VIIINDIRECT AND PARTIAL MEASURES

Derek Robinson

In distinction to comprehensive policies there is a range of partialmeasures available to a government seeking to influence pay. They maybe partial in that they apply only to parts of the employed population.They may be indirect in the sense that they seek to influence pay, notby impinging directly on the settlements or the results of collectivebargaining or of other forms of pay determination, but by influencingother factors which might affect pay movements.

INDIRECT MEASURES

One approach is to try to make labour markets conform more closelyto some theoretical construct, often one based on neo-classical eco-nomic analysis and assumptions. This is often attractive to 'practical'men who have relatively superficial, but strongly held, views of eco-nomics. Emphasis is given to the supply side of market behaviour. Inlabour markets this frequently leads to concentration on the reservationwage, i.e. the wage below which a worker is not prepared to work butat or above which he is willing to offer his labour services. The reserva-tion wage operates in the same way as a reservation price at an auction;if the level is not reached labour is withdrawn from the market, and if itis reached a transaction will take place without the price or wage beingany higher. Individuals determine their reservation wage in light of theirown preferences for income and leisure or non-work, and their choicemay be influenced by many factors, such as family circumstances(including whether other members of the household are employed andthe arrangements made for pooling income), expectations of obtaininga job in the future at some given wage level, and the social securityprovisions for the unemployed. Measures which lead to a reduction inreservation wages will not only moderate the rate of increase in (some)wages, but may actually lead to a reduction in existing wage levels.Similarly, if prevailing market wages are, for some reason or other,higher than the level of reservation wages, measures to push marketwages closer to reservation wages will reduce both wage levels andinflationary pressures.

In a neo-classical approach the emphasis on reducing reservationwages tends to focus on the individual and his own personal reservation

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wage. Governments therefore may try to influence individual behaviour.In an atomistic labour market where each individual seeks to maximizehis own utility, income, or whatever it is he is supposed to maximize,each person's reservation wage might be influenced by his view that ifhe sets it too high other individuals with lower reservation wages mightobtain the job he would really like and thereby deprive him of a joband wage which would in fact be acceptable.

With collective bargaining there is less fear of job loss in that theindividual is unlikely to be replaced by someone with a lower reserva-tion wage, although there may be collective job loss if wages are pushedtoo high. The view that actual market wages may exceed reservationwages so that wage levels are unduly high, shifts attention towards col-lective action in the labour market and the nature of particular labourmarket institutions. This might be seen as a position in which indi-viduals collectively determine a reservation wage which is higher thanthe level which would emerge from the mere aggregation of numerousindividual reservation wages. On some views this might be because tradeunions somehow create higher collective reservation wages by insistingthat individuals withhold their labour unless the collective or unionwage level is paid, even though the individual's own reservation wage islower than this. In this case the act of collective behaviour mightexplain why the collective reservation wage exceeds the individual ones.By changing factors which influence the processes of collective bargain-ing and the relative power of the two sides, it might be possible toinfluence the collective reservation wage downwards, thereby reducingthe increase in actual wages. Alternatively, it might be possible for theemployer to replace his present workforce by new workers who havelower reservation wages assuming, of course, that there are suitablyqualified and experienced people available and that collective action bythe existing workforce does not prevent this. Measures may be takentherefore to influence the collective behaviour of workpeople.

In other cases it may be that institutional features of the labourmarket, arising from collective bargaining or legislative intervention,impose actual wage levels which exceed the individual reservationwages. We will, therefore, start by considering influences on the labourmarket behaviour of individuals and how measures to lower the reserva-tion wage might reduce wages or wage increases. We will then move onto a discussion of collective behaviour which relates more to therelationship between actual and individual reservation wages, and thequestion of whether actual wages can be brought nearer to individuals'reservation wage levels.

Individual BehaviourWorkers are assumed to have a reservation wage. This might refer to areservation wage below which they will not work at all or one below

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which they will choose not to work in a particular job. It is the formerwhich is central to most of the discussion of policy measures, althoughin practice it may be the latter choice which is being made.

Social security benefits provision for the unemployed are oftenregarded as being the main determining variable available to govern-ment. The underlying analysis can be presented in simple terms. Thefinancial inducement to work is partly determined by the replacement-ratio, i.e. the proportion of employment income which is received whennot working. This can be defined as social security benefits plus any taxrebates as a proportion of the net income which would be receivedfrom work. Unemployed workers compare this financial advantage withthe disutility, the effort and unpleasantness of work, and they trade-offone against the other. Thus, 'some, perhaps many, will not be preparedto take the jobs on offer at such rewards. They will go on the dole.'(Minford, 1982). Instead of the simple textbook comparison of theutility of wages versus the disutility of work-effort and no income, it isassumed that in the real world individuals compare the utility of the netincrease in income, given by the replacement ratio, with the disutilityof work-effort (Parker, 1982). Only if the replacement ratio is zero,i.e. the unemployed receives no income when unemployed, is the trade-off or choice exercised simply between wages and work.

Governments may therefore seek to reduce the replacement ratio.The lower the level of benefits the lower the reservation wage, and thelower the reservation wage the greater the supply of labour at any givenwage level. A reduction in the reservation wage is equivalent to movingthe supply curve of labour to the right, and should lead to a reductionin wage levels. Even if the labour market does not operate as flexibly asthis so that money wages are inflexible downwards, real wages may bereduced as the rate of increase of money wages is lower because there isa larger supply of unemployed workers now seeking jobs at the pre-vailing wage level.

'The essence of modern theories of unemployment is that unemploy-ment is a productive activity and the result of choice' (Addison, 1981);'Unemployment, for example, is voluntary' (Minford and Peel, 1981).If someone loses his job he chooses to work elsewhere probably at alower real wage or to take social security benefits. According to theLiverpool University economic model, of Minford and Peel, if realbenefits to the unemployed were cut by lO per cent 'real wages wouldfall by 10 per cent. A cut in real benefits leads to a reduction of realwages of those in employment as well as the unemployed'. The labourmarket is seen as being inter-dependent in that supply and demandfactors drive down real wages in those jobs for which the unemployedapply and this spreads to all real wages. There is, incidentally, an addi-tional attraction to a monetarist about this approach. Cuts in benefitsto the unemployed result in a reduction in either the Public Sector

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Borrowing Requirement or the need to raise taxation. Estimates suggestthat each additional unemployed person adds about £4,500 to theGovernment's PSBR in the first year of unemployment.1

The Thatcher Government believes that benefits to the unemployedhave a significant effect on reservation wages. The 1980 Budget an-nounced that they would be subject to income tax from 1982 and thatas an interim measure the real value of benefits would be reduced by5 per cent a year. However, when taxation of unemployment benefitswas introduced in 1982, the 5 per cent cut was not restored. This ledto three revolts by Conservative back-bench MPs.2 A number of otherspeakers from both sides of the House criticized the 'Why work?' viewthat unemployment was the result of benefits being too high in relationto wages.

The Conservative back-bench protests illustrate the political con-straints which may be imposed on Government's freedom to act,although in these cases the Government was able to obtain a majorityin the House of Commons. Even if it is believed that the replacementratio is important in influencing attitudes to work and unemploymentfor some people, there may be strong pressures to maintain the reallevel of benefits on social grounds. The higher the level of unemploy-ment the more will people believe that much unemployment is notvoluntary; it is the inability to find jobs which is the prime cause ofunemployment - not the unwillingness of most of the unemployed toaccept a job at existing wage levels.

Part of the difficulty in considering whether reductions in replace-ment ratios will have significant effects on labour market behaviour andwage levels is that it is difficult to calculate actual replacement ratiosfor large numbers of individuals. A tremendous amount of detailedinformation has to be collected. To estimate 'typical' ratios for 'stan-dard' families may mislead since entitlement to benefits depends onpersonal circumstances. Even if full benefit entitlements are calculatedthey may not provide the effective replacement ratios on which peoplebase their employmentunemployment decision. Many people may notactually claim and receive their full entitlement. If they behave in theway assumed in the 'Why work?' approach they are presumablyresponding to the actual level of benefits they receive and not their fullentitlement. There is considerable ignorance about the full range ofbenefits available so that if people make the sort of trade-off decisions

See Economic Progress Report, No. 130, February 1981, for estimates of the directExchequer costs of an increase in registered unemployment excluding school-leavers in 1980-81 of about £3,400 per person. The MSC Corporate Plan 1982-86 estimates that this hasrisen to well over £4,000. Max Wilkinson in The Financial Times, 1 December 1981, refers toestimates of around £4,500 by the MSC and the Institute of Fiscal Studies.

2 See the debate in Hansa rd , 13 July 1982. Similar views were expressed by Sir Ian Gilmour,former Lord Privy Seal in the Thatcher Government, in 'A blot on the Tory tradition', TheTimes, 7 October1982.

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regarding wages and unemployment benefits as assumed they are prob-ably doing so on the basis of lower replacement ratios than actuallyexist. However, very few people are better off not working. There areprobably far more who are employed who would be just as well offunemployed but who defy the 'Why work?' argument by remaining intheir jobs.3

We simply do not know how much incentive, i.e. how low a replace-ment ratio, is needed before significant numbers of people start tryingto behave in the way postulated or assumed by modellers and theorists.Nor do we know whether, even if they tried, they would succeed. Thereare strong social forces related to equity, fairness and reasonable stan-dards of living, which influence pay levels, and these are held by em-ployers as well as workers and trade unions. Thus, even if the socialarguments against reducing the living standards of the unemployed arerejected and lower replacement ratios are introduced, and even if thisleads to greater efforts by the unemployed to find jobs, we do notknow whether or to what extent wages, either money wages or realwages, will fall.

Similar reductions of the reservation wages of the unemployed mightbe obtained by seeking to alter the supply curves of particular types oflabour or of labour to particular areas. Government-funded or govern-ment-encouraged training schemes may increase the supply of labour tocertain occupations. Increased geographical labour mobility mightreduce wages or the rate of wage increases if the unemployed were tomove to areas where there was a better prospect of obtaining work.Schemes can be devised to subsidize the cost of moving and to provideassistance in obtaining information about job opportunities in otherparts of the country. It has been argued that subsidies to council houserents means that unemployed individuals have a higher real reservationwage for movement to another part of the country (Miller and Wood,1982). Geographical mobility would require them to leave their subsi-dized council house and move to an area where it is very unlikely thatthey would be able to obtain rentable property at similar below-marketrents. Their reservation real wage is therefore much higher for the newarea than for their present location. If council house subsidies wereremoved, it is argued, the reservation real wage would be lower andtherefore there would be a greater labour supply in some areas whichwould reduce pay levels or increases there. The corresponding reductionin labour supply in the 'exporting' labour areas is not thought to havea similar effect in raising pay levels or increases as these are areas ofgreater excess labour supply. Such an approach in the British situationprobably requires changes in the system of calculating supplementarybenefits. Presently, rent is added to supplementary benefit entitlement.

See among others, Piachaud (1982) and Kay et al. (1980); Parker (1982) does not putforward this interpretation but her evidence suggests it.

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A reduction in rent subsidies would merely lead to higher supplementarybenefit for some of the unemployed and therefore no reduction in theeffective current replacement ratio. Similarly, the sale of rented councilhouses to tenants, while removing the apparent benefit of obtainingsubsidized rented accommodation in the present locality, is hardlylikely to lead to any greater geographical mobility. Indeed, it is quitelikely to lead to less as the owner-occupier (or mortgagee-occupier) inareas of relatively high unemployment will almost certainly find thehousing market biased against him in terms of selling and re-buying inanother area where there are more job opportunities.

Provisions for redundancy payments can be seen as having a labourmarket as well as a social content. Measures which might make it easierfor employers to shed surplus labour can moderate inflationary pressuresarising from general or specific labour shortages. The 1965 RedundancyPayments Act was intended to encourage de-manning and the sheddingof hoarded or surplus labour. Unions and workers might be morewilling to accept redundancy if it is accompanied by some lump-sumpayment, and employers might be more willing to seek a reduction intheir workforce if they feel that the displaced workers would notsuffer undue hardship.

Measures to reduce wage inflationary pressures by influencing indi-vidual behaviour in the labour market seek to introduce, or re-introduce,conditions approximating more closely to those assumed in neo-classical theories. Essentially they seek to reduce the real wage laboursupply price, i.e. the reservation wage, either for entry into any job orfor entry into specific jobs. Reductions in the replacement ratio areoften seen as lowering the reservation wage for entry into any job, i.e.as affecting the decision whether to work or, in Minford's phrase, to'go on the dole'. The effectiveness of such an approach rests heavily onthe extent to which wages and/or relative wages are flexible. If theassumed increase in labour supply does not lead to a reduction inwages, or wage increases, there will be no counter-inflationary conse-quences. Few economists or participants in industrial relations wouldexpect money wages to fall. There might be a reduction in real wages asmoney wages rise less quickly than prices. This would have some effectin reducing inflation. However, it is not clear that this would spreadthroughout the economy. In the organized sector, where they influencewage movements through collective bargaining, unions might resist thedownward pressures on wages or wage increases emanating from theunorganized sector. There would still be some general effect in reducinginflationary pressure but relative wages would diverge and there wouldbe redistribution of real income away from the lower-paid in theunorganized sector and the unemployed, in favour of those employedin the organized sectors.

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'Artificial' Wage Floors

Government intervention may be seen as providing artificial wage floorsso that actual wage levels exceed reservation wages (lEA, 1980, parti-cularly Burton; Brittan, 1982). Minimum wage legislation may be onesuch example. In the British context this refers to Wages Councilswhich set statutorily enforceable minimum wages and some otherconditions in certain low-paid industries (Craig et al., 1982). If thesewages are set above 'market' levels, where 'market' means those levelswhich would exist in the absence of Wages Councils, there might be twoeffects. Firstly, employment might be lower. Secondly, other wagesmight also be higher in order to maintain various pay differentials andrelativities. Increases in Wages Councils' rates of pay might then lead toincreases elsewhere, either as a result of supply and demand factors, asindividuals require some additional pay to work in other occupations,or as a result of institutional or social factors seeking to preserve sometraditional pay relationships. The abolition of legislative interventionmight therefore lead to a lowering of wages in the covered industries,probably in real terms but also conceivably in money terms, which onsome views would percolate through the rest of the labour market(Minford, 1982).

Similarly, as discussed in Chapter VI, British governments have pro-vided certain forms of protection for other particular groups whosewages or terms and conditions fall behind those established by collec-tive bargaining for similar types of workers through Schedule 11 ofthe Employment Protection Act and the 1946 Fair Wages Resolution.To the extent that wages rise more quickly as the result of extendingcollective bargaining settlements to other groups, the repeal of thelegislative underpinning of this form of comparability could lead to lessinflation. It might also lead to a greater degree of heterogeneity inlabour markets. Those previously benefiting from the Fair Wagesprovisions might move into the 'free' or unorganized sectors wherewages may move downwards closer to reservation wages. The ThatcherGovernment has announced its intention to repeal the Fair WagesResolution. It is also to denounce the International Labour ConventionNo. 94 of the ILO which accepts the principle of ' fair' wages (Hansard,28 July 1982).

We can speculate about the effects of such changes but whether therewill be a significant effect on the general rate of pay increases dependsvery much on the extent to which the impact on the wages of theseparticular groups feed through to the rest of the labour market. In thelonger term the lower-paid sectors might become more strongly organ-ized as a result of any reduction in their real wages and this could leadto more inflationary pressure, not less. Measures to move actual wage

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levels closer to what is assumed to be the reservation wages of parts ofthe workforce will inevitably generate political and social protests. Insome ways whether unemployment benefits raise reservation wagesmight be less important politically than a situation where actual wagesare for significant numbers of people below the unemployment benefitlevel. This would be regarded as unjust. Attempts to move actual wagescloser to the assumed reservation wages will therefore have to be associ-ated with measures to reduce benefits to the unemployed whether ornot the latter affect reservation wages.

Collective Action

Once it is accepted that in the real world pay movements are deter-mined by a mixture of forces and not merely by 'pure' supply anddemand, governments may seek to influence the non-economic factors.The most obvious of these appears to be trade unions and their powerto increase money wages above their 'supply-and-demand' level, or,what from an inflation viewpoint has the same effect, to reduce theeffective amount of labour-effort input per unit of time. While there issome academic debate about the power of trade unions to influencemoney or real wages there is no debate among governments, irrespectiveof their political composition or national origin. This may result fromwhat is sometimes called their position as monopoly suppliers oflabour, or may stem from other sources such as the legal frameworkwithin which collective bargaining takes place, government provisionfor conciliation or arbitration, accepted conventions regarding thefactors taken into account in pay determination, and so on. Measures toshift the balance of power in pay determination so as to obtain lowerincreases in money wages may be regarded as inherently more desirablethan direct government interference with either the processes or theresults of collective bargaining. Negotiators can continue to indulge in'free' collective bargaining unimpaired by bureaucratic controls butwithin a different framework so that, while the outcome of the bargain-ing processes are still those freely arrived at by the parties, they arearrived at in a different environment in response to different pressures.

The balance of power between employers and unions may be alteredin two main ways. First, it may be possible to shift the relative powerof one in relation to the other, perhaps by changing the weapons orsanctions which one party might be able to use against the other.Second, it may be possible to change the propensity of either party touse such sanctions or power that they have. The propensity to usepower may be what is referred to as 'militancy' (Robinson, 1980;Ulman, 1982). These approaches may be seen as attempts to reduce thedifference between the actual real wages paid and the real reservationwages if unions are able to force wages above the level which would

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result from market forces acting on the reservation wage of each indi-vidual. Or, by use of collective action to enforce a wage claim, it maybe possible to raise the collective reservation wage by withholdinglabour and preventing possible alternative sources of labour supplyfrom being employed at lower wage levels. Changes in the balance ofpower may influence the collective reservation wage which unions seekto obtain.

The Balance of Power

In the British situation, the most obvious starting point in attemptingto change the collective bargaining environment has been the legalframework within which bargaining takes place. Some legal immunitiesfor trade unions, as provided by the Trades Disputes Act (1906) andthe Employment Protection Act (1 975), are necessary to safeguardtrade unions and permit effective collective action in face of Britishlegislation regarding conspiracy and the courts' interpretations andextensions of common law liabilities for torts. The Trades Disputes Act(1906) and the Employment Protection Act (1975) have been seen bysome as providing too wide a range of legal immunities which permittedtrade unions to exercise excessive strength, or even irresponsibility, inthe pursuit of their sectional interests. Legislation to narrow the rangeof activities for which trade unions can claim legal immunity were partof both the Heath and Thatcher Governments' approaches, advocatednot only for industrial relations reasons but also for the contributionthey could make to reduce inflation. While it is possible to enact legis-lation which makes it a criminal offence to take certain forms of indus-trial action, the usual practice is to provide employers (or, perhapsother injured parties) with civil rights of redress. Governments are charyof allowing themselves to become embroiled in initiating legal actionagainst trade unions or trade unionists for criminal acts and prefer tocreate opportunities whereby employers may take action. Whetheremployers avail themselves of these legal opportunities is anotherquestion. Certainly employers have shown a unanimous reluctance totake action against individual employees who have broken their con-tracts of employment by taking part in strikes without giving duenotice. Whether they will show the same reluctance to take actionagainst trade unions under the 1980 and 1982 Employment Acts isless certain. By limiting the type of dispute which attracts immunities,the employers against whom industrial action can be taken, and theextent of picketing, it may be possible to reduce some of the strengthof some trade unions.

It may be that enabling employers to claim damages from tradeunions in certain situations will have some effect on the behaviour ofshop stewards, and unions may alter their rules and procedures to try

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and exericse more control over the actions of local representatives.In themselves these changes will have little effect in shifting the balanceof power in those areas of wage bargaining where negotiations, and insome cases industrial conflict, take place between the formal tradeunion organization and an employer. The main effect of the 1980 and1982 Employment Acts will be on secondary and sympathetic actionto support the less well-organized, weaker sections of the workforce.This may have some effects on the secondary round of inflationarywage settlements but little, perhaps, on the primary round of the well-organized strong sections.

The public sector might use any further legal opportunities that wereprovided as part of deliberate government policy to set a lead. Thegovernment itself could take direct action only in respect of the CivilService. For the rest, the NHS, local authorities and the nationalizedindustries, it would need to operate through management inter-mediaries, such as boards or councils. These might well be reluctant torun the risk of souring industrial relations by initiating legal actionagainst 'their' trade unions.

The 'closed shop' or Union Membership Agreement may be singledout as a particularly pernicious source of trade union power whichbuttresses its monopoly position (lEA, 1980). Much of this criticismis probably misdirected. It is doubtful if the closed shop itself adds verysignificantly to the power exerted by a union in an industrial dispute.Most post-entry closed shops would have a voluntary membershipfigure of over 90 per cent, and few would fall below 80 per cent. It isvery difficult to see how a strike would be less effective if the officialunion strike call did not apply to a small percentage of the workforce.However, it may be that employers believe that unions are strongerwhen buttressed by a closed shop and this belief may lead to unionsactually having more power. It then becomes more difficult to under-stand why employers agree to closed shop arrangements unless theyassess the disruption caused by refusing a Union Membership Agree-ment to be even less desirable than the perceived switch in power whichwould result from conceding one. It may be that a closed shop agree-ment leads to more militancy in that unions become more likely tothreaten or initiate industrial action if they are secure in the knowledgethat members will respond because of fear of losing their job as a resultof expulsion from the union if they do not strike. The significance ofthis depends upon the decision-taking processes within trade unions andthe extent to which it is believed that strikes may be the result of unionleadership imposing strike action on a reluctant membership.

Criticisms of the closed shop may be much better directed at itsapparent infringement of individual freedom and choice when the argu-ment comes down to the old problem of the appropriate balancebetween individual and collective interests and rights in a pluralist

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democracy. The 1982 Employment Act recognizes that it would not bepracticable to try to abolish or outlaw the closed shop, and insteadprovides for compensation for individuals who are dismissed forrefusing to join a trade union. It is interesting to note that employerswith knowledge and experience of industrial relations are not in theforefront demanding an end to the closed shop. The legal provisionsregarding trade union membership and unfair dismissal may generatemuch heat but have no significant effect on pay developments.

Militancy

One view is that trade union leadership, which might be the full-timeofficials or the national executives, are more militant or prone toinitiate strike action than are the rank and file members. Strike actioncould be unlawful, or immunities withdrawn from unions, in regard tostrike action which has not been preceded by a ballot of the unionmembers. This might be confined to certain types of strikes, perhapsthose affecting the national interest. Complications would arise regard-ing the determination of the constituency for participation in the ballotand the wording of the question to be put. There is also the issue ofwhether, if a strike is held, a ballot is also needed to end it, and if so,whether this might not prolong such strikes as occur. The effectivenessof such proposals hinges on the question of whether the leadership ismore strike-prone than the membership. Similar arguments have beenadvanced about the relationship between shop stewards and theirmembers. 'But employers have a choice. Will they listen to shopstewards who have so frequently in the past been shown to be totallyunrepresentative, or will they consult and listen to their workforces?'(Tebbit, 1982).

In some situations, at certain times, it may be that the leadershiptakes the initiative in calling strike action and urges a somewhat reluc-tant membership to participate. In others the leadership probablydampens down the pressure for industrial action and, if a strike doestake place, may reach a compromise settlement more quickly andeasily than would be the case were it necessary first to have a furtherballot to end the action. There is considerable research evidence tosuggest that shop stewards are preventers, rather than originators, ofindustrial unrest (McCarthy, 1966; McCarthy and Parker, 1968; Batstoneet al., 1977; Taylor, 1980). Given the great diversity to be found inBritish industrial relations and trade unions we ought not to expect tofind the same consistent position in all cases at all times.

Proposals to encourage, or require, the election rather than appoint-ment of trade union officials may spring from the same belief that themembership is less militant than the leadership. It might be thoughtthat elected officials, particularly if subject to periodic re-election,

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would be more sensitive to the wishes of the more moderate member-ship and that this would lead to lower demands and less industrialaction. It is, however, equally possible that this would lead to higherdemands and more action. If trade unionists want to improve theirterms and conditions of employment they might respond to com-petitive electioneering by potential officials who might encourage largeclaims as part of their campaign. There is no obvious a priori reason tobelieve that trade union officials are fundamentally different sorts ofhuman beings than politicians, or that they would behave very muchdifferently in election campaigns.

From 1 September 1982 the Government has provided funds fromwhich trade unions can claim back the cost of secret ballots to acceptor reject a proposal by an employer relating to remuneration, hours ofwork, level of performance, holidays or pensions.4 The same issue ofthe representativeness of union spokesmen is raised by this measure.Presumably it is intended to exert a restraining influence on unionclaims. If a ballot accepted an employer's offer, it can be assumed thatthe union will settle. If the offer were rejected is it to be assumed thatthere is an obligation on the employer to make a further improvedoffer? If it is not, unions will reject the ballot provisions as a loadedone-way option. If there is an obligation on the employer it could wellprove to be equally biased against him. Union members would knowthat a vote for rejection would lead to an improved offer. In situationswhere the employer has stated that it is his final offer, presumably theballot would be an attempt to ensure that the union was aware ofthe views of its members, thus becoming a question of internal com-munication.

Measures may be introduced which seek to reduce the militancy ofthe union membership. Withholding tax rebates from strikers during thecourse of a dispute may be seen as increasing the short-term cost orburden of a strike. From 1980 those out of work because of a stoppageat their place of work in which they are participating or are 'directlyinterested' are assumed to be in receipt of strike pay which is thentreated as 'resources' of their family in the event of a claim for supple-mentary benefits, whether they actually receive strike pay or not.5The amount is currently £14.50 a week. This applies even to non-unionmembers who are out of work as a result of a trade dispute at theirplace of employment. Research evidence suggests that most strikers donot benefit from state assistance during a strike (Gennard, 1 978).

' Section 1 of the Employment Act 1980 gave the Government power to issue StatutoryInstruments to provide funds for secret ballots. Funds for Trade Union Ballots Order 1982(SI 1982 No. 953) provided funds for the election of officers, executive committee and strikeaction. Funds for Trade Union Ballots (Amendment) Regulations 1982 (SI 1982 No. 1108)extended the provisions to the acceptance or rejection of an employer's offer.

This is discussed in Hepple and O'Higgins, 1-476. The assumed amount of strike pay,£12 a week in 1980, has been increased as a result of inflation.

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However, this sort of measure may conceivably have some effect indeterring a strike decision if it is thought that the strike may be long,thus leading to a claim for supplementary benefits, or if potentialstrikers are misinformed about the likelihood of their receiving supple-mentary benefits during a dispute.

PARTIAL MEASURES

The adoption of partial measures allows government to apply particularpressures on parts of the economy. These may have some effects inrestraining wages in those sectors and may also moderate pay move-ments elsewhere.

The Public Sector

About 30 per cent of the UK employed labour force is in the publicsector (Briscoe, 1981), and this sheer size compels a Government toadopt a position on public sector pay. It is directly responsible forcentral government employees, such as the Civil Service, and for theNHS. It has interests in, and is often held to some extent responsiblefor, pay of local authorities, including teachers, and the public corpora-tions. The latter area is somewhat murky; it is unclear how far govern-ment advice or pressure, possibly affecting the amount of public fundsmade available to nationalized industries, actually influences themanagement side in pay negotiations. That there is some influenceseems indisputable.

Whether there has been a formal incomes policy or not, governmentshave sought to use the public sector to influence pay movements else-where. 'It is impossible for the Government not to have some sort ofpublic sector pay policy.'6 The form that it takes and the extent of itscoverage vary but no government can absolve itself from some responsi-bility for the pay of central government employees, and all governmentsfind it difficult to isolate themselves totally from some responsibilityfor pay in other parts of the public sector. Public opinion requires thatgovernment give more attention to, and accept more responsibility for,public corporations than for the private sector. In addition to seekingto set an example to the private sector, governments are concerned tolimit the financial calls on public funds which may result from highwage increases.

Direct Responsibilities

In so far as its own employees in the Civil Service were concerned,Government from 1956 to 1981 accepted the principle of fair com-

6 Remark made by Mr P. E. Middleton, Deputy Secretary, HM Treasury, when givingevidence to the House of Commons Treasury and Civil Service Committee, 14 July 1980,HC (1980-81) 163-LI, Question 270.

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parison applied through the Civil Service Pay Research Unit. For anumber of years before that there had been a looser system of faircomparability. In effect this drastically narrowed the area of bargainingover pay by trying to ensure that civil servants were paid the same asoutside staff employed on broadly comparable work, after taking intoaccount various fringe benefits. Increasingly through the 1970's publicdisquiet grew. If was felt that the system was somehow biased in favourof civil servants. The Callaghan Government established the CivilService Pay Research Unit Board in 1978 which was intended tosatisfy public concern by ensuring the independence and impartiality ofthe PRU and to submit an annual report on the working of the Unit.This system of pay comparison left government little scope for directintervention on matters affecting Civil Service pay as long as the systemwas allowed to operate. It could instruct the Official Side, i.e. thosecivil servants representing government through the Treasury (or formerlythe Civil Service Department), to adopt certain stances in negotiation,but this would be at best marginal, given the principles of comparabilityinherent in the system. The PRU system could be suspended duringperiods of formal income policies on the grounds that the same generalpolicy rules should apply to all workers. In these circumstances suspen-sion could be tolerated by the Civil Service unions on the basis thatultimately the agreed rules would be restored.

In 1980 the Thatcher Government rejected the PRU system in orderto impose a cash limit constraint on Civil Service pay. To do this itbroke the provisions of the 1974 pay agreement with the Civil Serviceunions under which reports of the PRU should have been given to bothparties. Instead, the Government gave notice on 19 September 1980that the pay agreement would end on 1 April 1981; the original agree-ment provided that either side could give six months' notice for areview of pay and the agreement was to remain in force until the dateof any new agreement. Reports from the PRU, which should have beenavailable in November, were denied to the unions on the instructions ofGovernment. Notwithstanding the clear breach of the provisions of theagreement, the Courts held that as Crown servants the staff of the PRUwas an arm of government and the Crown had the right to withdrawtheir services preventing them from issuing reports whether thatinvolved a breach of the agreement or not.7 There are two points ofinterest. Firstly, the Civil Service PRU Board was proved impotent toprotect the PRU from direct government intervention and thus couldnot ensure that the Unit carried out the tasks laid down in the pay

See Law Report 3 December 1980, Chancery Division, The Times. See also the exchangeof correspondence between Lord Soames, Lord President of the Council in charge of the CivilService Department and W. L. Kendall, General Secretary, Council of Civil Service Unions inWhitley Bulletin, Vol. 60, No. 11, December 1980, and CCSU The Bulletin, Vol. 1, No. 1,January 1981.

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agreement. Secondly, a government has tremendous legal powers inregard of its own employees should it choose to use them. These mayinvolve the breaking of agreements freely entered into in good faith byboth sides, conduct which, were it to be carried out by a trade union,would undoubtedly raise howls of protest and criticism on the groundsof gross irresponsibility. The immediate cause for the abandonment ofthe PRU system was the Government's desire to introduce cash limitsinto Civil Service pay, but there was also a more fundamental view thatcomparability was an inappropriate way of settling Civil Service pay, asis argued in the Government's evidence to the Megaw Committee and inthe Treasury's case to the 1982 Civil Service Arbitration Tribunal.8

With the NHS there has been no established formal system of com-parability. The government negotiates directly, albeit represented in themain by civil servants. This too provides opportunities for a governmentto display commitment to a counter-inflationary approach. Tougherbargaining by the Official Side, or by Ministers who may become in-volved, may lead to industrial action in exactly the same way as mayoccur in the private sector. If unions cannot obtain their demands atthe bargaining table there is a temptation for them to turn to politicalaction. Campaigns to enlist public support and to lobby Members ofParliament, from all sides of the House of Commons, are well estab-lished techniques when public sector disputes occur. It is a matter ofpolitical judgement for governments to decide whether they will beable successfully to resist such pressures as their tougher stance maygenerate.

It is a political issue whether or not public service employees shouldbe deprived of the right to strike. Federal employees in the UnitedStates do not have the right to strike or even to take part in collectivebargaining over pay. In Britain, while there have been suggestions thatgovernment might enter into special pay agreements with workers in'essential' services whereby they would be offered some form ofguaranteed system of pay determination in return for them foregoingthe right to strike, no such arrangements have yet been made.

It may be that the Government's actions in 1981 in unconstitution-ally (in an industrial relations sense) tearing up their agreement withthe Civil Service trade unions regarding unilateral access to arbitration,will make it much more difficult for such arrangements to be made.Refusal to go to arbitration may be deliberate strategy. At the time ofwriting the Government is adamant that it will not permit arbitration inthe 1982 NHS dispute.

Governments may have some choice in that they may be able toexert particular pressures on their own employees which might havesome effect on other pay developments. This may generate industrial

8 See CSD (1981), especially paragraph 4; and Treasury (1982), especially section 6.

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unrest and political reactions, but this may be no more than to say thatthere are no painless easy ways of reducing inflationary pressures. Tothe extent that the Civil Service is generally regarded in an unfavourablelight by public opinion, the political repercussions may be thought bysome to be tolerable.

Other Public Sector Groups

Private sector employers may complain that they have little oppor-tunity to moderate the pay of their employees if public sector workersare receiving high pay increases. This may, in appropriate economiccircumstances, be the result of market forces. If the labour market istight, high public sector pay - or pay increases - may make it difficultfor the private sector to recruit or retain labour without paying similaramounts. It may be institutional or attitudinal in that public sectorincreases create a climate or set the pace for the private sector.

In the early 1970's the Government adopted the N-1 policy. Thiswas never formally enunciated but emerged as an attempt to bringdown each successive major public sector settlement by one percentagepoint. While recognizing that there might be some form of compar-ability or wage round, the approach sought to slice one per cent offeach successive settlement, thereby gradually bringing down theaccepted going rate. After some preliminary success the policy ran intotrouble, and was superseded by the 'pay pause' of November 1972 andthe Heath Pay Board of 1973.

The N-1 policy, concentrating on individual public sector settlements,spotlighted one difficulty. Some parts of the public sector are stronger,in both an economic and an industrial relations sense, than others.Measures which do not recognize this will run into trouble. Attemptsto differentiate on the grounds of strength or product market forcesmay be seen as conflicting with accepted norms of fairness.

Cash Limits

The introduction of a new cash limit system of planning for govern-ment expenditure has had a significant effect on pay bargaining in partsof the public sector. If the cash limit is regarded as composed of a payand a non-pay component then, if wages per worker rise by more thanthe increase in the cash limit for the pay component, there must be areduction in the number employed. In this sense it is a simple wage-fund or wage kitty concept. By forcing trade unions to make a choicebetween the increase in wages per employee and the numbers employed,it is hoped to moderate their wage demands. At the same time, byimpressing on the management or employers' side that there is fixedlimit on resources available to finance pay increases, it is hoped to

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stiffen their resolve in pay bargaining. In practice, however, there maybe room for the transfer of funds between pay and non-pay com-ponents. Further, there may be other ways in which the pay increasecan exceed the cash limit increase. In any year there will be staff turn-over. If there are gaps between people leaving and new recruits beinghired there is an equivalent to a 'saving' which can be used to financehigher wage increases. Sometimes staff numbers may be reducedperhaps because of a change in functions.9 This may lead advocates ofcash limits to suggest that the imposition of a cash limit does not meanthat the wage increase is pre-determined. This is only partly true. Thepermitted wage increase may not be precisely pre-determined becauseof this slippage, but it is pre-determined to the extent that if a moreaccurate calculation had been made of the slippage a given percentagepay increase could have been obtained from a smaller cash limit.

Government has a particular problem in the use of cash limits whichmight not arise in the case of private companies trying to use a similarsystem of internal control over expenditure. The Government isrequired, properly, by Parliament to provide details of its expenditureplans even though the Treasury might prefer that it did not. Publicsector unions are therefore aware of the Government's intentions andit is this which gives rise to the view that effective bargaining has beendenied. Government is trying to generate lower expectations and sowants publicity for the lower increases it seeks. There is no way out ofthis dilemma.

If the cash limit figure, perhaps adjusted for slippage, becomes themaximum permitted wage increase, unions will claim that they havebeen denied genuine bargaining; the pay increase has been set byadministrative decision of government in determining the cash limit.Moreover, if there are different cash limits for different parts of thepublic service notions of discrimination will generate additional unrest.

In some circumstances the cash limit may become 'flexible'. In theirstatement of case to the Civil Service Arbitration Tribunal the Treasurymade it clear that if the Tribunal awarded an increase in excess of thatprovided in the cash limit the Contingency Reserve could be used tofinance the higher pay levels without there being the expected adverseconsequences on employment.'0 In other parts of the public sector cash

Something like this seems to have occurred in the Bank of England where a cash limit of14 per cent was held to be compatible with pay increases of 17 per cent as the number of staffhad been reduced. See evidence of Mr Gordon Richardson, Governor of the Bank of Englandto the Treasury and Civil Service Committee, 21 July 1980, HC (163-JI), Question 453.

° This may have been a special situation in that the government had committed itself togoing to arbitration in 1982 if the unions so wished as part of the settlement of the 1981dispute. The Treasury may have been unwilling to appear before the Arbitration Tribunalapparently saying that if the Tribunal did not blindly accept the cash limit as an upper liniiton pay awards they (the Tribunal) would in effect be awarding job losses in the Civil Service.This could have been interpreted by the Tribunal as an undue limitation on their properfreedom as arbitrators.

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limits are more complex. Public corporations are revenue-earningbodies. They could increase prices in order to cover higher pay rises andthis may be contrary to government's intention. It may have beenthought at one time that such action would be short-run as the higherprices would lead to a loss of demand which would in turn lead to lessjobs and so bring home to the unions in the nationalized industries theconsequences of high wage settlements. The nationalized industriesmay, however, cut back on other expenditure or press for additionalgovernment finance. In some situations they could create considerableembarrassment for government if they reduced certain services as partof their cost trimming. It is necessary to control the external financinglimits in order to try to make the general financial constraints on publiccorporations bite into their pay settlements. The profitable agencies areless amenable to such control. This leads to varying degrees of controlor influence over different public corporations.

With local authorities, government can seek to impose a form of cashlimit by controlling the amount of Central Government Rate SupportGrant. Naïve exponents of this cash limit approach might believe thatincreased rates would have the same effect as increased prices. Theelectorate, acting as consumers, would express its preferences at theballot box, as at the shop counter, and replace the price- or rate-raisingcouncillors with a different management. In practice, however, theelectorate may not react this way. Higher wages in local governmentmay result in higher rates and so possibly in greater inflationary pres-sures. Government may then find itself obliged to limit the ability oflocal authorities to increase rates or try to do so. Political problemsmay well arise. The issue of the proper relationship between central andlocal government is an important and delicate one in a democraticsociety. Councillors with the same political affiliations as the govern-ment may disagree with it when their own local authorities are subjectto financial squeeze.

Part of the conflict may arise from the fact that local authority pay,including that of teachers, is settled nationally. There has been steadymovement away from decentralized local bargaining resulting in theestablishment of national pay structures and scales. This may havemany advantages, and certainly reduces the pressures of internalcoercive comparisons with local government, but it reduces the internalfreedom of action of any one local authority. The logical step for agovernment seeking to apply financial constraints on local authoritypay bargaining and rate increases would he to move towards local paysettlements, but this may well be one of those situations where theapparent logic would lead not only to considerable industrial unrest butto higher wages in some areas. Such market forces as may then developin response to the wage movements would be slow, uncertain, andprobably politically unacceptable.

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It may be an important part of the government's general approachand underlying economic philosophy that there should be greatervariation in the pay settlements of different parts of the public sector,reflecting perhaps different product and labour market conditions. Thismay mean destroying past pay relationships or reducing the belief thatequity in terms of similar pay increases should play a major role in thepublic sector. Government may, however, adjust its implied cash limitsor financial constraints on different public corporations in light of theirassessment of the possibility of achieving acceptance, however reluc-tant, of a new approach to public sector pay. It may be argued that wecurrently have a public sector incomes policy which has differing normsfor different sectors with the police and fire service receiving theadvantage of a full index-linking with outside earnings.

CONCLUSIONS

Attempts to moderate inflation by influencing individual behaviour inan attempt to make real labour markets conform more closely to theconditions postulated in some economic models, require changes in theenvironment in which individual decisions are taken, as well, perhaps, assome shifts in attitudes. Institutional factors may mean that wageflexibility is extremely difficult to achieve. Measures to influencecollective behaviour may, as a result of industrial relations legislation,create some changes in behaviour, but the shift in relative power arisingfrom the high and rising levels of unemployment is a more likelyexplanation. A key question is the extent to which indirect measuresrely for their success on the general economic climate so that theirindividual effectiveness can be considered only in the context of thegeneral budgetary and monetary stance of government. The specificmeasures then become so enmeshed in the general macroeconomicenvironment that they cannot properly be assessed in isolation from it.At the same time it may be thought that some of these measures arenecessary in order to ensure that the general economic policies can bespeedily and effectively implemented. The very success of the indirectmeasures and associated macroeconomic policies could therefore createthe seeds of their own destruction. If the balance of power is shiftedback to trade unions as economic recovery takes place, and if improvedeconomic conditions encourage the view that we should revert to amore caring or compassionate society, pressure to restore cuts in thereal income of the unemployed may become politically irresistible.Moreover, many of the collective indirect measures are much morelikely to be attractive to a government which is not basically sympa-thetic to trade unions. One which is may find them distasteful orpolitically indigestible.

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Measures to shift the balance of power and partial measures can beexpected to generate political pressures for their abolition. The pros-pects of a legislative see-saw with governments of different politicalpersuasions repealing each other's industrial relations measures implyuncertainty and instability which are not conducive to sustainedindustrial growth and higher employment. The discrimination againstthe public sector implicit in the partial measures can be expected toincrease rather than decrease political involvement and, rather thanencourage a move towards market conditions may merely emphasizethat the crucial decisions have been taken by government instead ofby a myriad of market agents. It will require continued pressure toimpose a change in attitudes.

Both indirect and partial measures emphasize the conflict betweenthe 'economic' and 'social' factors in policy-making. The notions offairness and equitable treatment which are embodied, not only inlabour market institutions, but also in other areas of activity such associal security, place constraints upon the ability of a government tointroduce drastic changes of direction or emphasis. There is a marginof opportunity, but that margin is uncertain and shifting. Essentiallyall these proposals require less importance to be placed on notions offairness as currently interpreted, and a greater acceptance of fairnessas being that which results from reliance on 'market' factors. Thisconflict permeates twentieth century political and economic develop-ment. Short-term changes in behaviour may be induced, not becauseof changes in basic attitudes, but rather as temporary tactical with-drawals. If this is so, indirect and partial measures may have the samedefect that, it is alleged, traditional comprehensive incomes policieshave; they may obtain some short-term relief but no enduring benefits.

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