages, as well as absolute wage levels, without seriously distorting the labour market and without creating unemploy- ment to any significant degree. They might be mistaken in their belief, but if they do not hold it there is a major contradiction in their advocacy of an incomes policy that is to last for anything other than the very short term.

We shall not discuss whether it is possible to change differentials and relativities to any significant extent, without incurring undesirable consequences in labour allocation, employment, investment or growth. There is insufficient evidence about what has actually happened to occupational differentials I 0

and relativities within the framework of a broad incomes policy, with the appropriate attendant economic policies, to permit any meaningful dis- cussion or to allow constructive insights to be formed for policy-making purposes. Instead, we shall discuss some of the problems that arise, or are likely to arise, from attempts to change differentials within the context of an incomes policy with the sort of institutions and collective bargaining prac- tices and habits that characterize Britain.

CENTRALIZATION OF TRADE UNIONS

If trade unions bargain over general economic and social policies as part of the exercise of restraint in money wages, it is necessary for them to formulate views about the economic and social programmes they wish to see introduced. This requires a positive approach and not merely a negative criticism of existing government policies." I n order to bargain with the Government, it is necessary that the unions are able to present a series of demands or requests which are consistent and generally acceptable to the whole trade union movement. There must, there- fore, be some degree of centralization, at least in economic policy making. There must also be a considerable amount of attention given to the policy requirements. In addition, in order to reach agree- ment with the Government on the general incomes policy provisions, it is necessary for the trade unions to reach some degree of central agreement on the content of the policy and the method of application. Even if the policy is no more than a collection of weak general guidelines, a common trade union view is required before serious discussion with the Government can take place; and the stronger the policy content, the stronger must be the trade union agreement and attachment to the policy.

This does not imply that trade unions must necessarily centralize wage bargaining processes. The outline of policy could be agreed, the main

12 The development of the TUC Economic Reviews is an example of the sort of economic analysis and policy formula- tion that is a pre-condition of discussion or negotiation with government.

exception grounds could be the result of common consent, but the application of the total permitted increase in a sector or plant could be left to de- centralized bargaining at industry or plant But inevitably, there will be tendencies towards centralization in policy making for both economic policy and the overall incomes policy and, thus, wage determination. Even the decision as to whether the centrally-agreed increases should be in percen- tage or flat rate terms requires the trade unions to form a common view about differentials and rela- tivities in a broad sense. The definition of low-paid worker, no matter how general the expression of policy, requires some degree of common judgements and standards. Discussions at trade union conferen- ces during the last incomes policy show that there were at least three interpretations of low-paid. One was in absolute terms of the money-wage received, the second was on a relative basis when compared to the earnings of other workers, and the third was in relation to the effort contribution of the workers concerned, so that a worker with a relatively high wage on either of the first two criteria could be held to be low-paid in relation to his skill, training, effort bargain or some other factor. The more serious the policy and the more it is actually implemented as planned, the more important these questions become and the more necessary it is for the trade unions to form a common approach. This provides oppor- tunities to increase the degree of centralization in trade unions but also creates circumstances in which pressures towards decentralization and the abandon- ment of the policy might become stronger.

These tendencies towards greater centralization, at least in the area of general principles even if not of actual wage bargaining, contain the seeds of dissension for trade unions. As we have argued earlier, where bargaining is fragmented there is no requirement to obtain the formal approval of other groups for the differentials or relativities that result from any particular settlement. Some of the differ- entials and almost all the relativities that are estab- lished or observed are in this sense not agreed. There

13 This is in some ways similar to a Swedish approach.

is neither the machinery nor the need for formal acceptance of mutual positions. This has conse- quences for trade union leadership vis-d-vis their members. They are not required to defend the relationships that exist. Centralization introduces a great change into this situation. Union leadership becomes responsible for some of the changes that take place and this may well introduce a degree of rigidity. Much depends on the attitudes and ac- tivities of the rank and file, and whether these are as “advanced” as those of the leadership, and also depends on the type of bargaining institutions and arrangements that exist.

The difficulties inherent in discussion of a general trade union approach to differentials and relativities was brought out by T. A. Casey of the National Association of Schoolmasters at the T U C conference on Threshold Agreements: “I should draw atten- tion to what seems to me to be the ability-and I say this not unkindly-that we all seem to have of entering into a great measure of self-deception. I refer to the degree to which we failed to observe that when Mr. Dix (NUPE) came to the rostrum and told us of the struggles that his union, and others like it, had to close the gap between the lower paid workers and those better off, what he said was in complete contradiction to the objectives of Mr. Clive Jenkin’s union and others like his-and mine might be one of them-whose objectives frankly are to at least maintain, if not to increase, those differ- entials”.’*

This is a fair comment on the situation. Incomes policy creates conditions in which it is possible to discuss the whole area of pay relationships on a comprehensive basis, indeed, incomes policy prob- ably requires that this is done. This is both the great opportunity provided by incomes policy and the great challenge to the trade union movement which could lead to the weakening or collapse of both the policy and the unity of the trade unions. This unity might exist because it is recognized that wage relationships are so crucial and so much a cause

14“COst of Living Threshold Agreements: Report of a conference of trade union negotiators”, TUC 14 February ‘972.

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Dtferentials and incomes policy

of dispute that common agreement cannot be found and that the unions realize that attempts by them to create a unified view would inevitably lead to self- destruction, so that the subject is in effect left carefully alone. Declarations of goodwill or common purpose might be made because they are not regarded as anything more than declarations of goodwill that will not be required to be translated into reality. On the other hand, it might be that unions would wish to try and reach some sort of common view if sufficient safeguards could be provided to ensure that there was an improvement in the rate of growth of real wages as a whole, and that the restraints exer- cised by some workers led to an improvement in the position of others.

Of course the absence of an incomes policy does not remove the problem: it makes it more difficult to try and solve it. But as long as there is any degree of unity or attachment to a concept of general equity or solidarity the problems remain.

It would appear from other countries which have sought to narrow differentials and relativities that trade union leaders may be more willing to accept the consequences of this than the rank and file. In part, this is the result of the ideological commitment of leaders and their realization that if their principles and policy statements are to be translated into reality some past relationships have to be changed. They often have broader views of social and eco- nomic objectives than the rank and file who may be more inclined to see problems from the viewpoint of their own particular place of work, and are more directly affected by the changes.”

The acceptance of greater centralization means that the freedom of particular groups or unions to act unilaterally in pursuit of what they regard as fair differentials or relativities is reduced. This is merely the extension of the obvious point that the wider the coverage of the bargaining unit, the less is the freedom of any sub-group to act unilaterally; each sub-group must carry the other groups with it

1s Thus, some of the recent industrial unrest in Sweden has been described as the result of attempts to narrow the dism- bution of pay. The rank and file were reluctant to move as fast as the leadership.

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if change is to take place within the boundaries of the existing bargaining unit. The degree of central- ization necessarily associated with an agreed incomes policy is the same type of restraint, although it may be weaker in its limiting effects. This pushes back the level of bargaining and the methods. Instead of a group seeking to alter its relative position or maintain some past relationships in the face of changes initiated by other groups, by solely negotiating with an employer, it does so first by persuading the other trade unions that its claims are fair, and then seeking to establish the agreed relationships by bargaining with the employer. In the non-income policy situation employers act as coordinating agents to some extent, in that they may have to take responsi- bility for changes in differentials that are agreed as groups covered by a particular bargaining unit submit claims as a result of the changes agreed within that bargaining unit. The central trade union organization is involved in drawing up lists of priorities, even if these are no more than general statements about the preference given to low-paid workers. This brings the question of inter-relation- ships of the pay of different groups into the open, as far as trade unions from different bargaining units are concerned, and requires them to face some difficult problems. If all pay was determined by a single set ofnegotiations by centralized organizations, and there was no wage drift or any departure from the agreed pay levels, then all comparisons would be of differentials and all would be agreed by the negotiators, so that the unions collectively would have to formulate an agreed position and then persuade employers to accept it. While incomes policy does not require such a rigid and inflexible approach, the same sort of issues as would arise under this single bargaining unit method of wage determination are present, although in a weak, often unstated and embryonic form. That they are not overt and immediate problems does not prevent them from creating considerable difficulties for the successful application of an incomes policy.

The relationships between trade union leaders and their members are inevitably strained during an incomes policy. Most leaders are open to the

criticism from their members that they could have had a higher settlement in money terms than was actually obtained. If this is not true for the majority of employment incomes, the policy is unlikely to be eff'ective. Thus, trade union leaders have to be in a position to reply to this criticism by pointing to the advantages that the incomes policy and the associated package of other measures bring for their own members or for society generally. If there are different priorities or preferences for benefits then obviously disagreement between leadership and members (either all the members or those in a particular sector, region or occupation) is likely to emerge. Where the gains are primarily intended to accrue to members of other unions, the resistance of rank and file members may be greater. As long as trade union members can vote against policies, either constitutionally or by leaving the union, there are strong pressures inhibiting any one union from going too far, ie foregoing too much of the general rate of increase in favour of a low-paid group, unless they can be certain that other unions are following suit. Trade unions as institutions must be receptive to the views of their members, and these need not necessarily be based on the same set of value judgements, in- terpreted in the same way as those of the leadership. The existence of trade union competition means that there will be a strong tendency to ensure that no one advances too far ahead of the rest. Here again, leadership can be exposed to criticism from below. It would be unrealistic, therefore, to expect very rapid changes in attitudes and behaviour. Not only are the differentials themselves under discussion, but so too are issues of trade union status, relative attractiveness, membership retention and growth and the complicated internal relationships that exist in a trade union movement which is strongly motivated by political ideologies and beliefs from a number of different, and potentially conflicting, sub-groups.

Incomes policy has the tendency to change the type of publicity given to wage settlements. If the policy is losing support, or if a particular group has never been strongly committed to it, there is a temptation to present the results of a settlement in such a Nay as to appear to have exceeded the policy

limits. This is often regarded as an indication to the membership that the restraints have been avoided by able leadership, which is serving the direct sectional interests of the members rather than some more nebulous concept of the public interest or the general good. Also, political opponents may empha- size the excessive increases, in order to argue that the policy is not working and should be abandoned. The greater the publicity given to increases which are considered excessive, ie either higher than the general standard for a normal case or higher than the special level for an exceptional case, the greater the difficulty in persuading groups subsequently settling to observe the policy requirements.

Incomes policy works best when everyone believes it is working. If groups believe that others are not observing the policy, there is little incentive for them to do so. Their restraint merely places them at a disadvantage, without others making equal sacrifice. Pressure from the rank and file for what they consider their proper increase may lead the leadership to overstate their success, or present it in a way which is more generous than is actually the case, with repercussions on the actions of others. For it should again be emphasized that, in wage bargaining, fairness and justice are relative concepts in that they require comparisons before judgements can be made. If trade union competition is super- imposed on this then the rot sets in, if enough people believe that others are avoiding the restraints, irrespective of the realities of the situation.

In one way, it might be easier to improve the position of some of the low-paid, or change differ- entials in certain directions, if it can be done quietly. However, if, as has been argued, it really requires the agreement of other groups before differentials or relativities can be changed, it is not possible to effect the changes from within the bargaining units con- cerned: other bargaining units must accept and endorse the changed relationships. Publicity is therefore inevitable. Moreover, if preferential help for the low-paid is a major attraction of incomes policy, the policy advocates will understandably wish to emphasize the redistribution. This carries the danger of repercussive and destructive counteraction

13

Dtflercntinls and incomes policy

if the value judgements of particular groups depart too far from those of the policy-makers as a whole. Centralization contains many potential problems and could prove to be divisive. Yet decentralization cannot help the lower-paid; almost by definition they cannot obtain relatively higher increases on their own or they should have done so. It is essential, therefore, that there be greater agreement on desirable pay relationships than there need be under a no-policy situation.

Particular problems often arise from broad blue- collar and white-collar relationships. Frequently these are a reflection of social values as well as institutional pressures. In many countries white- collar unions are still developing and expanding in the private sector. Pay increases are often an impor- tant feature of recruitment policies, although not the only attraction. If an incomes policy restricts the rate of growth of salaries of union members as well as non-union members, the pay attraction of union membership is obviously weakened and recruitment restricted. Unions involved in member- ship drives are, therefore, less attracted by the ideas of incomes policies. Even if they are one of the groups to receive preferentially high increases, if these are seen as coming from the incomes policy and not from union membership the union response is likely to be unfavourable. Here again it needs to be emphasized that unions must attract and retain members and this is done primarily by demon- strating that there are certain advantages to be gained from union membership that are not available to non-members. This emphasizes the importance of ensuring that all differentials and relativities are covered by the policy and not just those of trade unionists. If the policy machinery is on a voluntary basis and run by industry itself, or, for example along the lines of the T U C vetting committee, it will be necessary to ensure that the incomes of non- unionists are subject to at least the same degree of influence and control. Of course, it is not feasible to control all differentials and all wages. The im- portant point is that there should not appear to be any advantage in being outside a trade union or in settling one’s pay on an individual basis,

’4

Particular problems can arise from groups which increase salaries at infrequent intervals. Large increases received at longish intervals may give no more overall increase than smaller increases received more regularly, but they can have a much greater effect on other groups’ attitudes. This is particularly the case if the group concerned is a high-paid one. Thus, increases to higher-grade civil servants at two or three year intervals, or to MPs at longer intervals, can have disproportionate effects on the attitudes of other groups who believe that their pay is being held down and, therefore, cannot understand these apparently high increases to others. The need to constantly state publicly that the policy is working, in order to create conditions conducive to its success, has the consequence that if it is successful and people do believe that it is working they may also believe that their own pay is being restrained to a greater extent than is actually the case, and their response to the increases of others may be determined by what they believe is happening to their own pay rather than what is actually happening.

Groups such as air-line pilots, judges and doctors can cause acute problems for incomes policy. Their increases, if stated in percentage terms and then translated into flat amounts, are regarded as ex- cessive. The stronger the professional organization or representative pressure group that a profession has, the greater will be the probability that it will receive large increases and thus create problems of perceived equity.

I t is necessary to decide which groups are to have lower increases or even none at all. While it may be possible to obtain general agreement from other groups on which these should be, it does not follow that the group concerned will acquiesce in this adverse treatment. This is the point at which the questions of sanctions available to the policy becomes important. While trade unions as a whole are re- luctant to allow sanctions to be applied against them, there may be occasions when the actions of a particular group are considered so anti-social and selfish that some form of discrimination would be accepted by the rest of the community. It may degenerate into a power struggle whether or not it

proves possible to actually hold down the group in question; but if there are many significant increases which are considered unjust by the rest of society, the support for the policy will quickly disappear. Again, it is what people believe to exist and to be fair that is crucial. The net increase in income after tax is of less importance than the perceived increase in gross money amounts.

Because we know so little about the processes and determinants of wage claims, settlements and attitudes to fairness and justice, it is not possible to make very firm statements about the effects on workers of increases received by other groups. But it does seem that some settlements are seen as unfair because the recipients are considered to be over-paid already or because they are not considered to have much priority for preferential treatment. The importance of these can be enlarged beyond the bounds of the numbers affected or the size of the increase in their impact on attitudes. Experience of implementing an incomes policy impresses one with the “disproportionate” effect that certain publicly reported settlements can have. Relativities appear to have greater impact on public opinion generally than do differentials. More people can see them and their views of equity are more disturbed. Indeed, it may be that the question of differentials as defined in this paper create relatively few problems for incomes policy itself. They are more likely to emerge as sources of discontent as a result of changes in the payment system or after there has been a move towards more formal plant or company bargaining, with the reservation that in some plants the nature of the payment system in operation creates a situation in which differentials are a perpetual cause of con- flict.

EXCEPTION CLAUSES

An incomes policy of the general type adopted in 1964 contains exception clauses whereby additional wage increases may be received by certain groups of workers. The low-pay exception has already been considered. The other three which were included in the policy were: firstly, productivity, ie where the

workers made a direct contribution, which for present purposes we will refer to as productivity bargaining while recognizing that this is really too crude an approximation ; secondly, manpower allocation, ie where a special wage increase would secure a distribution of manpower which was in the national interest or prevent one taking place that was against the national interest; and thirdly, com- parability, where wages had fallen seriously out of line with the level for similar work.

It has been argued that productivity bargains are inflationary even if the specific productivity bargains under review are themselves genuine. This, it is alleged, is because the increases received by workers making direct contributions to increased efficiency are spread to other firms as workers in them base their wage demands on comparability. Thus, on this view, one might expect that the strong desire to maintain relativities will ensure that the highest wage increase received by any group will, providing the details become known or some views about it are held by outside groups, become the generally pre- vailing rate of increase, at least in that locality. The NBPI considered this a sufficiently important argument “to investigate the matter closely. A survey of a number of firms in the Southampton area revealed no single undertaking which had increased its pay as a result ofthe Fawley productivity agreement, and another detailed survey around the Alcan plant at Rogerstone showed equally negative results’’.16 I t might also be argued that on economic grounds there would appear, in the large majority of cases at least, to be no good reason for conse- quential increases in pay in other firms. The firm undertaking the productivity agreement is seldom seeking to increase the number of workers it employs and in a number of cases there may be redundancy following a productivity agreement, so there would seem to be little pressure on other firms to increase pay in order to retain labour which otherwise would leave to take up employment in the firm with the productivity bargain.

16 NBPI, “Productivity Agreements”, Report No. 36, Gnnd. 3311, HMSO, June 1967, pan. 103.

15

Dzferentials and incomes policy

Nevertheless, it is still held by some that pay in other plants in the locality does rise as a consequence of a productivity agreement. The NBPI’s views may have been based on too short a time period, or it is possible that merely interviewing employers,” rather than actually examining wage levels at different dates, is insufficiently rigorous, particu- larly when an incomes policy is actually in existence and employers are aware that some restraint is expected of them. Further, the argument that there are no, or only few and weak, economic pressures to cause an increase in pay in other firms is not in itself a strong one, unless it is believed that pure economic forces are the only forces which cause wage increases. If comparability is a powerful motivating force, workers in other plants will use it, even though there is little possibility of labour mobility taking place and so little economic pressure on the firms. This does not, of course, explain why employers concede such wage demands, but does suggest that purely economic arguments may be insufficient.

The NBPI was generally reluctant to recognize the usefulness of exceptional wage increases in order to re-allocate labour or prevent an unfavour- able movement of labour. On the whole, their approach seems to have been that if an industry was short of labour, and in conditions of high employment most industries will be, the best solution is to increase efficiency through productivity bargains so that the demand for labour, in terms of the numbcr of people necessary to produce a given output, would be reduced, and the higher wages paid would attract additional labour if there was still a need to increase the labour force.18 This also

17 There is a very brief description of the method used by the KBPI to test the repercussive effects in the footnote on page 23 of Report 36.

18 This docs not contradict the earlier statement that few productivity bargains were followed by an increase in the labour force. This refers to those productivity bargains negotiated by the parties themselves; the present comments which recognize that additional labour might still be needed refer to cases where the productivity bargain is recommended by the NBPI as the preferable way of dealing with a “labour shortage”.

reinforced the Board’s general policy of seeking to increase prQductivity. While the distribution of labour was recognized as grounds for an exceptional wage increase, in practice, however, relatively little use was made, or allowed, of this clause. The Board did not adopt a strong view on the allocative effects of differences in wage increases.

The comparability exception clause was approved even less. Again, the desire to place the overwhelming weight on productivity increases reduced the importance of the other exception clauses. The Board tended to take advantage of whatever oppor- tunities presented themselves, or could be created, to emphasize the reduced importance which was now to be placed on comparability. However, the in- clusion of this exception clause demonstrated the acceptance of the importance of comparability in wage determination, at least in certain sectors. I t was never clear whether comparability was to be approved because there was something special about the connection between the industries con- cerned, or whether it was to be approved because it was essentially the main system of determining wage levels or increases, as in the civil service. However, this exception clause might, in certain circumstances, have been used to spread wage increases received elsewhere, thereby maintaining relativities, whereas the productivity bargaining and the manpower allo- cation clauses had the effect of widening relativities.

As with so much of incomes policy provisions, we do not really know what effect these particular clauses had on relativities as the data are not available in a form suitable for analysis. There is a little more evidence available about differentials and produc- tivity agreements as some of the reports of the NBPI had to deal specifically mith this issue.” Report No. 5 followed a claim for higher pay by clerical and ad- ministrative grades, following an increase in pay and improvement in conditions of manual workers as a

19 See, for example, NBPI, “Remuneration of Administra- tive and Clerical Staff in the Electricity Supply Industry’, Report No. j, Cmnd. 2801, HMSO October 1965; NBPI Report No. 36, op. cit.; and KBPI, “Productivity Agree- ments”, Report No. 123, Cmnd. 4136, HMSO August, 196%

result of a productivity agreement made by them. It can be seen as an attempt to restore previous differentials which had been changed as a result of additional payment to manuals for direct contribu- tion to increased productivity. The Board went some way towards recognizing the validity of this claim. “It is in fact a claim for a pay increase in a disguised form, and, looking at in in this light, we recognize that where greater changes in practice are required from some categories of workers in an enterprise than from others, with considerable accompanying changes in earnings, there can be left a sense of disturbance which must be reduced if the harmony of an enterprise is to be restored.”20 The Report went on to say that “the increases ranging up to at least 8 % . . . may be regarded as intended to reduce this sense of disturbance”.21 This might have been interpreted by some as an acceptance of force mujeure, in that if an increase in pay to some workers following a productivity agreement left others in the undertaking with a sense of disturbance, an extra increase could be given to this group if it was necessary to restore the harmony of the enter- prise. Presumably, if the harmony could be restored without an increase none was payable. It might have been regarded as an invitation to display extreme disturbance at changes in differentials resulting from productivity agreements, and the greater the disturbance the greater the need for and amount of additional payment.

Subsequent Reports of the Board accepted the principle of disturbance increases, ie increases to some other grades or occupations within the plant in order to maintain, in whole or in part, the previous differentials. Thus, guideline (vi) of the Report on Productivity and Pay during the Period of Severe Restraint, was “An agreement covering part of a plant must bear the cost of consequential increases elsewhere in the plant if any have to be granted”.zz The subsequent Reports on Productivity Agree- ments repeated this changing the term “plant” to

20 NPBI Report No. 5 op. cit. para. 48. 21 Ibid., para. 49. 22 NBPI Report No. 23, Cmnd. 3167, HMSO December,

I 966.

2

“~nder tak ing” .~~ There was explicit recognition, therefore, of the difficulties that could occur if differentials within a plant or undertaking were altered without the agreement of all the groups concerned. Even within the framework ofan incomes policy that stated quite specifically that less weight was to be given to comparability, the use of past relationships to maintain internal differentials was accepted, if this proved necessary to restore har- mony. This emphasizes the importance of obtaining the agreement of all the parties concerned within the area covered or affected directly by the changes in differentials. Because productivity agreements are formal, there is more awareness of the changes in differentials which they make and, therefore, a greater pressure on other groups to voice their objections publicly. Any incomes policy which contains a productivity exception clause is likely to run into difficulties with internal differentials. The adoption of the guideline, which includes the cost of consequential increases in the initial assessment, while correct according to the general policy conditions, may reduce the willingness of groups to enter into productivity agreements. If they have to share some of the benefits of direct wage increases with other groups who have not made the same direct contribution to increasing productivity, they may be unwilling to make the changes, or if they insist on the same increase in wages for themselves, the total cost to the firm may be excessive.

The labour allocation exception clause could produce similar repercussions if local labour market relativities play strong roles in motivating wage claims. For while there may be no economic or rational argument justifying wage increases to these other groups, neither is there in the case of disturbed differentials. If pressures leading to loss of harmony within the plant are justified, are those leading to loss of harmony in other plants any less justifiable? The major difference may be that they are perhaps harder to defend publicly and the disturbance allowance for differentials can be given within the context of the productivity bargain so that all

23 Reports 36 and 123, op. cir.

17

Dtflwentials and incomes policy

increases take place at the same time. There appears to be, therefore, less injustice, because there is less public notice given of the fact that some groups have received additional increases, not for anything they have done, but because of what other groups have done. It may be that, on occasions, lack of publicity allows things to happen that would be much more difficult if they took place in the spotlight of public debate. While justice is best if seen to be done, injustice may be best if done quietly; and there are occasions when iniustice will occur. No system is perfect; practical policies ought to be chosen by the criterion of whether they are better than the next most likely alternative policies and not by some standards of perfection.

The provisions of exception clauses of the sort adopted in the Labour Government’s incomes policy will cause some problems for differentials and relativities. Some of these problems arise because the policy is seeking to achieve a number of different goals, increase productivity as well as reduce the rate of inflation. The exception clauses, based on impressions from the previous policy, are more likely to cause difficulties for differentials than relativities. This is because the clauses con- taining issues affecting relativities were less fre- quently successfully invoked. It is a question of judgement whether the advantages stemming from productivity agreements are greater than the additional problems that they may create.

VIEWS ON FAIRNESS Some theories hold that it is possible to establish

differentials and relativities that reflect commonly held views of fairness and justice.24 Others advocate the establishment of job evaluation systems on a large scale, in order to introduce both consistency and equity into relative wages. Is it possible, there- fore, to establish a system which will create differ- entials and relativities which will satisfy most people’s views of justice, thereby removing many

24See, for example, Behrend, Hilde, Knowles, Ann and Davies, Jean, “Views on Income Differentials and the Eco- nomic Situation”, Economic and Social Research Institute, Dublin, paper So. 59, November 1970.

conflicts and inflationary pressures that result from attempts to create justice on a fragmented ad hoc or unilateral basis?

There is insufficient evidence available to answer this question satisfactorily. Indeed it might not even be possible, in principle, to produce the necessary evidence. We do know that job-evaluation schemes have been established in plants and companies, and some progress made on a wider basis, which appear to create differentials which are acceptable to all those covered by them. In some cases, it also appears that these are stable over time or that agreed changes can be made to them. There is also evidence that many people appear to have marked similarity in their views about the fair hierarchy of pay for occu- pations in a variety of industries. Is this sufficient to encourage us to believe that something approaching national consensus might be possible ?

Although job-evaluation schemes have been established in some plants, it is also the case that in other plants it has not proved possible to establish mutually acceptable differentials between the various occupations. In some engineering plants, for example, there are periodic outbursts of inter- worker rivalry over the relationship between the pay of pieceworking, semi-skilled process workers and the time-rated craftsmen. In other plants there are periods of agreement to leave the system unchanged because it is recognized that if any group tried to change it they would invoke repercussive actions from others, but no group may be sufficiently content to formally endorse the structure. Acquies- cence .does not imply acceptance, far less endorse- ment. Moreover, there are very few cases where the job-evaluation system has sought to cover all em- ployees, blue-collar and white. It also appears that in a number of cases the job-evaluation scheme, and resulting wage structure, does not result in too many major changes being made to the previous differ- entials.

In the case of opinion surveys, there is a difference between most people expressing similar views about a fair structure and those concerned in undergoing changes being prepared to accept the consequences. For purposes of illustration, assume that all public

18

opinion except the groups concerned felt that dockers and air-line pilots were over-paid and should, if not have a reduction, at least stand still for some time, until a “fairer” set of relationships had been established. How important would it be that these two groups themselves rejected the view of fairness ? Could a revised set of relationships be imposed on them ?

Studies of wage structures in the same locality show that views of differentials can vary significantly between plants in the same industry, yet each set of internal differentials can be accepted as “fair” for longish periods of time. It is difficult to conceive of a uniform structure being agreed, even an the limited basis of a local labour market for one indus- try. It is even more difficult to envisage an agreed set of criteria, uniformly applied, being established as the basis for job-evaluation. This does not mean that no contribution can be made by this type of approach, but that it is unlikely to be sufficient in itself. “Felt-fair” pay is influenced by what happens externally to the plant as well as internal relationships, and while these can be influenced to some extent (and indeed for the success of an incomes policy they must be) they cannot be controlled satisfactorily.

IMPLICATIONS FOR INCOMES POLICY The preceding arguments have some implications

for almost any form of voluntary incomes policy that might be devised. The importance of differen- tials and relativities cannot be over-stressed. Moreover, this importance is not, as many econo- mists might argue, because of the distorting effects an incomes policy might have on relative wage levels with consequential effects on the allocation of manpower. On the whole, there are not many changes in relative wages which have such important allocative effects as the argument supposes, and manipulation of the movement of relative wages for a longish period of time is unlikely to have any serious effects on manpower distribution. The relative inefficiency of differences in relative wage changes as allocative mechanisms suggests that little would be lost by foregoing this mechanism. The problems about differentials and relativities arise because of

institutional, organizational and human pressures. People demand wage increases because other people have received wage increases. Justice is based on relativity and comparison in the area of wages and so individuals, groups and trade unions are constantly looking at others to help determine whether their own pay is fair.

Incomes policy in Britain must be based on attempts to redistribute income in favour of the lower-paid sections of society. This requires that the higher income groups accept some redistribution away from themselves. Without this, incomes policy is either ineffective or inflationary, or both. The existence of trade unions and similar organizations for the higher-paid creates additional problems as these organizations are under strong pressure to achieve for their members at least as much as other groups are getting, and certainly more than the individuals would have got without the existence or membership of the organization. This makes the squeezing of blue-collar and white-collar pay, for example, more difficult. As long as unions seek to maintain differentials and relativities the redistribu- tion cannot take place and the additional increases received by some groups under exception clauses could lead to general increases. General agreement and acceptance of the rules of the policy are, there- fore, essential, and this requires acceptance at shop- floor level as well as national trade union level. There will be pressure towards greater centralization of the trade unions, if only in order to prepare a united front on the broad range of economic and social issues that will form part of the macro-level bar- gaining with the Government that will be a feature of incomes policy. In exchange for surrendering autonomy to bargain over money wages, trade unions will widen the area of their consultation/ bargaining at national level. This centralization of economic decision-taking and policy-making might make it easier to establish a greater degree of con- census about general wage development, but it would be extremely optimistic to expect centralized bargaining over the details of actual wage levels and developments to occur quickly.

A major problem with incomes policy is the

I9

Diferentials and incomes policy

current lack of comprehensive bargaining over relativities and in many cases differentials. There may be common views about equity and justice, a t least when expressed in terms of particular groups who should receive preferential treatment, but there is little evidence as yet of any strong commit- ment to effective centralized or comprehensive bargaining. Trade unions value their independence and freedom to act unilaterally (so far as other unions are concerned although bilaterally with employers) on wage questions, not only because of tradition and certain views about democracy, but also because they recognize the problems that would be created within their organization if they had to reach agreement on broad relativities or differentials. The translation of certain principles into specific wage levels and relationships is obviously fraught with danger and this danger is increased for volun- tary organizations which must seek to retain their members.

Incomes policy necessarily raises the problems of relativities. Even a weak policy has to contain some guidance for the limits in aggregate wages and the question of whether this should lead to guidance in terms of percentage or flat-rate increases immediately creates problems for the trade unions collectively. The more specific the policy content, the greater the problem. Although there are pressures towards centralization of policy formulation implicit in all voluntary incomes policies, these pressures provide an opportunity to resolve certain basic questions if the unions so decide, but also contain the seeds of division and dissention. The opportunities provided to solve problems simultaneously create additional stresses and strains that could worsen the situation.

Attitudes towards what is fair and what is toler- able will change and, in part, will change as a result of the existence of a policy. Thus, it might be reasonable to expect that a period of drastic reduc- tions in wage differences by, for example, flat-rate increases will be followed by a period of percentage increases which will widen relative wages a little. Later years may see a return of flat-rate increases and so on. The policy content as well as the pace of change will be influenced by the reactions to the 20

current and past policy content. I f the key to a voluntary policy is attitudes and expectations, it is reasonable to allow for changes in these both as a result ofthe positive contribution made by the policy and also as a reaction to the policy.

There is a basic choice facing governments. They can seek to obtain dramatic short-term benefits by imposing a freeze or they can seek to secure longer term benefits by changing attitudes. It is unlikely that attitudes will be changed sufficiently by short-term freezes. Rather, wage claims will be pressed with renewed vigour when the freeze ends. Attitudes to differentials and relativities cannot be changed quickly and this should be recognized in Government policy. Immediate large gains ought not, therefore, to be expected, unless it is accepted that these will be cancelled out in the fairly short run. What the Government can seek to do is to speed up the pace of change of attitudes by unions, workers and employers, but this should be done in such a way that these groups are satisfied that their own objectives will be better achieved by responding to Government pressure than by opposing it. In the light of this, there is one final comment. The Govern- ment and public opinion should not expect too much. A little moderation in inflation, a small rise in productivity, a modest reduction in the level of unemployment that might otherwise exist, or a small redistribution in income, are all preferable to no gains at all. Trade union leaders should not be expected to deliver too much too quickly. They represent their members and can move only as fast and as far as their members permit. Relative wages are at the heart of wages policy and, therefore, great attention will continue to be paid to them. Nego- tiating habits die hard. Those outside the bargaining area frequently underestimate the importance of these issues to those involved. Future incomes policy must give due recognition to the difficulties involved in changing habits and practices. There is need for greater agreement between unions and workers on differentials within the plant and on relativities at national level. This is a long-term problem and it is time for preliminary work to begin. Results could well be a long time coming.