The Council on Wage and Price Stability moved yesterday to block employers from offering their workers a private "real wage insurance" plan similar to the tax credit President Carter is planning to propose next week for those who follow the guidelines.
The agency said such private plans -- in the form of dollar-for-dollar cost-of-living increases that take effect only when inflation exceeds 6 percent -- circumvent the spirit of the program and build higher labor costs into the economy.
It ruled that, effective yesterday, such private efforts would be in violation of the wage-price standards. The ban applies only to a narrow form of so-called "contingency" cost-of-living clauses, and not to ordinary COLA arrangements.
The council's action followed an incident in which the PAKO Corporation, a Minneapolis photo-finishing products manufacturer, agreed to such a plan as an added incentive after the union with which it was negotiating rejected a standard wage-increase contract.
Presidential anti-inflation adviser Alfred E. Kahn approved the PAKO proposal because it technically fell within the council's previous guidelines. However, the agency revised its rules yesterday to prevent other firms from adopting similar plans.
The council's major argument against the plan was that it would help fuel inflation unnecessarily by allowing workers substantial increases if inflation exceeded 6 percent, but would not force them to accept less if prices rose more slowly, as ordinary COLA clauses would.
Officials argued also that while Carter's "real wage insurance" plan would be paid for from Treasury coffers, the private proposal would be financed by employers, and the cost would be built into the overall inflation rate. Carter's tax proposal is designed to prevent higher costs.
The changes came as, separately, Kahn took to the hustings yesterday to persuade liberals to support the president's proposed budget cuts. But Kahn ran into a barrage of protests that he conceded he could not fully answer.
In a speech before the National Urban Coalition, Kahn asked big-city leaders to "postpone your concerns" and demands for increased urban aid "until we've gotten inflation under control." He said the nation "cannot devote... additional resources" to cities until the price surge slows.
However, the anti-inflation chief got more than he bargained for, as questioner after questioner challenged the administration's basic premise that budget-cutting is necessary to wind inflation down. The group also protested Carter's plans to boost defense spending sharply for NATO.
In one exchange, State Rep. Joseph Rhodes of Pennsylvania told Kahn to remind Carter that "very few members of NATO voted for President Carter" in 1976. "If he wants to get elected in 1980," Rhodes said, Carter had better pay more heed to urban leaders' demands.
"If that defense budget comes out over 3 percent," he said, "you can kiss your anti-inflation program goodbye." Carter has indicated he will propose raising defense spending by just under 3 percentage points more than is needed to offset inflation.
The change in the council's COLA regulations yesterday was a relatively minor one, designed primarily to prevent a flood of other companies from following PAKO's lead. An agency spokesman said only a small proportion of COLA agreements each year fits into that category.
Under present rules, COLAs are counted in computing the size of a wage pact on the basis of how large an increase they would provide if inflation were 6 percent. If the inflation rate exceeds 6 percent, workers could get pay hikes beyond the 7 percent pay guideline.
PAKO's proposal would have provided an average 7 percent increase a year in wages and fringe benefits -- technically within the guidelines -- but then added an extra 1 percent boost for each percentage point that inflation exceeded 6 percent.
Council officials said the agency had received a number of requests from other firms seeking permission for similar arrangements.