PRODUCTIVITY AS A GUIDE TO WAGES

Through defective presentation the Government has allowed the wages pause to be interpreted as involving a substantial sacrifice by all concerned, and especially by those least able to afford it. The very reverse is true. In fact, substantial benefits would accrue to everybody by maintaining existing wages levels, because if this were done for a reasonable time, real earnings, or purchasing power, would improve. And if thereafter reasonable restraint were exercised in asking for, or giving, wages increases, there would be a real hope of recapturing the habit of price reduction and so of still further improving purchasing power.

It is not true that prosperity must be equated with 'gentle' inflation-whatever that means. And while lip service is paid to the concept that inflation is caused by wage increases outstripping increases in productivity, few people are willing to do something positive about it. There is already active opposition to the wages pause, and no discernible determination by any sections of the community concerned with wage negotiations to devise a logical wages policy.

It was, of course, unfortunate for the climate of industrial relations that the wages pause was presented to both managements and workers without the most careful preparation and education. Too much emphasis was, and still is, placed on actual wage rates and earnings, whereas what matters most is real earnings, or purchasing power. Charts comparing, for example, wage rates, earnings, and profits are unrealistic unless we add the line for real earnings. When this is added, and also the line for productivity, it becomes startlingly clear that however great the total wage claim and the eventual settlement, real earnings will always follow much the same course as productivity. When substantial claims are substantially met real earnings may for a little time rise above the line of productivity. But eventually they come together again.

In spite of some sizeable variations profits have followed much the same course as weekly wage rates though they have been almost consistently below them. Thus all the tough bargaining by the unions on the basis of rising profits has only effectively raised real purchasing power by about the same factor as rising productivity would in any case have achieved had wages merely kept pace with it.

Of course, it is easy to see what is wrong. Put in its simplest terms it is that we have lost the habit of price reduction. Everyone wants it but few achieve it in the face of ever rising costs.

At present we are importing too much and exporting too little. The reasons for this are complex. Design, salesmanship, after-sales service, and many other factors enter into it. What is certain is that it will be even more difficult to sell abroad after the next round of wage claims have been met and incorporated into the price of the product. What would the picture look like now if wage increases had more nearly been associated with the increase in productivity? Certainly our products would have cost overseas and home customers fewer pounds, shillings and pence without the purchasing power of the workers having been at all impaired.

It has long seemed to me that the alternative is a rationalized wage policy for industry, maintaining the existing bargaining machinery, but avoiding the bitterness and acrimony that is engendered at present, and also avoiding the time-wasting strikes and deflection of management from its principal purpose. It may be argued that to base wage rates on a productivity index would weaken the trade unions. I do not think so. If there were bargaining committees of trade unions and employers for each industry and they based their negotiations annually on whatever was the national increase in productivity, then I feel quite sure that much more time would be left for the more important things - such as raising productivity itself and improving working conditions and the training of craftsmen to adequate standards.

If workers knew that every year wage increases would be automatically considered without their having to demand them, then this would remove the present acrimonious preliminaries to negotiations and would guarantee that the result could never be inflationary - that is, wage increases would be real increases in terms of purchasing power. It would also give workers a more direct interest in raising productivity by relating it to their wage packets. As wages would never exceed productivity, the cost of production could not rise from this cause; in all probability it would fall. This would encourage price reduction and tend to give a lower retail price index, so that real wages would increase, and any increase in the money rate would be worth still more. This would solve the problem of the pensioners and other people with fixed incomes. Furthermore, I am convinced that such a wage policy, when clearly understood, would create a new spirit of collaboration between management, supervision, and workpeople.

(J. J. Gracie From an article in The Guardian, December 7th, 1961)