The director of the Council on Wage and Price Stability warned yesterday that if major unions keep settling for large wage increases, the administration may have to rethink its voluntary anti-inflation program.
Barry Bosworth, in an interview following congressional testimony, said that the railway workers pact now in the final stages of negotiations will contain a very large wage settlement. "That will cause us some public problems," Bosworth said, but will not hurt the voluntary program.
He said rail negotiations have been going on since December and the administration only recently became involved.
But if the nation's postal workers should reach a large wage settlement in their current contract negotiations - they are demanding a 14 percent increase - then "we'll have to seriously rethink" the labor side of the program, Bosworth said.
The administration has disavowed any interest in wage and price controls, but could change its current program that asks business and labor to voluntarily hold wage and price increases below the average of the last two years.
One of the options open to the administration is a numerical guideline for wage or price increases.
Bosworth, testifying before the House Budget Committee, said that while many businesses have announced they would cooperate with the president's program, support from labor has been "zero."
He repeated earlier warnings that the program would not work unless the major unions that have been receiving 10 per cent a year or more in wage increases in recent years reduced the size of their settlements to 7 percent. He said this was the average for most other workers.
Bosworth said he understood the reluctance of labor leaders to support the voluntary program to "decelerate" wage and price increases. He told the budget committee that it is easier for a businessman to make a price commitment than it is for labor to make a wage commitment.
"If inflation fails to moderate, businessmen can simply pull out any time and raise prices. But labor contracts are in effect for two or three years," he said.
But he said there are equitable methods - either cost-of-living escalators or shorter contracts - labor can protect itself should inflation continue to accelerate.
Bosworth also told the budget committee that as the year wears on the wage-price council will begin to monitor companies to insure that they are in compliance with their pledge to hold price increases below the average of the last two years.
Because the administration is asking for a full-year goal, "we have not had a basis on which to comment with respect to many pricing actions in the first half of the year," he said.
Among the major industries that have pledged support for the president's program are autos, steel and home building. Bosworth said it remains to be seen whether these verbal commitments will be kept.
Bosworth warned, in his testimony, that unless the government, business and labor begin to decelerate price and wage increases, "the consequences seem quite apparent. The Federal Reserve will refuse to continue to finance the economic expansion. We will find ourselves once again in a recession - and with very little likelihood that it will significantly ease the pains of inflation."
Earlier, Congressional Budget Office Director Alice Rivlin said economic policy makers face a dilemma.
"Inflation is accelerating just at the moment that the economic recovery is showing signs of running out of steam," she said. Nearly every action Congress could take to insure continued economic growth could exacerbate the inflation problem, while "the standard remedies for inflation may weaken economic growth - and, perhaps, trigger a new recession."
The Congressional Budget Office forecast for inflation and growth for the rest of 1978 and 1979 is substantially the same as the administration's revised projections released last week. The CBO expects the economy to grow between 2.7 percent and 4.2 percent in 1979, while the administration anticipates 4.3 percent growth.
The administration expects consumer prices to climb 6.5 percent next year and 7.2 percent this year, about in the middle of the ranges forecast by CBO.
Rivlin said one danger to the economy would come if both the Federal Reserve and Congress move to fight inflation at the same time. "Such an overreaction appears to be possible at this point."
Rivlin said if "monetary and fiscal policies are both used to reduce inflationary pressures, the changes for a recession are great."