IINTRODUCTION

Derek Robinson and Ken Mayhew

Every government is concerned about inflation, employment andunemployment. Whatever its ideological stance, it is required to acceptresponsibility for these matters. Political necessity, therefore, leads eachgovernment to implement policies designed to influence the rate ofinflation and this inevitably leads it to seek to alter in one way oranother movements in pay. There is a wide range of measures open togovernment, but it has no option about whether or not to exert influence.The policy debate is about the means by which this can best be done.The papers presented here are intended to contribute to that debate.

They have some things in common. They all recognize that collectivebargaining is the most important method of determining pay andconditions of employment in this country and that it will remain so forthe foreseeable future. The authors go further than this; they all believethat it is the preferred method. Specifically such joint regulation ispreferred to unilateral action by either employers or unions, but thispreference is consistent with an acceptance of the need for, or perhapsthe innate desirability of, an incomes policy which, on a voluntaryor statutory basis, imposes some constraints on the results or outcomesof collective bargaining.

It has long been general government policy to support collectivebargaining. Both the Industrial Relations Act (1971) and the Employ-ment Protection Act provided that a primary purpose of the Commissionfor Industrial Relations and ACAS respectively should be to encourageits development. This emphasis has, increasingly in post-war conditions,appeared to government to conflict with the objectives of moderatinginflation, maintaining full employment and, on occasions, protectingthe exchange rate. The results of the bargaining process have been seenas unacceptable or contrary to the public interest. There have beentherefore a series of government attempts to influence them directly,by imposing limits on the permitted increases, and also by altering theprocesses of collective bargaining, the institutions which influence paydetermination, and the attitudes and behaviour of the various parties topay determination. There are thus a whole range of policies available,although they are not necessarily mutually exclusive. One choice, andmost frequently associated with the term incomes policy, consists ofattempts to impinge directly on the results of collective bargaining. This

3

might be done simply by appeals to the decision-takers to take differentdecisions, as with a voluntary Social Contract. In other cases there mightbe more formal machinery for ensuring that declared rules are followedand various sanctions applied in the event of non-compliance. A dis-tinguishing feature of these approaches is that they leave the parties tocollective bargaining to take the decisions within the constraints set outby the policy. A second approach is to seek to influence the results ofpay determination by changing the methods of collective bargaining,the relative strength of the parties to pay determination, or the easewith which certain forms of pressure can be brought to bear on one sideor another. Frequently when the state has felt obliged to intervene toalter the framework within which pay decisions are taken through thecollective bargaining process, it has tended to shift the balance ofrelative power towards workers and their representatives. Importantexceptions were the Trades Dispute Act of 1927, more recently thevarious proposals dating from the Labour Government's In Place ofStrife in 1 969' and the present Government's legislative stance. Thesemeasures and proposals included provisions which shifted relativepower away from trade unions.

The Government has other formal means of exerting influencedesigned to affect the outcome of the bargaining process. The use itmakes of its ability to intervene in disputes through arbitration orconciliation provisions, its approach to public sector pay claims andlegislation which might include specific provisions for the use of someform of comparability such as the Fair Wages Resolution or Schedule 8of the Employment Protection Act. It may seek to change the processesand institutions through which collective bargaining decisions whichaffect pay are taken. Various bodies have sought to do this on a volun-tary non-statutory basis such as the COPPY and National IncomesCommission. 2

Government may seek to exert more general indirect influence ontrade unions by changing the behaviour and attitudes of their members,both in their collective behaviour as trade unionists and as individualsin labour markets. Decisions regarding the provision of social securitypayments, the general state of the economy and people's perceptions oftheir likelihood of finding alternative employment and the ease withwhich people can change jobs or move into jobs, can all affect theworkings of labour markets. Such indirect approaches might not

An interesting account of the Labour Government's attempt to introduce trade unionreform through legislation is in Fay. It is noteworthy that the first mention in Parliament olthe intention to introduce the restrictive parts of the White Paper In Place of Strife (Cmnd.3888, 1969) was by the Chancellor of the Exchequer, Mr Roy Jenkins, in his Budget Statement,Hansard, 15 April 1969, Col. 1006.

The Council on Prices, Productivity and Incomes was established in 1958, and the NationalIncomes Commission in 1962.

4

strictly be classified as incomes policies, but, as examples of ad hocintervention by government in order to influence inflationary pressures,they are relevant.

A government seeking to influence pay developments needs to havea view on the relative importance of market forces, generally regardedas emanating from product markets translated into supply and demandpressures in labour markets, and of what may be collectively describedas institutional forces. This means those institutions, activities, proce-dures and legislative features of an economy which impede, distort orchange the impact of the market forces on pay and related economicvariables. This does not require an exclusive either-or choice. Few, ifany analysts, would conclude that only market forces matter, or thatmarket forces are totally irrelevant. The choice is one of balance; theextent to which market forces may overcome institutional constraints,or the extent to which market forces are, or can be, blunted or divertedby these other factors. The debate, whether on academic theoreticalgrounds or on the findings of empirical research, is inconclusive. Thereis actually no reason why it should be either conclusive or constant.For policy-making purposes, however, it is necessary to have some viewof the relative importance of the various forces which determine paychanges.

A further point should be borne in mind when considering anygovernment policy or proposals for change. Assessments of the successor otherwise of a policy hinge crucially on some estimate of what wouldhave happened without the policy. There has been much econometricanalysis of incomes policies seeking to establish whether they have anyimpact. There are two problems with the econometric approach. Muchof the earlier work assumed that it was possible to distinguish simplybetween periods in which there was an incomes policy and periodswhen there was not. Incomes policy was regarded as an electric light.It was either on or off. In practice there are different sorts of policieswhich are applied with differing degrees of determination. As some ofthe other chapters show, the Government stance in the absence of acomprehensive incomes policy does not involve a uniform set of measuresdesigned to affect all pay determination in exactly the same way. Morerecent econometric work has recognized this by using different dummyvariables for different policy periods. Though this represents an improve-ment, it is still a blunt technique for capturing complex and adaptiveinteractions between political and economic forces. Secondly, theseanalyses rest on the assumption that it is possible to make a reasonableestimate of what would have happened to wages had there been nopolicy. Such an assumption is in practice unwarranted. Thus, civilservants and economists from the Treasury, when referring to theTreasury's econometric model, said: 'Some of the crucial relationshipsin the model, such as that which determines nominal earnings, have

5

been difficult to establish empirically and it would not surprise us ifthe true relationships were somewhat different' (Middleton et al.,p. 160). This makes it clear that it has not proved possible to providea satisfactory econometric explanation of the determination of moneywages for the Treasury's model, and it follows from this that they haveno satisfactory explanation of how money wages would move in theabsence of an incomes policy. Precise quantification of incomes policyor some other measure, cannot, in the present state of knowledge, beobtained. Assessments of the efficacy of incomes policy or other policymeasures, are therefore judgements rather than accurate measurements.

At one end of the spectrum of policy options is a formal comprehen-sive statutory prices and incomes policy as introduced by the WilsonGovernment 1965-69 and the Heath Government 1973-74. Theseshade into voluntary policies with greater or lesser degrees of explicit-ness regarding the size of 'permitted or approved' pay increases. Theweight of such policies is usually brought to bear on the size of payincreases, although on occasions they might seek to alter the conditionsassociated with a settlement of a particular size, as with a productivityexception clause. Essentially the aim is to influence the results ofcollective bargaining but, on the whole, not directly to seek to alter theprocesses or institutions of collective bargaining. However, there maybe some largely unintended or incidental effects on bargaining processes.For example, provisions regarding the kitty, from which permitted wageincreases can come, may lead to changes in the coverage of bargainingunits. There may be other effects on the timing and frequency ofsettlements, the relationship between different levels of bargaining in amulti-tier bargaining system, the content of bargaining according towhether fringe benefits, certain types of payment, particular paymentssystems, such as piecework or payment-by-results, are included orexcluded from the norm and the controls. The introduction of exceptionclauses or specified allowable additonal increases, such as unsocial hourspayment under Stage 3 of the Heath policy, can also lead to a change inbargaining content in some industries. Other methods of pay determina-tion not directly included in a narrow definition of collective bargainingmight also be affected. In a broad sense the latter includes arbitrationwhere the parties themselves have decided to try to resolve their differ-ences by calling in a third party either to interpret existing agreementsor to decide on some substantive matter of right. We might also extendthe methods under consideration to include Wage Councils. These wereestablished as substitutes for collective bargaining because satisfactorymachinery for joint regulation had not developed in the industrybecause of the weakness of the trade union side, but they have nowcome to be accepted as similar to collective bargaining with arbitration,in that if the two sides cannot agree on a solution the independentparties behave as arbitrators might. The decisions of Wages Councils

o

are legally binding once the Minister has signed them. The Governmentmight withdraw state conciliation or arbitration services in respect ofdisputes which seek to breach the incomes policy provisions, or instructits conciliation officers not to seek settlements in excess of the policyrules even though both parties might be willing to agree to them.Legislation may be introduced which has the effect of depriving tradeunions or their members of existing legal protection and immunities ifthey seek to take strike action in support of claims which would leadto a breach of the policy provisions. The creation of special bodies,such as the NBPI and the Pay Board (in its advisory role to deal withspecial cases or to examine particular cases and recommend specialexceptional treatment), in itself changes the processes as well as theinstitutions of bargaining. The emphasis shifts from some of the tradi-tional factors which influence bargaining between the two sides ofindustry and brings in such special provisions as the policy contains. Ifa statutory policy is involved, it becomes necessary to prove justificationwithin the terms of the policy rather than to threaten industrial action.Greater reliance has to be placed on factual argument and presentationand the concept of the public interest as expressed in the policy pro-visions becomes explicit and relevant. This is something which ordinarilybargaining does not, and perhaps cannot, be expected to take intoaccount.

Comprehensive incomes policies can be more or less formal and moreor less stringently applied. Nevertheless they can fairly easily be groupedtogether generically to produce a family of policies which, althoughthey range from statutory enforceable policies to a voluntary SocialContract, have certain features in common. Firstly, there is a normwhich specifies the permissible rate of increases in pay. Secondly, thereis usually, although not always, some provision for additional increasesin specified cases, either by applying certain pre-determined rules, or asa result of special examination or recommendation by some approvedbody. Criticisms have been made of policies of this type. It is allegedthat they inhibit the introduction of productivity changes unless theseare paid for by additional pay increases and deprive the labour marketof whatever flexibility of relative pay movements it normally possesses.It is often contended that they do no more than delay pay increases fora time. They may also involve the Government directly in the processesof pay determination to an unwarranted degree, requiring Ministers tobe accountable to Parliament for each pay restriction which is imposed.Against this it can be argued that just because some incomes policieshave demonstrated some of these features, it does not follow thatincomes policies must always do so. The ability of the policy to respondflexibly and constructively to different labour market requirementsmay be a function of the content of the policy and the machineryestablished for its implementation, rather than a necessary feature of all

7

policies. In Chapter II, Mayhew considers incomes policies of thetraditional type and examines the various criticisms.

Because of the alleged defects of traditional policies various proposalshave been made to introduce tax-based incomes policies (TIPS). Theirproponents claim that they avoid the disadvantage of requiring central-ized bureaucratic intervention in collective bargaining and do notimpose distorting constraints on the labour market. Negotiators arefree to make whatever settlements they wish. If they exceed somepredetermined level of wage increase (or some related criterion) a taxpenalty will be imposed on one or other of the parties to bargaining oron the recipients. Bosanquet considers these proposals in Chapter III.

There are various other ways in which Government can seek toinfluence pay increases and it is less clear where to draw the dividingline between calling them incomes policies or not. If incomes policiesare seen as those actions by Government to influence the developmentof pay by means other than manipulation of the general level of demandor money supply, then a number of possible measures can be includedin this broad terminology. One approach involves proposals to changethe structure of collective bargaining. It is sometimes argued that theunderlying cause of inflation is the attempt by different groups toobtain a larger share of real national income (Goldthorpe). Such attemptsmean that the aggregate money demand exceeds the aggregate supplyof goods and services at current prices. If it were possible to co-ordinatethe various claims so that in total they bore a closer relationship to theamount of goods and services available, there would be lower inflation.It might also be the case that the existence of such a co-ordinatinginstitution, and the change in the present methods and processes ofincome determination that would be involved, could in itself lead to achange in attitudes and behaviour which would lead to less conflict overthe distribution of the available resources and to less inflationarypressure resulting from the aggregation of claims even before anyscaling down was achieved by the institution. In Chapter IV Brownexamines the possibilities of changing bargaining structures and thepossibility of moving towards some system o greater centralized co-ordination. This type of proposal differs from the two forms of incomespolicy previously referred to in that it is much more difficult for theGovernment to obtain changes in bargaining structures particularlychanges which require greater centralization. It is less easy to applysanctions against pay bargainers simply because they take their decisionsat one level rather than another.

Other approaches include the Government's attitude to comparability.Large parts of the public sector have some form of comparabilityincorporated into their system of pay determination. The civil serviceused to base its whole approach on sophisticated and detailed com-parability through the Pay Research Unit. Government, responding to

8

public opinion, became increasingly disenchanted with the results ofthis sytem. The Clegg Commission, established by the Callaghan Govern-ment to provide comparability for other parts of the public sector, wasabolished by the Thatcher Government. There are currently strongattempts to reduce the importance of comparability as a criteria in thedetermination of pay and particularly of public sector pay. Yet someappeal to comparability in one form or other runs deep in the Britishapproach to pay. Considerations of fairness influence most decision-takers and fairness usually involves some consideration of what othersare getting. Even attempts to give greater influence to market forcesoften result in moves towards some comparability exercises if for noother reason than that comparability provides the evidence of what ishappening in the market. The invisible hands of competition whichallegedly influence market behaviour, if they exist, cannot be seen.Decision-takers frequently want something they can see and quantify;and for better or worse, rightly or wrongly, they frequently settle onpay comparisons to provide the basis for judging whether they arefollowing market forces.

Governments can encourage or discourage the use of comparabilityby their actions regarding public sector employees. They can alsoinfluence the way different forms of comparability are applied bydecisions regarding the amount and type of statistical information thatis officially collected and published. Legislation can provide statutorybacking for comparability as a basis for determining what is fair, eitherin the Fair Wages Resolution or in the old Schedule li of the Employ-ment Protection Act (now abolished). In Chapter V Kessler examinesthe use of comparability and the role it might play in collective bargain-ing in different policy circumstances.

The use of arbitration and the state provision of arbitration facilitiesinfluence pay developments. The Government refused arbitration tocivil servants in 1 981, and part of the settlement of that dispute was theGovernment's assurance that access to arbitration would not be deniedin 1 982 if no agreement were possible. Arbitrators can influence notonly the particular settlement before them but, according to institu-tionalist thought, various other settlements which follow. There areoccasions when Government might wish to encourage or discouragerecourse to arbitration. It is one method of settling differences ofopinion. Government may wish sometimes to obtain a settlement forfear of the consequences of failure to agree on the economy, but atother times it may be more concerned to ensure that the terms of thesettlement are satisfactory. Sometimes the terms may be more influencedby going to arbitration and at others more by withholding arbitrationfacilities, or by not going out of one's way to provide them. The needfor Government to make decisions regarding the relative attraction of asettlement as compared to the effects of a dispute on the rest of the

9

economy is perhaps most apparent when Government is called on todecide whether to set up a special court of inquiry into a dispute. Thecourt, while in some ways acting as arbitrator, may feel concerned togive more attention to the public interest than would an arbitratoracting solely in response to a request by the two parties, as part of thenormal procedures for the settlement of disputes.

There is this major difference between the two types of arbitration.The usual type is a procedure agreed on by the two parties for theirown purposes to satisfy their own interests. Governments in this countryhave for a long time encouraged parties to use arbitration rather thanresort to industrial action.3 In this regard ACAS might be seen aspassive; facilities are there if the parties choose to use them, and theparties to collective bargaining may establish their own arbitrationprocedure outside ACAS. This is common in parts of the public sector.The other use of arbitration is when the Government decides that, as amatter of public interest, it should seek to encourage the bargainingparties to use some form of arbitration rather than prolong a dispute orrisk the danger of having one. Here there is explicitly or implicitly a rolefor the public interest which might complicate the role of arbitrator.Governments have to decide, for example, whether to encourage theuse of arbitration if there is a formal incomes policy in existence andparticularly if the dispute involves breaking the policy provisions.Similarly, if the Government has introduced cash limits for parts of thepublic sector, should an arbitrator take any account of them. Attemptsto introduce consideration of public interest, whether these be counter-inflation or employment-generating, run the risk that if they depart toofar from the criteria and objectives of one or both of the parties to theclaim, arbitration will become devalued. The parties use it because itmeets their needs and if arbitration becomes the vehicle by whichGovernment seeks to impose its will there is danger that the parties willcease to use it. Hunter examines the role of arbitration in Chapter VI.

Both the processes and the results of collective bargaining can beinfluenced by other forms of Government intervention. This need notform a coherent comprehensive policy but can be by indirect or partialmeasures. Indeed the Government can encourage or hinder the spreadof collective bargaining as a method for the determination of terms andconditions of employment by its industrial relations legislation and theprovision of facilities through ACAS for encouraging or requiring tradeunion recognition. In the same way, various pieces of legislation canrequire consultation or bargaining with employee representatives, aswith Health and Safety provisions. Legislation, on such matters as theenforceability of agreements and immunities in respect of union activitiesin the course of trade disputes, might influence both the processes of

See, for example, Kahn-Freund, chapter 5.

lo

collective bargaining and their results. It is often argued that the balanceof power in industrial relations had shifted too far in favour of theunions, although how far is too far is, of course, a value judgement.Changes in the law have been advocated as one way of altering relativepower. Thus, both the way in which industrial relations are carried outand the relative strengths of the parties might be capable of influenceby legislative intervention.

On other occasions Governments might seek to interfere moredirectly in the results of collective bargaining, frequently by using thepublic sector to set an example. In this way the (N-l) policy, wherebyeach successive settlement in the public sector was intended to be oneper cent lower than the preceding one, was seen as a counter-inflationpolicy. The adoption of cash limits in absolute money terms in currentprices which are not adjusted for subsequent inflation can be seen asintervention in public sector pay determination.

Government action regarding social security payments may influencepay determination by affecting the replacement ratio and through thisthe reservation wage. If it is possible to shift the real wage labour supplycurve in this way it might be possible to exert downward pressure onmoney wage levels. Other action to shift the real wage labour supplycurve, through improvements in the efficiency of the workings of thelabour market, or by lowering expectations, might have the sameresults. The expectations which are affected might not be about therate of inflation. They might relate to the expectations of finding otheremployment and so influence the wage workers are willing, perhapstemporarily, to accept in their current jobs. In Chapter VII, Robinsonexamines the range of measures open to Governments to intervene insuch indirect or partial ways.

In the present climate incomes policies of the conventional kind are,to put it mildly, unfashionable. On the one hand, monetarists regardthem as dangerously irrelevant. On the other, economists who havegenerally been more sympathetic towards direct pay restraint, have lostfaith in them. In Chapter II, it will be argued that they are not irrelevant,in that they can hold down pay inflation during their currency andthat they do so at little allocative cost. In terms of short-run incomerestraint, therefore, the question is can monetarism do any better.Reductions of the rate of growth of the money supply may feedthrough to lower price inflation but they may also feed through to lossof output and employment. The weaker the constraint of unemploy-ment on wage demands, the more likely it is to be the latter. In suchcircumstances there will be a relatively small effect on price inflation ata large cost in terms of wasted resources. But, the monetarist mightargue, there is no permanent gain to be derived from incomes policiesin that as soon as a policy is lifted there is a rebound effect wherebyany loss on the part of workers is rapidly made good by high and

Il

successful wage demands. As will be shown in Chapter II, there is noevidence that such a rebound is greater than 100 per cent. Thus, atworst, there is a potential gain in terms of 'timing', that is in terms ofpostponing wage inflationary pressures. It is such timing gains whichare the essence of so much macro policy. The monetarist might retortthat the nature of the problem is such a deep-stated one that tinkeringpolicies of this type are not sufficient. It may relate to the basic attitudesof workers or employers. Or it may relate to 'flaws' in the structure ofthe labour market or of collective bargaining. In both cases changemight be brought about only by more fundamental policies thanincome restraint of the conventional kind. At first sight monetaristpolicies might be thought to be just as tinkering as conventional incomespolicies. However, their proponents could argue that monetary restrainthas a more long-term goal. The experience of high levels of unemploy-ment might convince unionists that their own wage-setting behaviourhas consequences from which they will not necessarily be protected byGovernments committed no longer to the concept of maintaining fullemployment. In other words, monetary policy could be defended as amethod of engineering a needed change in attitudes. At best such anapproach is speculative; at worst it is destructive in that it could equallyeasily have such a long-lasting souring effect on industrial relations as tomake the control of wage inflation in a more buoyant environmenteven more difficult than it used to be.

It is significant that the present Government does not rely on mofle-tarism alone. It has introduced a range of indirect and partial measuresto induce structural change and to alter attitudes. These measures includeindustrial relations law reform to change the balance of bargainingpower. This is one of a number of 'indirect' attempts to impinge on paysetting, which might be regarded as alternatives or complements to con-ventional incomes policies. There are equally a wide range of suggesteddirect policies. Some are tinkering. Others are concerned to changeattitudes, and others to alter labour market or collective bargainingstructures. This volume considers whether they are more or less viablethan conventional policies. Even if it is thought that tinkering policiesare not enough, alternative policies should not get credit for aiminghigher if at the same time they are unworkable. Robert Browning'slines

'Ah, that a man's reach should exceed his grasp,Or what's a heaven for?'

may be an admirable moral aspiration but they are hardly the basis forpractical policy making. It is easy to believe that certain measures areworking or will work in the present economic environment, but theresults might be very different in different economic environments.

12

The range of feasible policies is constantly changing as Governmentsand economic agents act and react to each other. It may be that thereis no satisfactory way of reconciling the social, political and economicaspirations of groups and individuals with national economic realities.If this is the case the future is indeed bleak. In any event, there willcontinue to be a search for methods of doing so. New measures andnew policies will emerge from the unsuccessful attempts to implementthe old ones. While it is quite possible that there will be a number ofspecific measures devised in the future which are not considered in thefollowing chapters, those ideas most likely to come to the fore, aresomewhere in this volume. Moreover, it is our intention to considerproposals from the viewpoint of their practical application and theireffects on the economy and industrial relations in the world as theauthors see it developing.

REFERENCES

Fay, S. (1972). Measure for Measure: Reforming the Trade Unions, London,Chatto & Windus.

Flanders, A. (1970). Management and Unions: The Theory andReform ofIndustrialRelations, London, Faber and Faber.

Goldthorpe, J. H. (1978). 'The Current Inflation: Towards a Sociological Account,in Hirsch, Fred and Goldthorpe, J. I-I. (eds.) The Political Economy of Inflation,London, Martin Robertson.

13