Dunlop Attacks Wage-Price Guidelines

The government's wage-price guidelines must change from a generalized yardstick to a specific attack on inflationary sectors of the economy, according to John T. Dunlop. David A. Wells Professor of Political Economy.

In a paper presented at the University of Chicago last Thursday. Dunlop argued that the Administration wastes its energy by reviewing all major wage and price changes with oversimplified guidepost standards. Instead, he said, the government should work with labor and management in certain "bottleneck" industries to prevent inflationary rises.

Dunlop asked for "a politically viable change in policy"--a change in emphasis in enforcing the guidepost idea. Instead of relegating sectors like construction and medical services to "a few paragraphs of advice in the Council of Economic Advisors" annual report," Dunlop recommended that the government begin detailed studies of industries where wages and prices are rising rapidly.

Government officials then could meet with labor and management in the "bottleneck" sectors and suggest specialized anti-inflationary policies which fit the specific industries.

Present guidepost policy recommends that all wages should rise at a rate of 3.2 per cent a year. Industries should raise their prices only when their costs rise faster than the national average. Dunlop found five ways in which the system falled:

* Both business and labor leaders actively oppose the guideposts. They had no role in drafting the policy and have used the guide posts primarily "to fortify a weak position in collective bargaining." As a result the guidelines have held back price increases only "to a small degree" and have had "no independent restraining influence" on wage chances.

* The guideposts are expressed in such general terms that they mean almost nothing to private decision-makers. In labor-management disputes over wage rises, labor shortages, ability to pay, and bargaining power mean far more than the guideposts. This is particularly true because the government has never given mediators a clear statement on how strictly the general rules must be enforced.

* When the government has mobilized pressure to enforce the guideposts, policy is administered "without due process." There is little logic in the choice of "situations selected for confrontation" since administrative difficulties often prevent action against the most flagrant violators of guidepost standards.

* The Council of Economic Advisors is in danger of being misused. It is illequipped for serving as an administrative agency that processes reports on the large number of industries that are likely to violate the guideposts as the economy continues to tighten.

* Fixed guidepost standards, based on an average level of productivity increase are poorly coordinated with our economy's cyclical fluctuations. Productivity rises fastest in the early periods of an upswing when inflationary pressure is relatively slight. Labor costs and wage pressures start increasing more rapidly than productivity when the country approaches full employment.