The Carter administration yesterday announced important new changes in its wage and price guidelines, designed to relax requirements for unions that face higher pension and health-insurance costs and to prevent abuses in its price standards.
The new regulations, which follow a month of consultations with businesses and union representatives, were made public by Alfred E. Kahn, the president's anti-inflation czar. Kahn said except for minor adjustments, he expects the revised guidelines to be "final."
The changes do not alter the basic guidelines the White House published in October. In general, wage increases still will be limited to 7 per cent next year, while firms will be expected to hold price boosts to half a percentage point below their average rise of 1976-77.
However, the revisions wil give unions more leeway in calculating the cost of maintaining existing fringe benefits, and will limit the ability of firms which use the alternative "profit-margin tests" to exploit a loophole in the price standard to reap extra profits.
The administration also announced new regulations affecting a series of problem-plagued industries, such as retailing and food processing, and guidelines dealing with utility-rate increases, professional fees and other forms of prices.
Here are the highlights of the changes:
PENSIONS: Under the original guidelines proposed in October, the 7 per cent wage guideline included all pay and fringe-benefit increases, including rises in the cost of maintaining previously negotiated pension benefits in the face of heftier federal pension requirements.
The new guidelines essentially would exempt these costs from the 7 per cent standard. With unions no longer having to include the cost of maintaining previous pension benefits, they presumably would have more room within the guidelines for bigger wage increases. HEALTH BENEFITS: The previous guidelines required unions to include any increases in existing health-insurance premiums as part of the 7 per cent wage settlement. Now, only the first 7 per cent of such cost increases will be counted. The rest will be regarded as exempt. PROFIT MARGINS: Under the original guidelines, firms could choose to follow either the half-percentage-point "deceleration" in price increases or an alternative price standard in which they agreed to keep their profit margins from rising.
However, officials concluded that this could open an opportunity for abuse in the case of companies which incur large cost increases. These firms could broaden their profits further simply by increasing their mark-up on these added costs-and still comply with the margin standard.
Under the new guidelines, firms choosing to follow the profit-margin standard also will have to limit the increase in their actual profits-to 6.5 per cent plus the percentage by which their volume increased. A firm whose volume rose 14 per cent would rate a 20.5 per cent profit boost. PROBLEM INDUSTRIES: The guidelines now include a third option for so-called problem industries, allowing firms to follow a straight percentage margin standard instead of the deceleration or profit-margin standards if they face special circumstances.
The margin standards are available to four industries: the entire whole sale and retail sectors, food manufacturing industries and food-processing industries. Details are available from the Council on Wage and Price Stability. PROFESSIONAL FEES: Price increases for physicians, dentists, lawyers, accountants and others who work on a fee-for-service basis are limited to 6.5 per cent a year, with a limit of 9.5 per cent on the charge for any one single service, such as an office visit. FALLING PRICES: Firms whose prices have fallen in recent years-and who ordinarily would not be eligible for any price rise at all-will be allowed to raise prices by up to 1.5 per cent and still be in compliance with the guidelines. The measure is designed to help the electronics industry. UTILITIES: State regulatory commissions will be asked to hold utility rate increases within the administration's regular price guidelines, even if they believe that larger rate increases are justified. CAPTION: Picture, Alfred E. Kahn ponders a question during briefing on the inflation quidelines yesterday. By Frank Johnston-The Washington Post